The word is out about instant payments — a fact made largely indisputable by the numbers. According to the latest edition of the PYMNTS Disbursement Tracker, 64 percent of consumers have heard of instant payments and are interested in knowing more, a dramatic uptick over 2017 when only a little over a third of consumers had even heard of this new way to be paid.
The numbers go beyond awareness. Instant disbursements are also picking up steam where it really counts — usage. When we asked in 2017 how many consumers have received an instant payment, the answer was a mere 11 percent. When we asked again this year, that number had skyrocketed to 42 percent.
That kind of rapid “up-and-to-the-right growth pattern,” Ingo Money CEO Drew Edwards told Karen Webster in the final edition of the “How To Instant” podcast series, is as gratifying as it is unsurprising. The benefit of getting paid instantly is so obvious, he said, that consumers nearly universally adopt it when it’s a choice. Of the 90 percent of consumers Ingo Money sees opting into digital payments instead of check disbursements, 90 percent further chose an instant disbursement to their bank account. The only mystery there, he and Webster concurred, is the 10 percent of customers who are intentionally opting into paper checks.
And for 60 percent of the American public, not to mention the vast majority of small- to medium-sized businesses (SMBs), getting paid funds one is owed immediately isn’t merely a nice to have, Edwards said, it’s a need to have.
“There are a whole bunch of consumers out there who need instant because every day they don't have access to funds is costing them money,” he said. “For example, the majority of small businesses fail because they can’t match accounts payable with accounts receivable. For a large swath of consumers and SMBs, instant access to funds will have a transformative effect on their financial lives.”
But interest alone won’t get instant payments to the next level, and in many ways, Edwards noted, the race is just now beginning in earnest. What has to happen now is for all the stakeholders who make up the instant disbursement ecosystem as it stands today — large corporates, financial institutions, FinTech platforms, SMBs and consumers — to work collaboratively to make truly seamless and secure instant payments experiences across verticals and use cases a reality in the next decade.
How do they do that? There is no single correct road map, Edwards said, but there are guidelines useful for any interested payer.
Choice: The Golden Rule of Instant
Really making instant payment ubiquitous, Edwards said, isn’t about flipping a single set of rails on, offering it up as an option and calling it a day. A true modern payment architecture, he said, has choice baked in at the foundation — it gives the end receiver a way to instantly receive funds how they want, when they want. No new account to sign on for — just checking, authenticating and then choosing where the funds flow.
“There is no one choice that solves for everyone, so the entire ecosystem needs to be thinking about how they are going to bring all of those rails to the party,” he said.
And there are a lot of rails out there at this point, Edwards noted. That, he said, is mostly to the good, as it means at base there is likely a mechanism out there by which the vast majority of Americans could, in theory, receive an instant disbursement.
But bridging the gap between “in theory” and “in practice” is going to be a collaborative effort. Payments are complicated, and instant payments are even more so because it is, well, instant. The rails all work slightly different from each other, and there is an awful lot of underlying regulatory, technical and practical complexity in solving for the real mechanics of moving trillions of dollars around in the background.
“This is a place where everyone in the ecosystem needs to think about partnering and collaborating, because they’ve got to be sophisticated enough to play with all of the different rails — and it is not so easy considering they all operate under different rules,” Edwards said. “As a platform, it took Ingo eight years to tie all those rails together. It’s a big game and a big task — it is definitely not work for two guys sitting in a garage.”
So, who is it for? That’s the piece every ecosystem player needs to focus on — though what those pieces are vary by player.
For corporations looking to push payments instantly, the problem is one-to-many payments, and how to set up payees such that they can choose which set of rails they can seamlessly have funds pushed to. Financial institutions (FIs), he noted, are in some sense ideally situated to provide that service, considering they issue card products, are in the ACH network and have dedicated treasury functions. That gives them the pieces they need to make instant disbursements happen in a compliant, secure way, he said. What they need is a way to “stand all of that up together as a suite of options” to corporate (and eventually SMB) partners.
And, he said, this must be done with an eye toward timing, so to speak, because the innovation history of the last decade or so is that when FIs fall behind, FinTechs jump in to make the offerings in their place.
The platform players, like Ingo Money, on the other hand, have a different set of challenges to meet — mainly in building that connective tissue between the financial services institutions in a way that is compliant with regulations and secure when it comes to all of that non-public consumer data. That’s a big job in a world where payments are happening instantly and irreversibly — and one, Edwards noted, that has almost no margin for error.
“I was having dinner with one of our partners at a bank recently, and things have been rolling out smoothly and I jokingly asked him what we had to do to screw this up,” Edwards said. “And what he told me without missing a beat is that all would be great as long as he doesn’t read in a newspaper that I allowed all of their data to be hacked.”
And finally, he said, the card networks’ role is changing in the instant payments ecosystem. Thus far, he said, they have done a tremendous job in building push payment rails like Visa Direct or Mastercard Send and an even better job of evangelizing them and bringing the concept into the mainstream.
“Now I believe that the market is moving, and they’ve helped prime the pump. The obvious focus for them is how to improve authentication, acceptance rates, dollar sizes and the like. There are a lot of tools we need them to bring to market to further enhance and bolster this emerging ecosystem,” he said.
What Comes Next
For all the progress that instant payments have made over the last five years, there is an awful lot of heavy lifting left for the industry moving forward. Serving SMBs as payers — as opposed to mainly as receivers of payments — is one of the next big open frontiers to conquer, he said, once the world of smokestack industries and large corporate treasury departments are dealt with. He suspects there will also soon be changes emerging in the world of regular W2 payroll that will match the instant payments that are happening in the gig economy.
And these changes will come, Edwards said, first and foremost because it is what consumers want — and the biggest lesson of the digital commerce ecosystem is that what end-users want is usually what ends up driving innovation. Choice, collaboration and a willingness to evolve are the starting points on how to instant today, Edwards said.
What will be worth watching tomorrow is all the new things corporates, FIs and FinTechs will build once they’ve got it down and start using it to iterate the next generation of innovations.