When Alicia Freile, design director at Canberra’s Tango Media pays US contractors, she uses a complicated process. Her US bank issues a cheque online and mails it to the contractor.


"I have a business here and one in the US. The amount of aggravation I deal with because of the US way of paying for everything with a paper cheque, like it's still 1910, is astounding,” she says. 

In Australia, she simply transfers funds digitally.

Life in the slow lane

Like many people, Freile was surprised that payment technologies in the land of Wall Street and Silicon Valley lag many other countries. US consumers rarely use payWave because terminals lack necessary technology. Chipped cards are just arriving. Pennies abound. Buses in Philadelphia, the 5th-largest US city, take tokens.
And Americans love to write cheques. Despite predictions of their death, 18.3 billion checks valued at $26.0 trillion were paid in the United States in 2012, the most recent data available.

Adoption of mobile wallets has been slow, partly because few retailers have installed registers that use near-field communication. Only about 6% of people whose iPhones have Apple Pay use it, according to Crone Consulting LLC (as at March 2016).

US bank regulators are concerned. In a speech late last year, Federal Reserve official Loretta Mester said the U.S. payment system is at a crossroads.

“The complexity of the payment system, involving incumbent providers, new entrants, and end users, makes it harder to coordinate payment innovations,” she said. “Nor has it kept up with developments in other countries that have taken steps to modernize their payment systems.”
New systems often require big investments that smaller businesses can’t afford.

A disjointed system

So how did the country that gave the world the credit card fall behind?

One reason is that US banking and payment systems are relatively fragmented, so coordinating change is harder, said Brett Watson, partner in KPMG’s payment practice. New systems often require big investments that smaller businesses can’t afford.
 
“When it comes to payments, it’s very hard to to get a broad based agreement in the United States on anything,” Watson says.

In many countries, banking regulators have more power than their US counterparts do. In Australia, the Reserve Bank is involved in and “highly encourages” upgrades, including development of the New Payments Platform. Expected to launch here in 2017, the platform will create real-time payments, and BPAY has been selected to provide the first overlay service, which itself will unleash a new wave of innovation.

What’s the cost?

The real question is how much the slow pace hurts the US economy, and the answer is unclear. Cheques are costly. The United States also risks losing opportunities to create cutting-edge technologies. But the US economy is relatively strong, and payment methods have always varied by country, said Celent senior analyst Gareth Lodge.

“For example, the cheque clearing service in the UK until recently was still somewhat designed around the time it took to travel between London and Bristol, two important clearing centres…by horse in the 17th century,” Lodge said. “As (payment systems) are so widespread, they are embedded into everything. So it’s largely habit for consumers – who amongst us thinks about payments? We do what we did last time – and, change is hard.”
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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