Work in Progress Early Thoughts

When you use a credit card, there is a large set of infrastructure involved in reducing risk. That costs the shop owner often a percentage of the sales fee (and sometimes that comes with a minimum value).

With the advent of faster payments in the EU, is there an opportunity for the vendors and banks to ditch Visa, Mastercard etc. And by doing so, remove (or significantly reduce) those cost premiums?

Concept 1: Faster Payment Implementation

Here in Sweden we have Swish.

Essentially, we use phone numbers as proxies to bank accounts. Through a mobile app I can then pay someone money by entering their phone number and the amount I want to pay. Clicking on Send transfers the money from my account to the payees account.

Swish makes sure that I have enough money in my associated account before processing the payment. And the faster payment infrastructure transfers the money almost instantaneously.

Concept 2: Mortgage as an overdraft

My mortgage in the UK is a so-called Australian mortgage. Essentially, it is an overdraft valued at the mortgage value. It is secured by the property, and so interest is charged at mortgage rates, rather than normal overdraft rates.

And it is incredibly flexible. I can pay more into the overdraft if I want, thereby reducing the overdraft and consequently my monthly interest fees. Also, I can access the full amount of overdraft at any time I want through an attached debit card. So, let’s say my mortgage (overdraft) was worth 200K and over 5 years I paid off an extra 1K per year, then my overdraft value is 195K. I can access the spare 5K whenever I want.

Combined Concept: Faster/Simpler Credit Card

Can we not combine the idea of Swish and the overdraft?

Instead of my Swish being connected to a bank account that is in +ve credit, why not connect it to an account that has a pre-agreed amount of overdraft. These accounts are standard in banks today.

The process of making a Swish “credit credit” payment is then effectively the same as now with one minor change. Instead of Swish checking I have enough money in my account to make the payment, it checks that I have enough spare capacity in the overdraft to make the payment.

Maybe I miss something, but this seems a simple opportunity to innovate within banking. The one restriction I can think of is it would currently be limited to Sweden and Swedish vendors. However, P27, has been launched looking at Nordic payment processing. Maybe that could make it pan Nordic (except that Mastercard have been chosen as the processor).

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