The Bankwatch

Tracking the consumer evolution of financial services

Bruce Summers critique of the US payments system and why banks will stick with status quo unless forced

Bruce Summers of the Kansas City Fed (retired) produces a highly articulate and relevant account (pdf) of the US Payments system that equally matches the Canadian.

I especially liked this paragraph that epitomises banks today.

US payments system failing to meet the needs of the digital economy | finextra

"The idea that money in transit is digital information which can be processed immediately has not been readily accepted by the banking industry," he says. "Most bank-sponsored payment schemes depend on clearing and settlement systems that are designed around batch processing and delayed settlement, and these clearing and settlement arrangements are being nurtured as opposed to being re-designed around continuous, real-time processing."

Written by Colin Henderson

April 4, 2012 at 22:47

Posted in Uncategorized

2 Responses

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  1. There is indeed a resoan.Online transfers aren’t actually online transfers (or they haven’t been and won’t be until this change is in place). They are to all intents and purposes essentially instructions to your bank to create a one off standing order on your behalf.You will note that the standing order instruction is processed by the recipient of funds, with instructions to get money from your account. It’s not processed by the bank sending the funds.They are processed in exactly the same way by the back end. Recipient bank has to process via clearing (which takes a few days) and your bank then has to ensure you have cleared funds at that point.Basically, direct transfers in online banking were bolted onto the existing infrastructure when online banking became prevalent. There were enough problems to solve (remember RBS’s original fat client system?) without creating a completely new clearing system amongst all the banks that are part of the retail clearing system.


    May 26, 2012 at 10:47

    • Thank you for that explanation. This is indeed why banks have not made it happen, because, if I can summarise your point, everything banks do rely on legacy systems not able to accommodate modern ideas such as real time.

      Having said that I do not think it would be so hard. Banks could lever SWIFT, or other common utilities such as Symcor in Canada.

      In any event this is one of the things that will leave banks open to disruption unless they look at it.

      Colin Henderson

      May 26, 2012 at 13:05

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