Recently I had the opportunity to sit down with Rich Oliver, payments consultant, speaker, and retired executive vice president at the Federal Reserve Bank of Atlanta. We discussed some of the hurdles he sees in the U.S. payments system as it accelerates from decades of glacial evolution to the world of faster payments, chip cards, and mobile payments—an acceleration spurred on by rapid changes in technology, non-bank participants, increasing threats to security and privacy, and greater government regulation.

Here’s my Q&A with Rich:

George: What forces lie behind the evolution we’re seeing?

Rich: Payment services are being influenced by “soft” factors (customer service, convenience, look and feel) as well as hard factors (economics, standards, and emerging technologies.) This has led to less predictable outcomes than in the 1990s, as well as some curious and puzzling steps in the move to faster payments, chip cards, and mobile payments.

NACHA has finally succeeded in gaining the long-anticipated approval to move forward with same-day ACH services. Perhaps less logical and somewhat surprising are the simultaneous efforts to encourage and facilitate an industry move to faster retail payments, such as the effort by The Clearing House (TCH) to build a real-time retail payments service.

The latter is even more interesting given that the TCH banks initially opposed same-day ACH, only to more recently support it. We might finally realize the joy of non-card payment choices arrayed along a spectrum of service levels and price points, but the puzzle is whether there is a sufficient market to support business cases for both same-day ACH and real-time retail payments.

George: What might interrupt or derail this potential road to a spectrum of payment choices?

Rich: First, will these services, particularly real-time offerings, evolve as open- or closed-network offerings? History in other countries has shown that success in payments services is tied to ubiquity and ease of entry. Second, what price points will evolve for various services and will those price points attract the volume necessary to build satisfactory economies of scale?

George: How do you feel the introduction of chip cards will affect the total payments picture?

Rich: While the long-awaited move to chip cards is both logical and necessary, the absence of a chip-and-PIN rollout in the U.S. is both puzzling and, perhaps, short-sighted. Despite the global evidence of added protection from fraud with the use of PINs with card transactions, issuing banks have opposed the idea in the U.S. based on assertions of expensive backroom changes and a claimed reluctance to confuse customers who aren’t used to entering PINs. (Except of course for every use of an ATM and every merchant debit card transaction made at a merchant!)

An unrecognized elephant in the room here is the fact that the move to chip cards still does not promise a reduction in total fraud, as the bad guys will move away from the point of sale and into the Wild West of card-not-present transactions.

George: Do you think mobile will become a competitor for payments?

Rich: A lack of agreement on using mag-stripe emulation or NFC demonstrates the effort to use standards as a competitive weapon, which has led to a myriad of emerging mobile-payment alternatives. All of this, coupled with the card evolution cited above, has left merchants desperate for a roadmap to help them determine how and when to re-outfit their terminals, while at the same time fighting battles regarding PCI compliance, interchange, and culpability for fraud.

Moreover, the evolution of mobile has been characterized by closed-network offerings, each of which requires the laborious signing-up of merchants who are finding out that consumer demand is frighteningly modest.

George: Looking out five to 10 years, how do you see it all playing out?

Rich: One assumes that the above dilemmas will ultimately be sorted out as priorities are set, business cases and user preferences evolve, and security and privacy concerns coalesce. We appear to be on a road of retail payments solutions with no convergence. It will be interesting to see who rises to the occasion and which solutions become part of the long-run payments map.

—George Warfel • gwarfel@wespay.org