The Payment 'Float' May Soon Disappear

By Hal M. Bundrick

NEW YORK (MainStreet) The payment "float" has been deflating for years. The amount of time required to process payments has become shorter and more efficient, and soon may be instantaneous. The timeframe required for settlement of funds is an important consideration for businesses in managing cash flow, as well as earnings on demand deposit accounts.

Back when people issued checks for payment through the mail, the float could be more than one week. In the 1980s, mail often took four days to reach its destination. Businesses could take two days to receive and deposit payments and banks would require three days to settle the funds. That's a nine-day float, as estimated by Bottomline Technologies, a business payment solution provider. Today, a check-issued payment sees only about a three-day processing float.

Now, by a four-to-one margin, organizations in the electronic payments industry believe that the U.S. payment system should begin migrating to "real-time" settlement of transactions, according to a recent member survey conducted by the Electronic Funds Transfer Association.

Real-time settlement would mean execution of electronic financial transactions without any delay, following the processing of the transactions. The Federal Reserve System is currently working with the payments industry to determine if converting electronic payments to real-time settlement is feasible.

"Real-time payments will increase the efficiency of our payment systems," said Kurt Helwig, president and CEO of the Electronic Funds Transfer Association. "It is important for us to work with the Fed Banks in order to adapt to changing technology in order to remain competitive within the global markets."

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