How far are we from real-time payments?

Today marks the breakthrough in mobile payments technology : VocaLink andTCH signed a deal to rapidly implement national real-time payments in US.

VocaLink is UK-based mobile payments technology company, a global payments partner relied on by financial institutions, corporates and governments. Their proven ability of implementing real time payment systems in the UK has led to the development of immediate payment solutions for other countries.

TCH is The Clearing House that operates industrial-strength payment systems at the centre of the banking industry in US for the last 160 years. Banks are using TCH to process all transactions.

So far mobile payments industry has been very fragmented

Only small fraction of smartphone users have components that are necessary to use for mobile payments. There are many dots that need to be connected: smartphone technology like Near Field Communication ability, software app platforms for several mobile Operating Systems, Point-Of-Sale devices ability to work with smartphones and their own merchant’s supplier, bank’s cooperation with phone carriers etc.
Stiff competition for global mobile payments market drives phone makers to develop each their own platform that is not compatible with any others.

2015 was supposed to be a year of ApplePay

That failed miserably, catching only about 5% of users who had all the necessary components already in place. You can read about some of the disappointments hereAndroidPay is fighting its way through, as is Venmo – PayPal’s mobile payment solution. Recently Walmart launched its own in-store mobile payment app. Starbucks has the most popular payment app in Canada. Did you know that any mobile payment is limited currently to max $100?

Mobile payments status in Canada

None of the Canadian-made mobile payment systems work on an iPhone. Only 2 Canadian banks allow smartphone users to pay through Interac. Only 15% of Canadian smartphones has NFC capability. Thankfully, at least all major Cdn banks are now in agreements with the 3 major telecom providers. And even when all the banking-telecom-technology comes together, how can you influence millions of bottom-line-watching merchants to upgrade their POS terminals and associated software?

Well, here comes the breakthrough we started with: real-time payments.

Did you know that most mobile payments are not real-time?

It is a secret, fraudsters are exploiting for some time already. When you pay peer-to-peer or through in-store app on your smartphone, and the app reports that the funds are already in your bank account… they actually aren’t. Payer can withdraw transaction in meantime, and even if he/she didn’t, the bank will hold the funds for a week or longer, like with any cheque deposit. This is what weighs down millions of small business owners. Payments for services or goods are delayed for weeks and months. This is what medium and large companies are exploiting: they get small businesses to finance the operations of big businesses by delaying the payments to small suppliers by 2-3 months. The biggest offenders are well known biggest brands in Canada. If small business owner does not like it, he can go… where…? By the way the whole service industry has been already built around it. All the receivables’ lenders are living their dream.

Where is the breaktrough?

So going with rapid national real-time payment delivery in US is big news, also for Canada. It is the breakthrough that may spread faster than ApplePay and WalmartPay. It gets directly to the pain point of small merchants. Give me the national real-time mobile payment platform, and I shall thrive… if I can only address cyber security threats.

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