Reflections from BAI Payments Connect
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21 March 2014Zilvinas Bareisis
Last week I had the pleasure of attending BAI Payments Connect. It is one of those events that has always been on my radar but for one reason or another I never had the opportunity to go. And I was very impressed with it all, particularly with the quality of the conference sessions, which seemed to have been well curated by the organizers. The event was just the right size - not too big to be overwhelming, and not too small. It also had the right balance between "new and shiny", i.e. things that will matter tomorrow and "down to earth", i.e. issues that matter today. With four parallel tracks, there was no way to attend all the sessions. As a result, I didn't attend too many sessions in the fraud or payments operations & check image tracks. So below is definitely not a full summary of the conference, but just a few of my personal key takeaways:
- Real-time payments are firmly agenda for the US. There is still much debate about what 'real-time' really means and what is the best way to achieve it, as indicated by Bob Meara's blog about the same-day ACH initiative. At the conference the Fed representatives shared the results of the public consultation on payments system improvement. The Fed received about 200 responses. More than three quarters of respondents agreed that ubiquitous participation, confirmation of good funds and both speedy payment settlement and delivery of information would be important. However, many also suggested that near real-time confirmation of good funds and notification are more important than near real-time posting to end-user accounts and interbank settlement. And opinions certainly were divided on how to achieve near real-time delivery of payments. Some advocated limiting any future faster payment options to credit (push) payments to help prevent fraud. The Fed is going to work on defining and prioritizing the US payment system improvement initiatives and expects to communicate these plans in a paper to be published in the second half of 2014.
- PIN debit networks are continuing to promote PIN-less debit transactions, including at the POS. Visa and MasterCard implemented signature-less transactions at merchants a few years back and raised the limit to $50 in 2012. PIN debit networks responded by also allowing PIN-less routing for transactions under $50. PIN networks tend to have lower interchange rates, but also lower overall fees to stay competitive for the issuers. Nevertheless, it was intriguing to hear one credit union CFO saying that their revenue per transaction declined from 114bps to 94bps. While some of the decline can be attributed to a rising share of PIN-less debit transactions, another reason is PayPal. Having managed to convince a large number of customers to register their bank account as a funding source, PayPal now tops the ACH transactions, above billing, for that particular credit union. Which is related to the next point below...
- Decoupled debit is not dead. While some decoupled debit initiatives, most notably Tempo, have disappeared off the market, PayPal and ACH cards, such as Target Red, are arguably very similar products. With retailer-led mobile initiatives coming into play, such as MCX, "decoupled debit", i.e. replacing a card transaction with direct debit on a bank account, may have a meaningful impact on the growth of card transactions.
- Bitcoin: forget the currency, focus on technology. This is the same message I already highlighted in my recent report on Top Retail Payment Trends, but was reinforced again in a hugely informative and entertaining presentation at the conference. Blockchain, a distributed open public ledger with appropriate cryptography, could be used to prevent “double spending” of any digital asset, not just money.