When you draw a standing-room crowd for the breakfast slot on the final day of a major industry conference, it’s safe to assume people are interested in your topic. Still, I suspect even the Fed was surprised by the turnout for the readout on their Payment System Improvement initiative.
Cheryl Venable (of the Fed’s Retail Payments Office) and Sean Rodriguez (representing the Federal Reserve Banks) shared the themes emerging from more than 100 responses to their request for feedback to their public consultation paper. Using a “top ten” format, Venable and Rodriguez further informed their comments with findings from the recently released Federal Reserve Retail Payments Study. A few of the highlights that caught my ear:
Businesses are feeling the pain (points)
Venable shared research indicating that “71% of businesses would use a B2B or B2C electronic payment service if their bank offered it.” Her extemporaneous comments reinforced my view that, while a ready market for the right solution is ripe for the picking, existing well-known business electronic solutions fall short of matching (much less improving on) key features of the paper check relied upon by business users.
Live and let checks
Despite the well-publicized ongoing decline in paper check usage, the fact remains that in 2012 these instruments continued to provide the underpinning for 33 percent of US payments value – as compared to a combined 5% for debit and credit card transactions, a ratio that has remained flat the past three years. The Fed’s prescription is to “let checks evolve, but don’t steer resources away from needed future investments.” In other words, don’t expect checks to vanish anytime soon.
This message is consistent with the Fed’s overall ethos of evolution rather than revolution. After all, we’re dealing with critical national infrastructure, which the vast majority of users agree continues to serve its purpose quite well. While opportunities for feature and efficiency gains certainly exist, there is ample reason to believe market forces are doing their job – even if they may need some nudging and alignment help from a convening body such as the Fed.
For example, the importance of information was a strong theme of Fed responses. Over 70% of both consumers and businesses agree it is important to receive timely notification of when a payment has been made, and when it has been received. In fact, the Fed reports that “many suggest near-real time confirmation of good funds and notifications are more important than near-real time posting.” This is the type of finding that can spare the industry from investing significant cycles on “nice to have” features that overshoot the true market need/desire.
Overall, the Fed reported that roughly three-fourths of respondents indicated it is on the right track with gap assessments, opportunities, and desired outcomes – and you can count me among that majority. The trick is in providing the optimal balance of information and incentives to allow market forces to do their job in a complex marketplace with numerous stakeholders.