Credit management is not as easy as it looks. Sure, you can whiteboard a payment flow, but when reality hits, a planned delay might be better than immediate settlement. Credit card companies use the lag to help flush out fraud; removing that gap takes away the advantage. Take a look at the issue in Norway, as Bloomberg reports.
The speed of the instant payment highway has regulators in Norway thinking about the guardrails.
The central bank is stepping up efforts to improve the country’s banking infrastructure as the spreading use of instant payments drives credit risk higher at banks. The problem lies in the fact that customers get their money before it’s actually transferred to their banks.
There is a cycle. As momentum begins with faster payments, clearance time will get shorter and expectations will get higher. There is no room to breathe.
“Credit risk is influenced by transaction volumes, which are expected to rise,” said Knut Gulleik Sandal, director for financial infrastructure at Norges Bank.
- Norwegians made one million instant payments last year, and the figure is expected to rise as use picks up of the Vipps payment system, according to central bank data. More than 100 Norwegian banks back the Vipps network, which now faces competition from Apple Pay.
The seven biggest Nordic banks, including Oslo-based DNB ASA, are also lobbying to create a region-wide system for real time currency transfers. They’ve pitched the idea to central banks in Norway, Sweden and Denmark, whose mandates include maintaining their countries’ payment systems, and also to officials in Finland.
We’ll have to see if these are growing pains or whether it creates a new fraud target, hopefully before the large, mature U.S. market attempts to follow suit. Slow down, settle securely and clear prudently.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group