Faster payments continue to gain traction in the U.S., as service providers old and new introduce more options for consumer and business payers to move money quickly and, in some cases, instantly.
However, real-time payments (RTP) have a long way to ubiquity, and while each payment rail has its advantages, each also has drawbacks that could stifle efforts for near-universal adoption. Drew Edwards, CEO of Ingo Money, recently sat down with PYMNTS for its latest Masterclass video discussion, and dove into the challenge of faster and real-time payments' path to ubiquity.
The first step in achieving such traction is demand, he noted. In the U.S., payers have already demonstrated their eagerness for faster payment options.
"We live in a country where the consumer's not going to settle for a single choice. None of us are going to spend money that way," he said.
Uber and Lyft were integral to introducing the option of receiving money more quickly, offering their drivers faster access to their earnings. That sparked a catalyst of demand and opportunity in the market, said Edwards, as more industries saw use cases for faster and real-time payment services. The insurance sector sees demand for faster claim payouts, for example, while the small business lending market can similarly add value to borrowers by enabling them to draw funds from their line of credit, and actually access that money same day or in near real time.
Faster payment capabilities have transformed customer and user experiences, according to Edwards, and the market has responded with a slew of faster payment services.
The Ubiquity Challenge
None of these services, however, have achieved ubiquity. Edwards discussed the range of faster payment rails available for payers today, including cards, Nacha's Same Day ACH, The Clearing House's RTP network, the Federal Reserve's upcoming FedNow service and a slew of FinTech services looking to nix the reliance on banks to move money more quickly.
The card networks today, he explained, are the closest to having achieved ubiquity, but cards cannot support the large dollar amounts and demand for richer transaction data to move along with funds — two features better supported by The Clearing House services.
"On the other hand, if you're trying to pay my 17-year-old daughter, and you give her a choice, she doesn't have a checkbook or a routing number," Edwards said of the drawbacks of checks and ACH transactions. "She's going to pull that card out of her pocket, or log in with PayPal or Venmo."
In the U.S., complicating the ubiquity picture is the sheer vastness of the financial services market.
"There are literally 10,000 [or] 11,000 financial institutions [FIs] in this country," noted Edwards. "That's very different than other markets like the U.K., Canada, etc."
There's also a "lack of trust" between the market's top banks and the thousands of smaller credit unions and community banks. So, even if The Clearing House onboards the banking sector's top FIs to its RTP service, which could result in up to 65 percent coverage for end users, ubiquity will require The Clearing House to sign up those thousands of other, smaller FIs.
The high volume of processing platforms within the card networks is another hurdle making any one card network's ability to achieve ubiquity in faster payment capabilities a game of "whack-a-mole," Edwards noted. In addition, Nacha's inability to offer always-on, 24/7 real-time capabilities is its greatest weakness.
Payment Rail Collaboration
Though customer demand for faster and real-time payments continues to grow, their demand for payment choice is unwavering. As such, what will drive faster and real-time payments to ubiquity is not one single payment rail or service, but an ecosystem of faster payment options.
"Real-time payment rails have reached ubiquity — no one rail has reached ubiquity, but the combination of them pretty much covers every consumer in this country," Edwards said, adding that the faster payments choice is out there, whether it be through cards, RTP or MoneyGram.
The Federal Reserve's recent announcement of plans to launch the FedNow service is yet another reflection of the roles of competition and choice in driving faster payments ubiquity.
"That's what's driving adoption — is good, old-fashioned innovation around customer experience," he added. "The government doesn't need to do anything other than not complicate matters, and focus on safety and soundness."
It's likely going to take another five years or so for any one faster payments service to achieve ubiquity independently, Edwards suggested. However, while incumbent service providers continue to build out their real-time payment options for payment rails both old and new, the market must also be sure to watch out for the dark horse of faster payments adoption: FinTech firms, like PayPal, Square Cash and the Apple Card.
These companies operating in the digital wallet arena are able to move money quickly from one user's account to another without the bank, "with totally different economics," he said. They're challenging the way the payments ecosystem discusses the path to ubiquity (and the role of banks in that journey).
"Everyone is assuming that real-time payments [are] all about moving money from one bank to another," he explained. "The conversation around fast payments and fast funds, and real-time payments, needs to be broadened beyond just Bank of America, Wells, Chase and other banks out there."