In moving toward ubiquitous faster payments, the United States faces challenges in driving adoption because the value of new payment solutions to any given end user depends, among other things, on getting to a critical mass of other end users. Driving end–user adoption will be a multi–year, multi–dimensional challenge that service providers and the ecosystem at large will need to address.
Service providers will play an important role in advancing broad adoption by ensuring end–user access. However, their decision to participate in faster payments will depend on their assessment of the value proposition. This includes the potential benefits of customer attraction and retention, and value–added benefits from upgrading account processing systems, security practices, and technologies. It also includes consideration of participation costs, some of which may be difficult to anticipate and quantify. These evaluations are further complicated by uncertainty around overall end–user adoption rates.
When determining which faster payments solution(s) to adopt, a key consideration for service providers is whether a given solution enables their business, government, and consumer customers to send and receive payments from as many end users as possible, including the millions of consumers who do not have an account at a financial institution. In this regard, participation by regulated nonbank account providers may be critical. Additionally, solutions will need to provide for cross–border payments, which, in an increasingly global economy, are rapidly becoming more critical. These end users remain less well served in the market due to the technical, legal and regulatory complexities that arise from payments flowing across national borders.
Other things being equal, a solution that has broad reach will be more attractive to service providers than solutions that have limited reach. While service providers could invest in multiple solutions to expand reach, this is likely to be prohibitively expensive. Moreover, payment processors’ decisions about which solutions to support will have a significant impact on smaller service providers’ participation, particularly if access to solutions not supported by those processors comes with significant customization costs. This can result in a vicious circle that diminishes the potential reach and attractiveness of all faster payments solutions.
However, this circle can become virtuous if: 1) solutions can interoperate; and 2) service providers can, at a minimum, receive and post faster payments on behalf of their customers. Interoperability across solutions broadens reach and reduces the cost to service providers of offering faster payments to their customers. In addition, having access to a broad base of potential payees encourages payers and their service providers to adopt and use faster payments because they will be able to use faster payments for a greater share of their transactions. Enabling such “ubiquitous receipt” requires that all service providers are able to at least receive and post faster payments on behalf of their end users. For smaller financial institutions in particular, payment processors will need incentive to provide this basic functionality. Other payment systems have taken this approach of addressing the payee side first to advance broad adoption. For example, same–day ACH saw very little adoption until NACHA amended its operating rules to require receipt of same–day ACH transactions and provide compensation to all financial institutions mandated to receive the same–day ACH transactions. Adoption has accelerated since the phased receipt mandate began in fall 2016.
Besides potential limited reach, there are additional challenges for end users. One such challenge is a potential lack of predictability and transparency across payment solutions for features such as transaction speed, end–user protections, liability and dispute processes for unauthorized transactions, fees, and data security and privacy approaches. End users typically enjoy a variety of choices and tailor their selections to their unique needs and preferences. If baseline features vary significantly by solution or individual provider, however, end users may be unable to predict the costs and timing of their transactions, which could diminish the value of using faster payments.
While end–user education is accomplished in today’s payment environment largely through marketing efforts of service providers and solution operators, programs designed to promote broader awareness and understanding of the features and benefits of faster payments could reduce confusion and help drive adoption. As a result, there may be merit in developing, coordinating, and delivering broad awareness and education programs to help end users understand faster payments and the benefits of using faster payments. An example that illustrates the potential for programs that promote broad awareness and usage is the Go Direct® campaign that supported migration of most federal benefit payments from checks to electronic payments.