Cat videos, top-10 lists, animated birthday cards, entire books and U2 albums are some of the things you can send instantly to someone else.
U.S. dollars? Not on the list — yet.
This week the Federal Reserve took another step in its effort to streamline the way money changes hands in the U.S. It published a report, “Strategies for Improving the U.S. Payment System,” with a partial road map toward changes that banks, businesses, payment networks and consumers would need to adopt. The goal is a “near real-time” environment where most payments can happen at the speed of smartphone.
“A safer, more efficient and faster payment system contributes to public confidence and economic growth,” Fed Governor Jerome H. Powell said in a statement. It could also help the banking system fend off the challenge of upstart cyber-currencies like Bitcoin.
Powell and Esther George, president of the Federal Reserve Bank of Kansas City, will hold a webcast to talk about the Fed’s vision for the U.S. payments system Thursday, Jan. 29 at 1 p.m. Eastern.
During an on-background conference call in advance of the webcast, Fed officials illustrated the goal of near real-time payments with the scenario of a group of friends having dinner. One person could send his share of the tab via smartphone to his tablemate, who could turn around and digitally pay someone else a golfing debt — even if they’re not signed up with the same peer-to-peer money sending platform.
Old-fashioned cash is handy in these situations, but not everyone remembers to stock up at the ATM. And some banks offer payment-by-text now, but the recipient generally has to turn over their bank account information, a cumbersome and unnerving process. The trick is to make the payment as fast as a text and easy as a check — where the sender doesn’t need the recipient’s bank information.
The odd thing is, the dinner-table scenario is playing out in real life in other countries with less advanced payments systems, experts say.
“I think these solutions exist, they’re more prevalent outside the U.S.,” said Laura Steele, CEO of the Southwestern Automated Clearing House Association (SWACHA) in Dallas. “In countries that don’t have established banking systems, they’re using mobile accounts almost as a bank.”
One place that’s not targeted for the streamlining initiative is the checkout line, Fed officials said on the conference call. Retail transactions already have a lot of speedy options, they said, and smartphone payments are already making inroads at the register.
Combining the speed of a smartphone with the protections of the banking system is one aim of the Fed initiative. Part of the solution to the table scenario might be to put relatively low limits on the amount of money involved, Steele said, to limit exposure to fraud in the open and fast-moving payment environment.
The central bank is also pushing for faster person-to-business payments, which can take days to complete even with online banking systems. And the Fed is working to speed up the machinery of payment settlement between businesses and banks.
The benefits of speed go beyond convenience. Since time literally is money in the financial world, the savings from faster payments should benefit both bill payers and payees. Even displacing cash payments will save costs of secure transport of currency for deposit, a significant cost for businesses.
Indeed, about one-third of consumers and half of businesses said they would be willing to pay some sort of fee in return for digital payments that zip to the recipient faster, according to survey results outlined in the Fed report.
“We’re not all carrying cash and coins anymore,” Steele said, “but everyone’s got their mobile phone.”