Chapter 1 - Societal, Economic, and Philosophical Implications of Instant Payments

“…a foundation for the future—a modern payment infrastructure that allows innovation and competition to flourish…” Governor Lael Brainerd, Federal Reserve Board of Governors

The development and adoption of instant payments technology will fundamentally change how our economy operates in the future. I guess this might come across as hyperbolic, or sound like a bit of industry grandstanding, but I really believe it’s true. And I’m going to tell you why.

The very functioning of the modern economy depends on the electronic movement of money from payers to payees. Without that ability the entire world economy would stop functioning. Further, as technology has evolved in all aspects of our lives, the functioning of digital payments has continued to grow in importance in lock step. But it’s important to know that this is not a binary “do we have electronic payments?” or “do we not have electronic payments?”

No. There is a continuum of payments.

And just as the lack of a functioning system of electronic payments would torpedo the global economy, so too can the advent of wholly new, 21st century payments technology catalyze a new era of economic development, empowerment, and inclusion.

A powerful new payment type can unlock new uses for payments, making the development of entirely new business models possible. I will discuss this in more depth later in this chapter, but think about the ways previous innovations in payments opened up new channels of commerce and actually empowered people to be more mobile, more social, more industrious.

Every advance in the transfer of value (including the jump from trading goods and services to the development and use of money to represent value) has unlocked wide-ranging and unpredictable leaps forward in the ways people are able to structure and conduct not just business relationships but how they live their lives.

This next leap forward will have the same profound, and unpredictable, effects on our economy and our society more broadly. And this will come not only from the enablement of new business models (in much the same way the combination of the internet and payment cards made business models such as Amazon.com and Netflix possible), but in the empowerment and inclusion of previously under-represented populations. This will be discussed at length later in this chapter, but the prospect of ensuring broad inclusion of previously underserved groups is a compelling reason to get behind and champion this leap forward in payments.

But before we get into that, we need to zoom way out. Those of us in the payments industry have a tendency to jump right into the weeds. The clearing and settling. The recourse rules. The message specifications. That is all important! But equally important is understanding exactly where payments fit into the broader context of our daily lives, and the daily lives of people who don’t have any reason to know what ISO 20022 is, or the difference between RTPⓇ and FedNowⓇ .

Payments, at their core, are about relationships. A lot of infrastructure – plumbing, electricity, roads – they exist to enable both communal and individual pursuits. When I get in my car to drive somewhere, it might be that I’m going to meet up with someone for a beer. It might be that I’m going to a store to buy something (probably beer). Those, of course, are communal activities – multiple people meeting socially or engaging in commerce. On the other hand, maybe I’m going to the lake to be by myself. Maybe I’m just going for a drive, and I don’t have a destination in mind.

Payments are different though, because a payment only happens when two parties have some other relationship that results in an obligation flowing from one of the parties to the other party. And contrary to popular culture representations of people lamenting their bills or trying to get their friends to pick up the bar tab, the reality is that in most situations both the person paying, and the person being paid both want the payment to happen. They both benefit from it. So, it’s important to understand that payments are, by their very nature, a communal activity with, at a minimum, two parties involved. Now, we don’t think of ourselves as “parties to a payments transaction.” We think of ourselves as friends who owe or are owed money.

We are customers who want to buy beer, or we’re merchants who want to sell beer. We are manufacturers who make the beer (yes, I know there are goods other than beer, but none of them are as good as beer), distributors who want to take the beer from the manufacturer to the retailer, thirsty consumers returning empty beer cans and getting their deposits back. Whatever persona we are in the various payments we’re involved in, all payments are communal.