When I transfer money from my bank account to my son’s account at the same financial institution, he can (and generally does) spend the money moments later. If I lose a bet to a friend and have to pay him US$20 in cash, he can spend it right away. Consumers expect money to move from one person to another immediately. But that’s not true in a lot of places in the payments ecosystem.
When I send money to my daughter via Venmo, the funds are there in moments. But if she has her account connected to Venmo by ACH, she needs to wait one to three days to get the money into her account, unless she pays an upcharge.
Businesses still have to wait for their funds. They pretty much have to accept checks if they want to bill or charge customers who have opted not to jump on the digital juggernaut in spite of the encouragement of nearly every business or financial institution. Checks need to be processed and cleared before the funds get into the merchant’s account, and that is generally going to be a batch process at the end of the business day at best. And many merchants still wait more than 24 hours or even longer to receive their credit card payment remittances from their payment processor.
Life is real time. We text, FaceTime, and read inputs to our Facebook feeds or tweets from political leaders seconds after they are posted. We can buy something online and pick it up at the store minutes later or rent a movie that was just released and view it at home in seconds. Our real-time existence conflicts with the often artificial delays built into the payments ecosystem.
A great deal of work is in process to fix this. The payment networks have launched push-to-debit to deliver funds to consumer debit cards in less than 30 minutes, and there is a real-time payment capability between banks through The Clearing House. The Federal Reserve is building another real-time platform, FedNow, which will launch in 2023 or 2024. What is becoming increasingly obvious is that some of the delays that consumers and businesses endure are due less to process than to profit. As the payments space becomes more transparent, delays not directly related to an outside influence, like the postal service, will become more obvious. Companies who make their living moving value from one place to another need to accept that immediate remittance is becoming an expectation of consumers and merchants, and plan to meet those expectations sooner rather than later. Because if they do not, they may lose a customer to a faster, more agile competitor.
Where did the time go? Out of the payments ecosystem.
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