Why payments infrastructures are NOT fit for purpose

At SIBOS 2004, Heidi Miller asked tough questions of the payments community.  I often refer back to her speech, particularly the statement that, in the age of the internet SWIFT, “what have you done for me lately?”

This inspired our payments survey, the results of which are now available as mentioned yesterday but, in another key part of her speech, she said the following:

“Let me tell you a story about a friend who lives in Europe and bought a boat in the United Kingdom a few years back. This gentleman is a very well-known former executive of a large global financial services company. He is eminently creditworthy. He had enough money sitting in his U.S. bank account to buy many boats. He had patiently waited months for the boat to be built to his precise specifications. He was ready and eager to take immediate possession.  When the boat was ready, he called his bank to arrange payment. And his bank told him it would take about six weeks to transfer the funds. Six weeks? Think about it: My friend could have sailed to New York, withdrawn the cash from his bank account, had a leisurely dinner, sailed back to the United Kingdom, paid for the boat, and still had time left over for a Mediterranean cruise before that funds transfer would have been completed.”

Now obviously, seven years later, this cannot be the case.

In an age:

• where PayPal allows global payments in the blink of an eye;
• where start-ups like Square can move from zero transactions to $3 million a day in under a year;
• where you can wirelessly send funds anywhere in the world;
• where African countries have moved from zero infrastructure to most of their GDP moving through mobile payment services;
• where mobile contactless payments are becoming pervasive as Google enter the market;
• where real-time payments are a reality in the UK through the Faster Payments Service;
• where all of the EU’s payments are consolidated through a single ACH;

… surely, this cannot be the case today.

We must be able to organise a simple cross-border payment between two countries as banks?

Surely.

Well, the answer is surely not.

Whilst the rest of the world moves at lightspeed into real-time connections between individuals, the banks languish in their hamstrung legacy past.

Why am I saying this?

Because in the last week, I’ve been asked to transfer funds from my bank account to an American colleague’s.

It should be a simple transaction, but it’s not.

The reason being that it has to be done through a direct bank transaction through the banking system.

So here’s how it goes.

I go online and try to make the payment.

My online banking service only works with UK sterling denominated transfers.  No foreign payments.

So I ring the call centre and say I want to make an overseas dollar transfer.

They tell me I have to go to the branch.

So I finally, after a few more days, find a chance to walk into  a branch.

Massive queue.

Most of the queue is paying in cheques – why don’t they use the automated machines for gawd sake – and the rest are small businesses cashing in bags of coins.

As I’m fairly impatient, I join the queue at the “Information Desk”, which is unmanned and unloved.

Finally, after about fifteen minutes, a cheerful chappie says: “yes sir, can I help?”

“Sure”, I say.  “I’d like to make an overseas payment.”

“Ah yes”, he beckons.  “Come and sit over here and my colleague will help.”

Obviously, this needs a specialist.

The specialist comes over: “What are you trying to do sir?”

“Well, I need to make a payment of $1:10 (I know) to this American bank account,” I say.  It’s just $1:10 to seal a transaction between our two businesses, but that’s another story.

“Ah well”, the specialist sighs, “we’ll need a form for that.”

He then starts tapping away on the computer.

I keep waiting for “computer says no” but after trying out five or more different forms, he finds the right one for an “American International CHAPS Payment Transfer”.

This is the same form I used to fill in a quarter of a century ago but if it works, why change it as the bank motto goes.

So we fill in the four page form and halfway through he says to me: “is this urgent or non-urgent?”

I ask him what the difference is.

“Ah well, urgent is one or two days whilst non-urgent might take a week for the transfer to take place.”

Wow! And this is in a real-time world.  Fantastic.

“Well, I’ll take urgent then”, I says.

He turns with a tut and explains that urgent is £27 ($40) whilst non-urgent is £20 ($30).

So it’s going to cost me $40 and take two days to transfer $1:10 from my UK bank account to my colleague’s American account.  Whatever.

We carry on through his form until we get to the next question: “What’s their SWIFT code”, the specialist asks.

Well, of course my colleague only gave me his bank account name, number, bank sort code and address.  No SWIFT codes.

“No SWIFT codes?” the specialist says.

“No SWIFT codes”, I respond.

As the specialist rips up the four-page form we’ve just spent half an hour completing, he tells me to come back when I have all the necessary information.

So nice to know it’s changed so much since Heidi Miller asked this question back in 2004.

In 2004, the iPhone and iPad was not even a glimmer and PayPal were still just a start up.  Facebook and Twitter were not even mapped out on the back of an envelope, and Kenya had no idea that M-PESA would represent over 20% of GDP a few years later.

Amazing the difference seven years can make, isn’t it?