The remarkable persistence of the physical check is something almost miraculous to behold in the world of payments.
No one likes it or really wants it — consumers vastly prefer digital payments and like them even better when they’re given the option of receiving them instantly. And the technology to provide those instant payments exists — actually in several forms carried over a variety of rails.
“They’re still getting a check in the mail because we’re still behind,” Edwards said. “[Instant payment] is still not ubiquitously available as an option for the consumer to choose. So, no matter what the force is behind the scenes, the people writing the checks have got to make the choice available for adoption to be a factor. Because the beauty is that where it has been offered, adoption of instant choice and digital is like 90-plus percent. The problem is availability.”
Edwards said bridging that availability gap is more complex than simply bringing in the tech, flipping an “instant switch” and walking away and considering the check killed. First of all, he noted, the reality is that real-time payments (RTP) aren’t actually the thing killing the check, because RTP almost never replaces check-based payment directly, at least not now. Moreover, he noted, RTP doesn’t simply mean offering the customer the choice that is an option to receive instant payments only one way.
Bringing real choice to the worlds of disbursements means offering consumers what they are used to when they pay for something — getting to the point of sale (POS) and deciding whichever payment mechanism they want to use. Until the consumer has a comparable range of options when it comes to getting paid as they do when they are doing the paying, he said, it might be real time, but it’s not a real choice.
Real-Time Payments: Kill The Check Or Kill ACH?
Real-time disbursements get touted as the great “check-killer” that the payments ecosystem has been long awaiting, but there is a small problem with that narrative, Edwards explained. Checks are very rarely the thing supplanted when real-time disbursements come into play. RTP, he said, should more accurately be called the “ACH killer” because in the big verticals where instant payments are already online — merchant settlement, payroll, the gig economy — real-time disbursements didn’t come in and directly replace paper in most cases. Instead, they replaced a payment that was already digital (and ACH) and made it real time using real-time clearing and settlement rails.
And those cases, he noted, were what he considers clearing the “low-hanging fruit” in terms of instant payments adoption. The challenge now is climbing the much higher, steeper cliff that will be getting the big treasury banks on board with taking the real-time rails they already have access to and finding a way to help their corporate clients connect to all of them such that they are able to realistically offer their own customers the most robust payments choice possible.
And, given the fact that banks are working with legacy mainframe systems written in the archaic COBOL programming language, that is in no way a small lift.
“They can’t even find programmers for that stuff,” Edwards said. “So, you’re just talking about banks having to embrace major process changes to move from check to instant.”
He added that the process changes involved are complex. For example, financial institutions (FIs) need to understand all of the connections that they need to build for a true transition to instant payouts. And even after firms build those connections, FIs face the incredibly challenging job of figuring out how to deploy the new system, Edwards said.
Banks have the necessary technology, he said, but they lack the ability to step back and realize that the batch processes of the past aren’t compatible with the instant payments of the future. Edwards said firms have to organize all of those potential connectivity points for instant rails into an accessible whole.
“So, the banks have got all the connectivity, but the process is still broken at their origination side,” he said. “In the end, it comes down to offering consumers real choice — not just a single option they have to sign on for if they want to get paid faster.”
If all a bank has to offer is a single real-time payments option, Edwards said, that’s not offering choice so much as building an enrollment process for a specific set of rails.
One Alias To Rule Them All
All this discussion leads to an obvious and interesting question. Once the banks have made the partnerships they need and leveled up those legacy systems such that corporates are truly capable of offering customer choice when it comes to getting paid — what are those customers actually going to choose?
Edwards said that’s a more complicated question than it seems — and also a more important one than anyone realizes.
“The alias may turn out to be the most important behavior influencer in choice,” he said. “People will care about: ‘How easy is it for [consumers] to access [instant]?’”
There are a variety of ways to answer that question. For example, Edwards said bank account numbers have the benefit of being unique, but few people have memorized their account numbers or routing codes, nor do they carry a checkbook that tells them that information quickly.
On the other hand, email addresses are easy to remember but not unique enough. People tend to have a few of them and often can’t remember what bank accounts they’ve associated with which address.
As for card numbers, those have a lot of promise because people tend to carry them, but card payments have to be inclusive of credit and prepaid, not just debit. And mobile wallets could have a lot of potential if they can further simplify the process of routing money to its preferred final destination.
“I think all of this comes down to [the fact that] the infrastructure to offer choice just is not quite there yet,” Edwards said. “When it is offered, having the right alias to direct funds to is what’s going to win. It’s not enough just to tell me it is going to be fast. It has to be easy for me to access where I want, how I want as well.”