As Real-Time Payments Are Set To Grow, VISA CEO Remains Skeptical

We have come a long way since the first banking institutions appeared, let alone the first fiat currencies. You no longer have to take a trip to the bank to withdraw money from your account – there are countless ATMs around every corner, and digital payments are at the tip of your finger with your debit or credit card. But consumers have long now gotten used to the convenience of card payments and they are getting anxious for the next step. Are real-time payments going to be the next revolution in the industry?

RTP on the rise, but VISA CEO is concerned

Even though credit and debit cards have greatly improved the ease and speed of payments it still takes a bit for transactions to be processed and to appear on your account – especially when considering bank cut-off times and cross-border payments involving various stakeholders and often requiring currency conversion. Yet today’s consumers don’t like to waste any of their time waiting for financial institutions to do their part – hence why real-time payments (RTP) are on the rise. Also dubbed immediate payments, RTP is the new way of providing payments that get processed in real time, cutting back on costs and saving time. As Forbes reports, RTP technology will also enable retailers and utility companies to proceed with Request for Payment (RFP) instead of the usual way of sending out paper bills and waiting for consumers to pay. With RFP, the consumer is asked by a biller to make a payment via an electronic request and they can immediately transfer the funds as a credit push on their smartphone or laptop. RTP is already used in EU countries like Sweden as part of its cashless economy initiative, and it has also been gaining momentum in the US lately.

In 2017, The Clearing House launched its own RTP platform in the US, powered by Vocalink – which is now part of Mastercard - and the Federal Reserve has also been dabbling with its own RTP system. However, Mastercard’s biggest competitor, VISA, does not seem eager to go down that path just yet. As the Business Insider reports, Al Kelly, the CEO of the VISA corporation, voiced concerns over the potential and growth of RTP in the financial industry. His skepticism was based on two grounds. First, he argued that he did not discern any growing consumer demand for payments that would be faster than the current standards of card payments. And he also alleged that he was worried about the safety of the new emerging system and the protections it offered to clients. Both of these concerns seem to hold their weight against scrutiny, if we examine current consumer behavior. Despite the rise of alternative payments, and despite the fact that a vast range of cryptocurrencies claim to make payments incredibly fast, most consumers still trust card payments above all else. While consumer credit in the US recently topped a whopping $4 trillion, credit card debt accounted for an impressive $1.061 trillion.

Card payments still going strong – could RTP threaten their dominance?

Card payments are the top choice when it comes to online purchases in the US. In 2018, 45% of consumers used a stored card to carry out online payments, with PayPal coming in second at 22% and cards again ranking third at 17% with regard to manually entering the details to complete the payment. Alternative payment methods lagged behind, with Amazon Pay at 5%, and Google Pay and Apple Pay both claiming 2% each. VISA can of course afford to be skeptical: its global reach as a card payment network is well established and its reputation guarantees a top spot in consumer preference. Ever since most of our transactions have migrated online, making the need for a debit or credit card payment all the more important, VISA has flourished. VISA cards are accepted and used in online industries and providers as diverse as they are numerous. From Betway online casino to battle royale hit Fortnite, the online gaming world is a strong supporter of payments by VISA (V), while tech giants like Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT) or big international airline carriers like Turkish Airlines all accept VISA cards.

 

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But there might be another side to the story. The rise of RTP payments might not be a response to a roaring consumer need but it certainly is welcomed by merchants. And it could threaten an important source of income for credit and debit card networks like VISA, by cutting out intermediary fees. As Forbes reports in that same article, Delta Airlines (DAL) estimated that using RTP instead of credit card payment would allow it to save a staggering $600 million a year. And The Clearing House, again according to Forbes, has declared that its platform has access to over 50% of all US bank accounts, as most large banks have already agreed to participate.

Even though no one can really tell how the new tech will unfold, if it is universally endorsed, it could have a radical impact on the banking and payments industry. It remains to be seen whether the skepticism voiced by VISA’s CEO has merit – and whether VISA will keep resisting RTP or get on board.