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New models needed to redesign payments

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In a game-changing session at the recent Payments Association of South Africa (PASA) International Payments Conference 2016, BankservAfrica’s new CEO Chris Hamilton outlined the revolutions underway in global payments infrastructure – and the necessity of re-design to keep up with the “payments Joneses”.
His experience across the payments industry – most notably his position as chief executive of the Australian Payments Clearing Association Limited (APCA) for the past 10 years – has allowed him insight into the approaches different markets take when redesigning payments to keep up with the demands of business and consumers.
Likening discussions about payments infrastructure design to discussions about plumbing and sewerage, Hamilton says, “we all really need it but we don’t want to spend a lot of time talking about it”.
“To meet the future payment needs of our community and our economy, payments businesses need to approach payment system modernisation empirically, inclusively, holistically but above all collaboratively. The design process really matters,” he says.
“As an industry, we need to find a way to talk about this needed, fundamental change and do so systematically. System design doesn’t happen by itself, it needs intense collaboration.”
Payments systems vary between and even within countries and are complex, serve different agendas and business needs. One only has to look at the variation from PayPal to Bitcoin, Visa to Mastercard; and the range of secure options offered by individual banks.
“Given the complexity, infrastructure redesign is costly, complicated and highly contentious, and thus only takes place every 20 or 30 years. The time, however, for a new South African design is now. Otherwise, the local economy will not have the basic plumbing it needs for the future,” says Hamilton.
“The world is undertaking a step-change in national payments infrastructure, from overnight batch with basic data to real-time, data-rich, flexible and layered. South Africa must join the trend, or be left behind.
“In doing this, all the hard questions are not technological, they are social and political. What will our users and our economy need in 10 years’ time? How do we resolve all the competing business and political agendas to make sure they get it? What is the role of the national regulator? There is much to learn from mistakes and successes overseas.”
Hamilton walked delegates, from across the banking, fintech and financial services industries, through various global “adventures in international payments modernisation”. He focused on what the UK, Canada, Australia and the US have done towards renewing their payments infrastructure.
The results, he says, show the intricacies and difficulty in getting all parties – and agendas – involved to work in synchronisation.
“Since time immemorial, we have been expecting our customers to adapt the way they pay to our available ‘set of rails’,” he says. “So if you want to buy something at the shop, you get out your card; if a business wants to pay a supplier, it must do so by scheduling a payment with its bank or, heaven forbid, write out a cheque the supplier must then present to another bank.
“There is nothing wrong with this; it is just the way the world looks right now. But will this do for the digital economy of the future where other aspects of our lives are fully online, real time and automated?
“We need to start thinking creatively now because new systems take a very long time to develop – at a minimum five years. This is not because of the technology; it’s because of all the competing business and policy interests. We must work out how our payment system is going to be used in 10 years’ time.”
This approach calls for a rigorous, inclusive process, Hamilton says. The US, the world’s largest and complex payment market, is the least designed because it is just too big. There are 13 000 payment institutions with millions of interested parties.
“The Federal Reserve Bank has taken on the job of trying to rationalise the US’s payment system. They have in the last two years published their own consultation papers and received thousands of responses. They put together a task force of 300 people – made up of consumer and business representatives, service providers, consultants, and banks to have a massive industry-wide discussion happening in a public way.”
Australia’s New Payments Platform (NPP) felt like an overnight success because in 2013 the Central Bank came out with a strategic review that compelled the industry to build a real-time payment system, he said. But the industry had already done most of the thinking work, starting in 2008. So the payments community was able to put together a well-designed proposal very quickly.
“So we did it – in six months we actually put together a community of bankers and published a proposal for a real time payment system which became the new payments platform,” Hamilton says.
“My view of the world is that, there is no substitute for the industry players doing it themselves, together. I’m accustomed to hearing, over my 15-year career in this game, banks saying ‘we don’t like to work with other banks because it’s too high risk and never works’. Yes it is high risk, but also high return. Co-created networks are always better than government-built networks or compliance-driven outcomes. Only the participants know how the whole thing really works.”
The base of good payment systems is empirical research that is “inquisitive, inclusive, and intentional”, plus gets business to lead, he says.
‘Streamlining the payments industry is still like herding cats. But a business-led process can be powerful and galvanising. It can also radically reduce the cost base, while revolutionising the industry.”