Archive for the 'Settlement' Category

Why do I need to know what payment systems my vendor accepts?

The answer seems obvious. Because I need to be a member of one of the payment systems my vendor accepts in order to complete a transaction. But it then occured to me that it does not necessarily have to be so. Wouldn’t it be simpler if I could use whatever payment system I want to release a certain amount of cash and if the vendor can have some guarantee of being the owner of the money before releasing the good to me? The answer is of course yes!

In fact, to get back to the former answer, it is not necessary that one organization like Visa, PayPal or a coalition of them controls the entire chain for making the whole thing possible. It’s only because this entire chain of processing takes today very long – like days or even weeks – to complete that my vendors asks me to use the payments systems they accept. They need to be sure of receiving the money, some day, to agree handing the good over to me now.

So, if we had an open and real-time settlement system, we could perfectly imagine that we would no longer have to care what is the ultimate system that vendors would be using.

To give a brief explanation of what a settlement system is, I’ll just say that this is a way to make valid the change of ownership of a certain financial property, in this case cash, from one party to another. A real-time system would be a system that would process the entire chain in a couple of seconds. And an open one would be a system which would let any cash sending system and cash receiving systems interoperate.

So, if my vendors could know in real-time that the money I’ve just parted with is now in his full posession, they would be perfectly happy completing the transaction. Which means I could send the money from my mobile phone – or any other online device – using whatever payment system I would like and I would feel comfortable using. My vendor could also use the payment system most convenient for him. As long we are both happy and trust our payment providers, we would no longer have to determine if both of us are members of the same systems.

Now, do you think it all sounds science-fiction because we can not create such an open and real-time settlement system or because current payment service providers have too antiquated backbones to dream processing such a transaction in real-time and have no incentive to move to an open system? If this is the latter, this suggest the word “Disruption” to me.