The other day, a business in New York mailed a dollar cheque to me across the Atlantic. It was a pretty thing – multicoloured, with an anti-fraud foil hologram – and I admired it for a while before putting it into another envelope and posting it back to a friend in New York to walk up the block and deposit. After a round trip of 7,000 miles, it reached my account three weeks late.
Mine is an unusual case – few people live 3,500 miles away from their nearest bank branch – but it illustrates the antique quality of the US payments system, which is the land that time forgot. A transaction that would have been completed electronically in a minute in the UK and many other countries involved a panoply of delays, unnecessary costs and human intervention.
Admittedly, I need not have posted it back. I could have taken a photo of it instead – 17 per cent of US cheques are now deposited via an electronic image, rather than the piece of paper itself. If anything, though, that is a further problem for the US economy, for it weakens the incentive for banks to fix their technological plumbing.
Nor are cheques the only historical curiosity. Credit and debit cards embedded with chip and pin authentication are near ubiquitous in Europe and common in Asia, but almost all US cards depend on 40-year-old magnetic stripe technology. Contactless cards this week became the only permitted payment method on London buses – no cash allowed – but they remain an avant-garde concept in the US.
Some argue that this does not matter too much, given that the US payments system works securely and Americans are used to it. “I have honestly never heard any consumer express concern,” says Steve Ellis, an executive vice-president of Wells Fargo, which is one of the more technologically advanced of US retail banks, although its name evokes stagecoaches in the 19th century Californian gold rush.
But it is strange that a country that often leads the rest of the world in consumer technology lags behind badly in the basic infrastructure of retail banking. It also provides an opportunity for European banks and start-ups to build a lead in financial innovation. Europe has a superior platform on which many other services can operate.
London is already home to many financial technology start-ups such as TransferWise, a peer-to-peer foreign exchange hub in which Richard Branson, founder of Virgin Group, and Peter Thiel, co-founder of PayPal, have invested. “The most interesting things in technology are happening here,” says Kristo Käärmann, its co-founder.
Europe’s lead reminds me of the period a decade ago when it was ahead of the US in the use of mobile phones, and spawned start-ups such as Skype. Its window of opportunity shut when Apple launched the first iPhone in 2007 and Silicon Valley poured venture capital into mobile software, but the US has a big gap to make up in payments.
The widespread use of cheques is the most blatant inefficiency of the US system, although their use is in decline. American consumers and businesses wrote 18bn cheques in 2012 – four times as many per head as in the UK. Meanwhile the US has no equivalent of the rapid payment systems in the UK, Canada, Mexico, and Singapore that can make all transfers intraday.
It is especially odd because the fragmentation of US banking has in the past stimulated world-beating innovation. Bank of America offered the first credit card in 1958, later spun off into Visa, partly in order to overcome the difficulty of using out of state cheques. (Bitcoin is a modern effort to provide a faster and cheaper way of moving money.)
The looming problem is that, instead of a single rapid payments system, US consumers may have to choose among competing private payment networks such as PayPal and Popmoney. The Fed lacks the regulatory powers to impose its own system, and is now trying to cajole the banking industry, along with retailers, into agreement.
In contrast, Europe’s policy makers and regulators forced banks into co-operating to improve the efficiency of payments. The UK’s banks introduced its Faster Payments system in 2008, under regulatory pressure from the UK Office of Fair Trading and the EU payment services directive.
This is reminiscent of the differing approaches in Europe and US to mobile telephony. The EU mandated technologies for phone networks and operating software from the 1980s onward to create competition among operators on a single platform. The US allowed competing standards, now being unified with 4G.
It all worked out in the end for the US and that could happen for payments. More Americans could go abroad and notice what they are missing; banks, card companies and retailers may accept that the gains from investing collectively in better technology outweigh the short-term costs and loss of revenues; the US could move into the lead.
Currently, though, the US lags behind the rest of the world with no obvious way to solve its difficulties. In September, the Fed will present its “road map” for the introduction of a US faster payments system, but banks are under limited pressure to change their ways. For Europe’s sake, long may it continue.
The Federal Reserve which has until now confined itself to politely nudging banks on interbank payment issues, is frustrated at the lack of progress, and the fact that banks blocked an initiative two years ago to speed up electronic payments. Some feared losing the revenues from the “wire room” fees they charge to make rapid transfers.
John Gapper
Fonte: FT
Fonte: FT
