Inside Money: Reserve Bank issues speed warning on money

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"It was just 30 years ago," deputy Reserve Bank governor, Grant Spencer, reminisced in a recent speech "that payments were overwhelmingly made using cash and cheques".

While cash, and to a lesser extent, cheques linger on in the financial system, "most payments these days are made using electronic debit, credit and payment cards", Spencer said in the speech to industry group, Payments NZ.

New Zealand may still rank way behind Sweden, recently tipped as the first country likely to go completely cashless, but the changes to the country's payment system have nonetheless been profound.

"In retail payments, we are seeing rapid innovation, increasing technological complexity, and a breakdown of traditional boundaries between banking, telecommunications and IT functions," Spencer noted.

But the technologically-enhanced speed of money has also introduced new risks that the Reserve Bank would like to stay on top of.

"At the retail end, our reliance on electronic payments will continue to grow as we make more payments online and use mobile phones for more transactions," Spencer says. "This greater use of technology is making our lives easier but also brings increased operational risk. Uppermost are concerns about the vulnerability of payment systems to cyber-attacks and risks associated with the involvement of new non-traditional players."

As well as the risks involved in technological takeover of everyday financial life, Spencer also highlighted concerns about the increasingly globally-interconnected wholesale money-shifting systems.

These so-called Financial Market Infrastructures (FMI) have much greater potential to disrupt the system than the odd ATM failure, and have attracted the attention of regulators world-wide.

"The international regulators have become more concerned because of the growth in complexity and volume of payments, and the systemic risks that were made evident in the GFC," Spencer said.

He told the Payments NZ crowd that the RBNZ would increase its oversight of FMIs while remaining at "non-intrusive end" of the regulatory rainbow.

But as it looks to install a few road bumps at the wholesale level, the RBNZ is also keen to increase the speed limit of retail money.

By the end of 2016, banks in New Zealand will be expected to exchange retail payment information "at least hourly", according to the most-recent RBNZ 'Financial Stability Report'.

Bank clients may have already noticed that interbank payments are already going through quicker than ever as the tradition of overnight 'batch processing' began to die out a couple of years ago.

As the 'Financial Stability Report' says, the new hourly standard will "improve the overall efficiency of the retail payment system by providing faster payments finality".

It also means, of course, that the greatest delaying phrase in the history of finance, 'Your cheque is in the mail', will have to be replaced by 'There's an FMI problem'.