As individual consumers, many of us have already become accustomed to transferring money easily between our accounts and to friends or family members from our desktops or mobile devices – so it’s easy to forget just how far we Canadians have come in making payments faster.
In the dim, dark reaches of the history of money, transferring value used to be a physical act: literally the passing of a bag or trunk of coins from one person to another. As economies and international trade grew this method became inconvenient (and tiring), so for large transactions “bills of exchange” began to replace coins. These bills in turn evolved into paper cheques, which are simply instructions to a payee’s bank to draw a certain amount of money from a payor’s bank and place it in the payee’s account.
Cheques, still being physical, take time to process. A cheque recipient’s bank will worry that the funds from the payor may not show up, and so it will often delay transferring money into the recipient’s account until the cheque has cleared – a process that can take several days and involves moving cheques from bank to bank and branch to branch.
Clearly, there was a need for something faster. With the invention of the telegraph in the nineteenth century, financial institutions (along with companies like Western Union) were able to offer wire transfer services that eliminated the time required for cheques to be mailed across the country to recipients, but final payment could still require days to be effected. The development of the money order (and the cashier’s cheque), meanwhile, reduced clearing times as the amount of the money order was withdrawn from the payor’s account immediately upon purchase, all but eliminating the risk of non-payment from payor to payee. Similarly, transactions made by credit card (often over the phone) delivered speed, but with interest costs, since the card issuer pays the merchant quickly but in doing so issues a loan with interest to the card holder.
Banks eventually developed electronic funds transfer solutions that enabled parties to transfer money to each other swiftly, and this became a favoured way for companies to pay employees. Similarly, pre-authorized debits (or PADs) allowed individuals to pay their vendors (landlords, Internet providers, utilities, etc…) directly from their accounts on specified dates.
Solutions like these worked well enough for repeated, predictable payments. But for smaller, day-to-day payments something cheaper, easier, and faster was needed. By connecting Canadian financial institutions to each other, and then directly to both merchants and consumers, Interac® Debit broke new ground by allowing consumers to purchase any vendor’s goods and services with their own money instantaneously, without having to rely on interest-bearing credit cards – both customer and vendor knew that the funds had been transferred successfully, right at the time of purchase. And Interac e-Transfer® enabled individuals for the first time to send money to any Canadian-banked person they wanted to, needing only their email address or mobile phone number to initiate the transaction. This turned out to be phenomenally popular, and in 2016 alone Canadians will use Interac e-Transfer a projected 150 million times to transfer $62 billion in value. An era of faster payments has come into its own.
To date, the vast majority of faster payment solutions have been proprietary, which makes our next step even more important: to open up our solutions and platforms to the entire financial services industry – and to other industries – so that new and hopefully unanticipated sources of value can be created with them, by the many innovative and original minds out there. And about that, more in our next post.
* Forecasted 2016 value