There's a ton of new investment going into changing the way we do payments.
We need it.
Most of our transactions rely on eons-old technology. Even newer innovations are starting to show their age, whether in the form of millions of people getting their credit card numbers stolen, or in the fight over how much a credit card company can charge a retailer to sign up for its network.
It ends up costing the economy billions in lost productivity.
At the forefront of the movement to upend payments is Bitcoin, which has subtly begun morphing from an alternative currency aimed at taking down the dollar into a technology capable of addressing lots of payment problems in one go.
But there are lots of other guys and gals in the space. Below is a list of 10 things about payments they've already begun targeting, or, we would kindly suggest, they redouble their efforts on.
1) Signatures on receipts
No. 1 with a bullet. There is no justifiable reason for either buyer or seller to have to deal with this. The ostensible purpose is to indemnify a retailer in case of fraud. But someone has got to come up with a way to enable verification that doesn't involve scribbling on a small piece of paper.
Progress: Beginning late next year credit card companies will introduce technology that will someday allow us to enter a PIN instead.
2) Paper receipts in general
A few places these days ask if you want your receipt emailed, but this is a rarity. There has to be a more efficient, automated way to keep track of all your transactions without stuffing small scraps of paper in your pocket.
Progress: Jack Dorsey wants to turn receipts into a "full-blown application."
3) $10 minimum credit card usage
You're working late. You're out of cash. All you need is a Coke. You run downstairs to your bodega. You go to pay for the can with your credit card and the guy hits you with a minimum. Project doomed; resentment solidified.
The reason for these minimums is swipe fees, which make the cost of processing small transactions exorbitant for your average retailer and one of the things Bitcoin would help alleviate.
Progress: Wal-Mart is now suing Visa for $5 billion over swipe fees.
4) Cashing checks
Yes, banking apps can now scan checks. But not all do. It would be better if we could simply get rid of checks in general, which are essentially a centuries-old technology.
Progress: YapStone is slowly but surely working its way through Manhattan to offer check-free rent payments.
5) Checks in general
Studies have shown checks impose enormous burdens on retailers. One study has put the all-in cost of a typical grocery store check payment at $1.21 versus $0.78 for a debit card.
Progress: Venmo has obviated the need for you to write large checks to your friends for money you owe them.
6) Hackable retailers storing your credit card info
It cost the CEO of Target his job, but we should really be blaming the plastic game in general.
Progress: Blockchain cryptography could help alleviate this problem through the use of two-key encryption. As Ripple manager Alec Liu explained to us in an email, "If you are making a payment, you would personally access your private key, but the merchant never does—so it takes the merchant out of the equation as a potential vulnerability."
7) The card part of credit cards
The physical aspect, at least. You shouldn't have to face a temporary financial crisis if you leave your credit card on the Champ De Mars.
Progress: Mobile wallets, although no one has quite cracked the code to get them to expand en masse.
8) Having to re-enter your credit card every time you go to a new shopping site
I used to play a game as a kid where I would try to remember the longest string of numbers possible. I think I got up to about 80 — impressive maybe, but I know I am dwarfed by the capabilities of others.
Now I can't even get to 16.
Progress: Chrome, the world's most popular browser, does have an autofill feature, but it doesn't work on all websites. It's not clear whether FireFox, the world's second most popular browser, has a similar feature.
9) Keep tracking of business expenses
One final example of the paper mess. Some offices still make you physically staple your receipts to a sheet of paper to turn in. This is like the AOL of filing.
Ninety-eight percent of all electronic payment transactions in the U.S. currently go through a 40-year-old network that began life in the Air Force. It's called ACH. It processes an average of 60 million individual transactions a day. It takes 24 hours, at best, for the transaction to clear both parties' banks. Even the Fed has called out ACH for being a dinosaur. The goal is "real-time" payments that happen soon after you push go on the transaction.
Progress: Ripple, which uses a technology called "consensus" to process transactions instantly.
One of the primary advantages to Ripple and Bitcoin are speed. Where it takes up to five days for me to move U.S. dollars into my Scottrade account via ACH, I can move bitcoin into my Cryptsy account and start trading currencies in 45 minutes. Why? Because the ACH system is centralized and hog-tied by Federal regulations.
“NACHA CEO Jan Estep says ACH is inherently limited by Federal Reserve rules requiring interbank transfers to stop each day at 6pm ET,” CNN reports.
Ripple’s the technology that can change all of that because it doesn’t require a centralized gatekeeper-like system. Every Ripple transaction is verified on a public ledger, and that process takes seconds. Its lifting a weight off the shoulders of the online payment processing industry.
NACHA sees Ripple as a serious threat. If it didn’t, the organization wouldn’t be jumping all over itself to find ways to allow same-day payments. On March 18, NACHA announced its plan to “phase in” same day settlements via the following schedule:
Phase 1: Same-day settlements via ACH credits for payroll, person-to-person payments and “expedited billpay.”
Phase 2: Same-day ACH debits for use on utility payments, mortgage payments, and loan and credit card payments.
Phase 3: Stacked same-day settlements (i.e. a second same-day settlement using the same money).
NACHA’s launching a study into the costs of making these changes. The results should be completed by the end of 2014. If NACHA could have something implemented by then, it might have a chance of stopping upstarts like Ripple, but I think they’re moving too slow. David’s on the verge of taking down Goliath.