Bridging Instant Payments’ Perception/Reality Gap

Payments people love to talk about rails — whose rails are the fastest, cheapest, most secure, most accepted, most compliant. Consumers, not so much. In fact, as Ingo Money CEO Drew Edwards pointed out to Karen Webster in the most recent edition of their “how to instant” conversations, consumers more or less don’t know the payments rails exist — and are really only ever concerned with a single question: “How am I gonna get my money?”

“Nobody cares what rails are going to be used any more than I care when I call you up on the phone what wires and satellites carried the signal to you,” Edwards said.

What the customer does care about is the experience — how fast the funds came, how quickly they were available for use, whether they ended up in an account where the consumer could make instant use of them and whether they could choose how to receive those funds.

For senders, delivering that experience means more than just moving money faster into bank accounts or digital wallets — it is also about offering the payment choices that create ubiquity for the consumers on the other end of the transactions.

That, Edwards told Webster, remains a work in process.

From the Appearance of Instant to the Reality of Instant

Although there are many flavors of “instant” payment offerings in the market today, Edwards noted, a lot of what looks instant to the consumer isn’t. On the front end, funds are pushed to the end consumer and are possibly even available for instant use. However, no money is moving in real time — at least not yet, depending on what rails are used. For example, push to debit card options might put money into a consumer’s or SMB’s bank account instantly, with settlement happening a day or two later.

“There is a difference between real-time availability of funds and real-time settlement of funds,” Edwards explained. “In either case, the consumer is going to say, “oh, cool, I got my money right away.” However, enablers of instant money assume the risk between the time when they make funds available and when settlement happens later.”

That’s particularly true when funds are truly instant — meaning they are irrevocable.

As Edwards noted, although having a real-time infrastructure would make the clearing and settlement process more efficient, payors and the channels that serve them don’t have to wait to move funds in real time to a payee.

“There are enough rails in place today to provide ubiquity and choice and instant access to good funds for consumers,” Edwards noted. “We don’t need more rails; we need more ways to give payors options to deliver choice, and more ways to build trust with the consumers and SMBs that the funds they get instantly are not going to be clawed back.”

FIs and Solving the “One too Many” Payments Puzzle

Edwards believes this is where FIs have the opportunity to change the instant payments game.

Every payment starts with a bank account and ends in one — something Edwards said puts FIs on the critical path of igniting instant payments by making it available to their corporate customers. Collectively, Edwards emphasized, if one is thinking about how to build a modern disbursement experience across the entire payments ecosystem, getting FIs behind instant payments is the critical first step.

There is just one small problem, Edwards remarked: In most cases, FIs are going about it all wrong.

“There’s more to [instant] than bolting it onto a suite of other payment services they offer to corporate clients like checks, ACH and wire services,” Edwards said. Even though instant payments is a transaction, it’s not that simple — particularly for many of the use cases in which instant is now being applied.

Instant payments done right is about handing off a suite of services that gives the customer a chance not just to choose an instant payment — but to choose one that runs along the rails that meets their actual needs.

Using insurance companies as an example, pushing payments to thousands of consumers to settle claims is a critical and continuous part of doing business. It is also an extremely regulated process concerning how these carriers must interact with and pay those customers.

Whatever form factor they choose, Edwards explained, it will have to work nearly universally across that broad customer base. A simple, one-off instant payments integration from their FI isn’t going to give them the highly universal method they need. Depending on the specific set of rails that is used, it could easily be incompatible with how many consumers can receive payments — and even for the compatible ones, the insurance company might not have all the data they need to route the payment correctly.

Edwards pointed out that corporates can, of course, attempt to push their customers toward a specific payments type and do much work to receive it, but that will be time-consuming and expensive – and likely an exercise in herding cats.

“At that point, the conversation turns to what’s cheaper and easier — and that is to keep using checks,” Edwards said, adding that the reason checks persist is that they are the only payment form that solves the one-to-many problem for businesses like insurance companies.

Banks in this regard have a choice: They can attempt to construct a marketplace of instant payments services for their corporate clients, or they can leverage the capabilities of third parties that can provide plug-ins to an instant engine and disbursements marketplace.

“First, there are perhaps one or two banks that are even large enough to make it work from a scale perspective — but even past that, they don’t want to do this because they aren’t experts and this isn’t their core area of innovation,” Edwards emphasized. “Plus, if they started right now and threw everything they had at it, it would still take three years to get off the ground — and by then, the game will be over.”

The direction of the market is clear — and as more consumers experience instant payments, the demand will only increase. The next challenge will be to make those instant payments genuine on the front and back ends — and then make the option universally applicable for consumers.