A payment system is a channel that enables the flow of money for business transactions. It is a river that gets sourced in myriad of ways and reaches various reservoirs and utilities.
In a futuristic payment world, money transfer would be sub-second at no cost to the end parties involved. There would be no barriers to access the accounts for money transfer, money could be transferred to virtually everybody and access to funds would be instantaneous. One would have full controls on date and time when the payment can be made or received and there would be a high level of transparency on availability on both the sending and receiving side. From the perspective of the regulators the money transferred would be accountable with a full view of the liquidity conditions in the market.
If this was the futuristic view a good deal of this is being realized in today’s world. Indian NEFT is promising a transfer within 2 hours for retail payments, UK faster payments promises a transfer in less than 10 seconds. Various RTGS systems across the globe permit real time transfer for large value transactions. In most cases these transactions are initiated by the end user on self help channels like internet banking or mobile banking platforms provided by their banks – corporate have automated integrated their payment process to their supply chain. The customers today have easy access to their accounts to perform instant transfers to fund their business operations. In Europe, trans-border, pan European payments are guaranteed by the next day post the full implementation of the payment services directive – and is expected to grow faster. With this the reach of a business transaction aided by a quick transfer is being expanded to reach the last mile in the region. It would not be far when the whole world would be in the reach of the quick transfer modes, none the less the steps have already been taken.
Mobile banking is aiding retail fund transfers immensely. When the full impact of mobile banking is realized a customer in a grocery shop can transfer funds between accounts held by the parties in the bank and associated with mobile numbers – and the confirmation received instantly. We have already seen this being touted in TV ads and in discussions in mobile technology forums. Access to an account at a channel closer to the location of a transaction is one of the fundamental requirements to eliminate paperless transactions. While the security of such a handheld device that will transact on wireless technology is being formalized mobile banking is a reality and more and more banks are using this technology for providing services to their customers. On the one hand, access to funds are being provided for transactions for accounts held with the bank, on the other hand there are initiatives of Pre-paid cards either sponsored by the banks or by governmental agencies. These cards can themselves be accessible for payments increasing the coverage of electronic payments.
The nature of transaction varies with the needs of the business. The transactions could be an immediate payment, payment with a fixed schedule or based on a template made on a need basis on satisfaction of a condition. Many payment schemes provide value added services on their normal transfer functions to support Bill Payments, loan repayments, payments against invoices and many others. Banks can augment these features by providing the customers with services to define on a self help channels recurring scheduled payments, options to manage liquidity across accounts, ability for all customers – retail, SME or corporate in reconciling the books against the payments made and collected. These features are available in the automated systems deployed at the banks and when offered as liquidity management tools will provide their customers the tools to define payment terms based on the needs of their business.
The regulators on the other hand are acting as the dams against this flow controlling illicit transfer of money for illegal activities. A transparent system of money transfer would reduce tax avoidance and black money. As in the modern society these dams helps aid the society but none the less weakens the flow down streams and increase the cost of building these large infrastructure that encompasses central infrastructure changes and also at the level of every consumer and supporting system.
The new reality has however dawned. People are seeing lesser and lesser of currency notes, mobile banking is becoming a reality and customer is getting full control of the funds. The speed may make one bankrupt but one cannot complain that the river is flowing rapidly.
