Everything is getting faster and faster. In trading rooms, we have real-time systems where every microsecond counts. The UK's faster payments programme means that interbank settlement can take place in less than a minute. And with Twitter, you can track news online as it happens anywhere in the world.
The fact that you can trade in a millionth of a millionth of a second, transfer monies at light speed and share news from Beijing to Birmingham as it is being made, is phenomenal and fundamentally changes banking and finance. For example, from a cash payment that requires physical delivery or a cheque in the post that takes days to clear, we can now make real-time payments online from Tokyo to Timbuktu.
This is changing other industries fundamentally as well, as we connect to a world with a global, real-time pulse. As news is reported, you can supplant it with 'feet on the street' views by tapping into this global pulse. For example, when on April 1, the G-20 protests took place in London, I tracked them using Twitter as well as via individuals posting clips from their mobile telephones to YouTube, while keeping the TV news channels live in the background.
Just like being there
The mind-meld of real-time social media channels with news media channels created a world of almost like being there, even though you weren't. This global real-time pulse is now as true for the world of finance as it is for the world of news.
We can operate a global brain pulse of knowledge about stocks and trading and investments. We can provide real-time dashboards for cash management and pooling across corporate supply chains as an information service. We can run a real-time money transfer service between migrants in the US and their remote families in Asia. We can even create a real-time pulse check for fraud and money laundering. That's partly what the changes to cover payments is meant to achieve, where all payment, sender and receiver information is to be transmitted over the Swift network, not just the bank details.
However, although we are getting there we are getting there very, very slowly. What is the problem? If we can trade and socialise in real-time, why can't we buy and sell in real-time? Is it down to the very nature of fraud and all the legal meanderings that go around such commercial trading activities?
The fact is that we are so concerned about monetary movements that some appear to be keen to avoid real-time, particularly in payments - the issue being that if you pay in real-time and later want to revoke the payment, who is liable? Or if you pay in real-time and fraud occurs, who is at fault?
One view would be that, like cash, you should be able to make payments in real-time. This would make a transaction irrevocable. You do the deal and it's done. This approach would revolutionise finance, as there would be no issues over trading any size of goods. Once the money is transacted in real-time, it's yours. A click of the return key would be as good as delivering a suitcase of cash. That was meant to be the point of faster payments, a UK initiative that aims to deliver real-time payments up to £10,000 online via the phone and for regular payments. But it hasn't happened.
On the one hand, faster payments only targets transactions where the security measures mean that the payments require a personal authorisation to take place. Therefore, if the payment was incorrect after the fact then, tough - it's your fault. On the other hand, you could take the view that a real-time payment doesn't necessarily mean what it says - it is only trading bits and bytes of data, not real cash.
Therefore, what we are really saying is a real-time world allows real-time financial services - with a time delay for settlement processing to ensure everything is fine before it transfers.
In other words, the electronic transaction takes place in real-time, but monetary movements are not signed and sealed until end-of-day. It is just the real-time data that flies around between accounting systems, and everything is followed up later with real-time monetary movements. And that is exactly what we do today: transact the data and then, later, settle the money.
Real-time fraud detection
So real-time payments should be OK, shouldn't they? It's only trading data after all. Meanwhile, if you're worried about the fraud of real-time payments then real-time fraud detection should overcome this. For example, if you suspect it's a fraudulent transaction then, in real-time, a random security question can be generated.
In real-time, if you want to spend £10,000 buying shares online then no worries. Just enter details of your post code, one direct debit on your account and your first pet's name in real-time to authorise the transaction. If you can't answer those, then choose from a list.
So here is a near-term vision for real-time payments. At payment time, whether online or offline, internet, telephone or point of sale, you no longer enter a PIN or password. You just get to answer a random question from a list, for example:
- enter the number that represents the last payment from your account.
- enter the data (010709) of the last ATM transaction you made.
- enter an amount that leaves your account by direct debit each month.
- enter your postcode/zipcode.
- enter your main telephone number as registered on your account.
- enter your main personal code (for example, this could be a PIN or passport number or birth date).
This list would change every time you pay and would probably only apply for payments over, say 100 units of £, € or $.
Real-time everything including real-time payments with real-time security - now we're cooking.
Chris Skinner is an independent financial commentator and chairman of London-based The Financial Services club (www.thefinanser.com)
