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Can Real Time Payments impact GDP?

As the global news feeds announce whacky, new, mobile-inspired payment concepts faster than the regulators can dream up new regulations for the banking market, it is fantastic to see the news this week from the The Clearing House in the US. 

At last we have real signs that the US Payment Authorities are serious about updating their legacy payment infrastructures, with the announcement from The Clearing House about the plans to build a new real time payment clearing system.  Without these new infrastructures in place, delivering any reliable, real-time payments schemes is nearly impossible.  However, once the new payment rails are in place for a country, then new payment schemes can be delivered and innovation accelerated - as shown in the UK with PayM. 

Much has been written about the benefits of real-time infrastructures when implemented properly. In the UK the Faster Payment Service is still growing at about 16.5% per annum.  From a standing start it overtook cheques after 3½ years and is on track to exceed a billion payments this year (270 million in Q2 alone) - no real surprise when you start to look at the benefits which are well understood;   

  •  24/7 service
  •  Bank processing charges (versus other immediate methods)
  •  Convenience and speed for the banks’ customers 
  •  Improved Security
  •  Reconciliation
  •  Paper handling costs
  •  Visibility of cash positions
  •  Speed of settlement, etc. 

Perhaps the bigger question we now need to ask now is; Can Real Time Payments (RTP) provide a positive impact on GDP?   

Looking at Europe, Sweden, Poland & the UK all have RTP infrastructures.  Much of the EU is either on the edge of or actually back in recession, however UK GDP is growing at 2.9%,  Poland is growing at 1.3% (despite the geopolitical issues on their doorstep) and Sweden is powering on at 2.1% this year - compared to the overall EU figure of only 0.8%.  Internationally a number of other developed countries with real-time payments are also performing well, such as Singapore.

I believe that Faster Payments really do help businesses large and small not just the well documented case for consumers.  Small businesses have to be “lean” and that means very limited or in many cases no admin staff.  RTP enables customers to pay such things as deposits for projects, or goods and services at the point of delivery, in real time, enabling immediate transfer of funds, simple transaction reconciliation and elimination of dead time.  Businesses can now make RTPs in the UK of up £100k, improving visibility and control of cash. 

Whilst so much of the modern world is strangled by red tape and restrictions, RTP is a fantastic example of how technology really makes “doing business” easier, quicker and more profitable for everyone.  Removing the down time for small businesses processing cheques, enabling customers to have immediate benefit at the time of payment really does promote business growth. 

Many of the institutions involved in making this happen globally are worried about the cost of delivering new infrastructure for their country or region.  Well the good news here is that the UK total cost was estimated to be about £800m.  This equates to about 0.06% of GDP, or just over £2 per capita per annum.  It doesn’t take much time saving to recoup £2 per year!  Given that the technology to deliver these projects has now been developed, implemented and proven, costs to implement new projects in the US and elsewhere should be much lower, and timescales much quicker - please just don’t try to reinvent the wheel! 

One quick word of caution.  An earlier initiative by NACHA to create an RTP project two years ago was scuppered by the Clearing House in the US.  Let’s hope that politics won’t play a part in this project.  It is essential that everyone involved keeps focussed on the end goal and the potential benefits, not just for the consumer and business but perhaps even more importantly, its positive impact on GDP.

 

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Comments: (2)

Lu Zurawski
Lu Zurawski - ACI Worldwide - London 24 October, 2014, 17:27Be the first to give this comment the thumbs up 0 likes

Nice article Tim. But beware the cause-effect fallacy. Is it possible that countries with a rising GDP created Real Time Payments infrastructure because they had growing economy (and not the other way around)? Burt regardless of whether it is a cause or an effect, RTP looks like a pretty logical argument to me.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 October, 2014, 07:36Be the first to give this comment the thumbs up 0 likes

Having been involved in one of the first FPS programs in UK, I've a lifetime's worth of FPS / RTP Kool-Aid to drink but facts are facts:

  1. USA already has an RTP for domestic payments. It's called FedWire
  2. USA has the world's largest GDP
  3. Not sure if politics had nothing to do with the failure of the last attempt at creating an FPS-equivalent in USA 2 years ago. From what I recall, the decision to scupper the proposal was taken by banks.
  4. Left to banks, RTP wouldn't have happened anywhere e.g. FPS in UK was mandated by OFT, not the then APACS; NEFT in India was mandated by RBI, not IBA. Likewise, it will happen in USA only when it's mandated by the regulator ("politician"?). Not sure whether that's even possible under the current payment structure of USA (Banks-Fed-NACHA-etc.).
  5. Since the cost of FPS was incurred by banks, not by the nation, I see no logic in dividing the figure by GDP while arriving at the trivial-sounding GBP 2 number. I don't have the figures handy but it's safe to assume that the cost per bank account would be closer to GBP 100 than GBP 2. Can banks get away by passing on this kind of cost to each accountholder? Therein lies the rub with any FPS-type of RTP: It can't be justified by business case - it will only happen by edict. 

Much as I'd love to claim otherwise, RTP is just one of the dozens of things impacting GDP.