“Can we all just agree that real-time access to money isn’t going to be an option anymore?” said Ingo Money CEO Drew Edwards.
That’s how Friday’s conversation between Edwards and Karen Webster started. Yet, according to the latest Disbursements Tracker, a collaborative effort between Ingo Money and PYMNTS, hurdles remain. The Tracker found that some 74 percent of business executives cited a lack of interoperability as a major inhibitor to their real-time payments adoption, along with the operational and process challenges that come with ”living in a world where money moves that fast.”
Edwards agreed that there are hurdles, and businesses are lagging behind as a result of some, all or a combination of those concerns. It also goes with the territory anytime a new innovation comes to market.
“I remember, in the early 1980s, when BMW put out the first car with antilock brakes,” he said. “Ten years later, you couldn’t get a car without them,” noting that some innovations quickly become a consumer standard because they completely upgrade and transform the experience.
Instant payments are a tool of similar utility, which is quickly on its way to becoming a standard for consumers and their payments, just as antilock brakes became for cars and their drivers.
“What we are seeing in 2019 is the innovators telling their teams to figure it out now,” Edwards said, noting that those innovators will be how the tool moves forward as a whole — regardless of whether the traditional players in the market want it to do so.
A Tale Of Two Business Types
Edwards explained that, in any industry, there are always two types of firms: those that think about innovation first and those that think about innovation only when forced by innovators. The second group, he noted, is much larger than the first.
Case in point: the bankers who rejected ATMs in their early days, insisting that customers would want to talk to a teller — or banking clients who had been absolutely certain they would never issue credit cards because “their customers only wanted cash and checks, thank you very much.” Another instance would be those who resisted peer-to-peer (P2P), until Venmo didn’t give them any other choice.
“There is always going to be a large part of the market [that] will stick their heads into the sand until their backs are up against the wall,” he said.
The same thinking has now crossed the instant payments chasm. Twenty-plus years of shopping online has radically altered consumer expectations around paying and being paid. Consumers are used to moving money back and forth instantly between them, Edwards noted, or accessing digital shopping carts that allow them to pick how they pay. Their expectation — when they are getting paid by a company — for labor or an insurance claim, for example, is “that [it] should be just as easy in reverse.”
Momma, Don’t Let Your Babies Grow Up To Be Laggards
Eventually, as history has demonstrated, the time will come to catch up with the latest innovation — whether it be ATMs, credit cards, P2P payments or instant disbursements. The question companies must ask themselves is how much they are willing to risk by waiting until that time comes, or until actual disadvantage starts to peek into their market performance. The easier it is for consumers to pick up and go, Edwards noted, the more likely they will do it.
“This has already happened in the gig economy, [as its] workers are fickle by definition and don’t get overly embedded with one employer. If I can take my labor and be paid instantly by going across the street to work at a different restaurant, or [by] driving for a different service, I’m gone as that worker,” Edwards explained.
However, while that is the nature of the gig economy, he noted a shift in the “smokestack” economy as well. Historically, insurance firms have been slow in this arena, but, in the last four months, have been avidly pursuing faster and instant claims settlements — and advertising it to consumers.
“These guys are all selling commodities, and payment speed is a differentiator among insurers,” he said.
Meanwhile, banks are quickly realizing that their small business (SMB) and consumer offerings out of retail banking are completely exposed to firms like Square and PayPal, which are building financial ecosystems for their customer bases, often predicated around offering them faster and more frictionless environments in which to work.
“Look at Square’s debit card,” Edwards said. “They are creating use cases for it, which is amazing because 70 percent of businesses have a debit card, and 80 percent keep it in their safe. Square is creating a use case for it by saying, ‘Here is your money today in your account, and here is a debit card so you can spend that money today. No more floats or pay gaps.’”
As Silicon Valley innovators are adding more services (loans, payments, savings, easy-to-operate and interconnected dashboards), he noted, retail bankers are threatened, and realize they can lose their customers to these alternatives unless they jump on board with the innovative cycle.
“[You’ve] got to love the Silicon Valley innovation machine — people aren’t ignoring Square or PayPal right now. And it’s driving behavior in the traditional banking world,” Edwards said.
The Faster Things Move, The Faster They Move
Four years ago, only about half of all Americans had smartphones, and only half had access to broadband internet. Today, those figures are closer to 90 percent and 80 percent, respectively — and, as Webster noted, the pace is picking up exponentially when it comes to technology and services.
“The smartphone, the iPhone, was this thing that was really cool in and of itself,” Edwards said, “but the industries that it created, the companies it created, the functionality that followed on behind it is so much bigger than the phone itself. Instant payments is a spear-tip technology in much the same way.”
Currently, cash flow is managed around when money is coming in. That, he noted, is soon to be a thing of the past, replaced by a different set of conversations to come.
“We are just seeing the beginning of it now, and the customer experiences and the revenue models associated with the entire flow of digital money in all direction[s]. I don’t know what it is going to look like, but it will be a wholly new conversation,” he said.