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Ka-ching: push vs pull

Can a solution based on Faster Payments become a viable alternative to the card schemes in the UK?.. I (very much) think so.

Faster Payments service is based on the "account to account" system, i.e. it runs on inter-bank rails bypassing the card networks. Hence, it's (almost) cost-free, from the payment perspective.

Retail payments - as well as all other payments, in fact - are about authentication, i.e. ability to positively identify both parties to the transaction. The rest is "accounting" and "database records updating".

Currently, the merchant "pulls" the payment from the consumer: get card details, pass them to the acquirer, then to the issuer, verify card validity and funds availability, get the confirmation back through all the hoops, settle and reconcile later.

Let's reverse that "round trip" process and use "one-way push" instead.

Say I want to pay Starbucks £3.50 for my latte. Starbucks and I are both registered with Barclays Pingit (I am using Pingit as an example, but it can be any similar solution based on Faster Payments). I use my mobile phone to securely tell Barclays the amount I want to pay and whom to. Barclays verifies that I have sufficient funds and instantly pushes "£3.50 paid" confirmation to Starbucks. Ka-ching! Settle and reconcile later - but in hours, not days as currently is the case.

What are the benefits of "one-way push" vs "round-trip pull"?

1. "Push" approach allows the consumer to be in control, like Vivian in Pretty Woman - "I say who, when and how much".
2. The consumer does not have to disclose any - let alone sensitive (!) - details to the merchant.
3. The merchant gets paid in hours, not days.
4. Barclays can afford to charge the merchant less than Visa and MasterCard.
5. Most importantly, because Barclays knows who I am before I pay, it can offer me retailer-specific discounts, up-sells/cross-sells, etc. That alone is worth its weight in gold for Barclays - none of the current payment methods allow to do that as my identity is not known until after the payment is done (if at all).
6. E-receipts.

Add NFC and Bluetooth to the equation (I didn't tell you how Barclays knows whom to pay, did I...) and you have a nice yummy picture. Bon appetit!

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Comments: (4)

A Finextra member
A Finextra member 10 April, 2013, 23:54Be the first to give this comment the thumbs up 0 likes

An idea and concept that many are thinking but not promoting as it completely changes the current business (financial) model for a number of stakeholders involved in payments today.   The business (IT) model you describe first has to be supported by a key stakeholder in the value chain.  On face value merchants would be the obvious candidate as they would gain the biggest advantage financially in this approach. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 April, 2013, 18:28Be the first to give this comment the thumbs up 0 likes

Questionable UX for the customer. Possibly longer queue for the merchant since it will likely take longer than plastic to (a) fire up an app, enter the merchant's email address / mobile phone # and amount; and (b) wait for authorization (while FPS is Near Real Time, I'm not sure if it delivers card-like response time of 5-10 seconds). Problem (a) will go away after the first payment in the case of Starbucks and other frequently-used merchants since I'd expect the app to store email / mobile of previously-paid merchants and let users select them from a list. Problem (b) might be a tougher nut to crack. For the bank, loss of interchange revenue. Apart from these, a workable concept.

A Finextra member
A Finextra member 11 April, 2013, 18:43Be the first to give this comment the thumbs up 0 likes

Ketharaman,

Both problems are solved. Unfortunately, I cannot disclose how we addresed (a), but can hint that there is Bluetooth involved...

As for (b), authentication itself is done when the app is launched/used; checking funds availability takes less than 10ms, then the confirmation is instantly pushed to POS and the actual funds transfer takes place later.

Hence, UX is simple, straightforward and intuitive: launch the app, decide on offers, smile, walk away. It's very similar, time-wise, to contactacless payments - the key differences are as per the blog post.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 April, 2013, 09:05Be the first to give this comment the thumbs up 0 likes

Unlike card-based mobile wallets, this method of payment provides a compelling reason for adoption at least for merchants. If their mindset has changed since two years ago when I'd written my below post, they should respond favorably to it.

Do Retailers Want To Have Their Cake And Eat It Too?

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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