Ingo Payments’ Edwards Says Regulatory Tightrope Will Be BaaS’s Proving Ground

As the banking and payments business cross into the second half of 2024, many executives say we’re at a pivotal juncture — one that will require a steady hand on the wheel.

“Regulatory orders and regulatory scrutiny have taken a front seat in the industry,” Ingo Payments CEO Drew Edwards told PYMNTS’ CEO Karen Webster during a conversation for the “What’s Next in Payments” series. “We’ve gone through a bunch of these cycles over the last 23 years, but this regulatory environment is back to where the bank sponsorship [model] is getting tighter and more difficult.”

This increased vigilance has led to a more cautious approach among banks and payments players, influencing deal approvals and implementations. It has also led to the emergence of trust as a critical component within the industry’s growth engine.

Edwards shared insights from a conversation with a banking partner, emphasizing that trust levels in new FinTech propositions have declined, while trust in established relationships has increased.

“Trust is what’s at stake here in this industry,” he said, underscoring the importance of reliable partnerships in navigating the regulatory landscape. “The cream rises to the top.”

Still, while the current environment presents challenges, market disruptions can also lead to eventual consolidation and improvement, fostering a more robust and healthier ecosystem.

“My hope is that it doesn’t spoil what’s in the soup; the market is asking for the soup,” Edwards said, noting that it can be challenging to compete with something shiny and new when one’s own growth is focused on being compliant and doing the right thing.

“It’s so powerful — this notion of faster funds, embedded accounts and embedded payments — as long as you get the banking piece right and realize that’s your curfew,” he added.

Navigating 2024’s Transformative Payments Landscape

With the potential for shifts in regulatory frameworks, and even across consumer behavior and political landscapes alike, the remainder of 2024 promises to be a transformative period for the payments industry.

Already, the first anniversary of the FedNow® Service launch has marked a milestone in the realm of instant payments. The Federal Reserve’s entry into the space, along with The Clearing House and major banks, has influenced pricing and market dynamics. Edwards noted that the presence of the FedNow platform has driven down network costs and increased its relevance.

“It’s a part of every conversation now, the question: ‘Do you have RTP® and FedNow?’” he explained.

At the same time, despite the buzz around instant payments, consumer behavior still somewhat favors traditional payment methods. Edwards highlighted that push-to-card transactions continue to dominate consumer use cases, while bank transfer rails are more critical for B2B and business transactions.

“For B2B use cases and business use cases, these bank transfer rails are critical,” he said.

The Importance of Trust, Compliance and Adaptability

Among the transformative events and trends influencing the payments ecosystem this year, one reigns supreme: the macroeconomic environment.

The broader economic landscape remains a wild card for the payments industry, and Edwards highlighted the impact of a slowing economy on transactions, influenced by regulatory turmoil, reduced investor funding and overall economic slowdown. He explained that while certain sectors like gaming and insurance may be more resilient, the effects are beginning to be felt across the board.

Concurrently, consumers are becoming more price sensitive, seeking better deals and adjusting their purchasing habits to stay atop of economic pressures. The trend is evident in the anticipation around major sales events as consumers look to save on essential purchases.

Looking ahead, as the Consumer Financial Protection Bureau prepares to rule on open banking requirements, the industry anticipates changes that could reshape payments. Edwards said he expects the regulations to favor consumer privacy and choice, potentially enhancing trust in bank credential logins and enabling new opportunities.

With 2024 already entering its second half, the interplay between instant payments, open banking and faster funds remains an area to watch, with potential for innovation and disruption, he said.