The fact that instant disbursements are overwhelmingly preferred by consumers isn’t much of a surprise. When stacked up against a paper check, money that is instantly loaded to one’s digital account of choice seems an obviously superior option. After all, when it comes to collecting money, it’s expected that consumers will want it sooner rather than later.
What does raise some questions, however, are the rare cases when consumers seem to prefer the good old-fashioned check – such as in areas like legal payments, where, according to the latest edition of the PYMNTS Disbursements Tracker, around 30 percent of customers still claim they prefer to be paid by paper check as opposed to digital disbursements.
That’s a shockingly high result, Karen Webster observed to Ingo Money CEO Drew Edwards – particularly considering that in nearly every other disbursements area surveyed, 10 percent tends to be the max-out point for check preference. Why are checks holding on so powerfully in the world of legal payouts?
The answer is complicated, Edwards noted, because legal payouts are more complex and varied than most people realize. And in this case, the numbers can be a bit deceiving – the preference for checks likely doesn’t indicate a love for paper payments among the law firms that pay out and the clients who accept the payments, he pointed out.
“I think I know why they are cutting checks at law firms and why clients are accepting them – it’s because these are one-time, in-person and often large payouts,” Edwards said. “Checks will work, and they are what have always been used. But for the guy in his lawyer’s office with a $600,000 piece of paper, this process isn’t over for him – his first question is, ‘What am I going to do with this?’ That whole problem could be wiped out with an instant payment.”
But, he conceded, the instant disbursement market isn’t yet quite where it needs to be to solve that specific problem. It is, however, headed in that direction, as the instant payment tailwinds that have pushed the practice to other verticals are now lined up to start blowing harder on the world of legal payments.
A Tale of Two Disbursement Types
When most people think of legal disbursements, Edwards noted, they tend to think about what he calls “large life event” payments. For example, someone has sold a piece of real estate, or has been critically injured and is accepting the payout of a civil judgment – emotion-tied payments for which consumers have typically been waiting a long time to receive.
“If I have lost my right leg and I have been waiting on my million-dollar settlement for two years, I think it is safe to say I am going to be pretty insistent on leaving my lawyer’s office with my money after all the final paperwork is signed,” Edwards noted.
Waiting two or three days for an ACH payment to make it to their account or for their checks to clear simply doesn’t work for these people, who would rather take their check and immediately cash it. That will be an expensive transaction, Edwards said – six-figure checks cost thousands of dollars to cash in most cases (if a bank will cash them at all) – but for a certain type of customer, it might be worth the price.
“We’ve seen this play out over time in a lot of verticals – certainty of payment is always an important question,” said Edwards. “That guy with the $600,000 settlement will pay out $1,800 in check-cashing fees because he doesn’t believe the check is real and certain. Turning it into cash makes it real and certain.”
This class of legal disbursements is an excellent place to start tapping into the salutary powers of instant disbursements, noted Edwards, because customers who can see the full amount hit their accounts while signing contracts in their lawyer’s office are less likely to pay thousands of dollars in the quest for realness and certainty.
But, Edwards noted, instant progress in the area of legal disbursements is still a ways down the road, due to the caps on how much can be moved at once. The largest instant disbursement payments are now entering the six-figure range, but are still less than $500,000.
What is not so out of reach is the second type of legal disbursement: the large settlement payout that is not going to a single individual, but to an entire class of individuals. Those payouts tend to be on the smaller side, Edwards noted. It is often the case that every individual will “collect about $9.22,” but all monies have to be paid out on time to each member of the class.
In this arena, moving to instant payments is the natural move, he noted, because it solves problems for both the payor and the payee. Sometimes consumers will pay a $3 fee to cash that check, or will simply deposit it into an existing account. For the law firms, the checks themselves are usually more expensive to create, keep track of and send out than the amounts printed on them. The instant payment is cheaper and works better for everyone involved, said Edwards.
Moreover, he doubts that the 30 percent of consumers who said they were fine with receiving a check for a legal disbursement were thinking about these types of payouts.
“I don’t believe there is anyone out there who is saying they want the $9.22, but only if they can have it as a check,” said Edwards.
The Rapidly Changing Future
What will move the needle more firmly toward instant disbursements of legal payments, Edwards noted, will likely be the same force that has moved it everywhere else: consumer demand. As of December 2019, according to the Disbursements Tracker, 82 percent of consumers are aware that instant payments are out there, and 42 percent have received one.
As that awareness grows, consumers will push for instant payments whenever they are getting a disbursement. In legal, said Edwards, that will likely start with the low-hanging fruit in class-action disbursements, where the check is an anachronism that is good for no one. But over time, as instant disbursement caps continue to rise, it will move up the chain to those very large payouts.
“The instant payments experience is better for both sides of the transaction, and I think legal is going to fit right into that over time rather than looking like an exception to the rule,” Edwards said.