The better Bitcoin Guest contribution published in the Focus magazine
27.03.2018 | Carl-Ludwig Thiele DE
The whole world is talking about Bitcoin, but for payment transactions, there are already much better alternatives. At the moment, cashless payments generally take one day to be processed, but this is about to change. Instant Payments is the new magic formula, which refer to a process within the European banking industry that, since November 2017, has allowed money to be transferred between accounts within seconds.
At first glance, the difference may not seem that significant. In many regards, it does not matter whether a payment arrives today or tomorrow, as long as it arrives reliably. On closer inspection, however, the difference is anything but insignificant: instant payments are highly appealing in situations where payments have been made, until now, mainly by cash or card. Example: two individuals want to split their bill at a restaurant, so one pays and the other is able to transfer their share within seconds using instant payments. In delivery-versus-payment transactions, too, it is advantageous if transfers can be made and credited instantly, such as when a moving company will only unload or an online business will only dispatch after payment has been received.
In order for instant payments to be an efficient method of payment, they have to be easy to use. Entering an IBAN number, which has been standard in traditional online banking until now, no longer fits the bill. User-friendly smartphone apps that link payments with mobile numbers are now coming onto the scene. Today, these new banking apps are offered almost everywhere and can already be used for payments between individuals. If such a payment remains within a banking group, it is processed within seconds even now – considerably faster than in online banking.
There has been a lot of interest in the introduction of this new payment method among retailers, who hope to scale back costly card payments. This is because, for each transaction involving a card payment, retailers pay a fee to the banks, amongst others. However, banks should not be afraid of potential losses of revenue in their card business, but should instead embrace instant payments as an opportunity to offer fast and secure payment services. Nothing can stand in the way of efficient solutions. This has been clearly proven by the fintech wave of the past few years. Furthermore, major online platforms are already offering their own payment services.
Currently, instant payments are still at the beginning and are offered by only one bank in Germany. Savings banks are aiming to follow suit in July 2018, and cooperative banks in November 2018. From the customer’s perspective, cost-effectiveness will be the crucial factor. For credit institutions, this new payment method could be the key to strengthening the loyalty of existing customers as well as to winning over new customers with innovative products.
Other European countries have, in some instances, been quicker on the uptake. In Germany, we now need to make rapid progress. I am confident that, within a few years, instant payments will be standard for the majority of payment transactions. Security and the high degree of user-friendliness will be the driving forces. And we have all already been spoiled – the major online platforms have made sure of that. In any case, with these new instant payments, Bitcoin and its processing times of up to several hours are already looking outdated.