COVID-19 didn’t suddenly make consumers realize it’s preferable to be paid out instantly instead of waiting three days for an ACH payment — or worse, two weeks for a check to arrive by mail. In a recent conversation, Lisa McFarland, executive vice president and chief product officer at Ingo Money, told PYMNTS CEO Karen Webster that real-time disbursements present a rare win/win.
For companies, instant disbursements are cheaper and more secure than their paper-based counterparts. And for customers, they provide a far superior experience.
In fact, McFarland said the only thing that’s changed during the pandemic is the speed at which corporates want to see the market move. “I think the biggest change has been urgency,” she said. “There’s an overwhelming urgency now to digitize payments in general and speed up the rollout of real-time disbursements. And it’s being largely pushed by the corporate entities who are starting to see digital disbursement as a matter of necessity.”
So, if customers want it and corporates increasingly see it as necessary, what’s the hold-up?
McFarland said the problem is with treasury banks — necessary parties to these transactions — struggling to meet the infrastructure requirements. They need to give corporate clients the ability to integrate with real-time rails well enough to offer customers true payment choices.
The Legacy Infrastructure Blues
McFarland said the trouble is that “there is a lot of antiquated mainframe technology in place. It makes it difficult for [treasury banks] to adapt along with that technology. And, because of its complexity and in some cases because of its age, there are also very rigid business processes layered on top of that. It is a difficult challenge for the large banks and one that they’re very focused on solving — but will take more time and more effort.”
But she added that that creates an opportunity for midsized financial institutions to move in and leverage their “nimbleness and ability to actually get things done, [providing] capabilities that their corporate clients haven’t had access to.”
And McFarland said that it’s also where FinTechs tend to enter the picture for large treasury banks. They can bridge the gap and enable either corporates or banks to provide a platform providing the infrastructure requirements to let corporates offer instant disbursement over a variety of rails.
“That FinTech platform creates the infrastructure and software to make it possible for corporations to interact with customers, securely collect credentials [and] actually initiate or originate payments into the system,” she said. “And [it] gives the banks the ability to support the back-end settlement process.”
McFarland said FinTechs offer underlying platforms that let corporates and banks not simply flip on one set of instant-disbursement rails and call it a day, but enable all rails and let customers pick one.
The Path Forward
McFarland said that while banks don’t lack interest in making these charges, COVID-19 has been incredibly disruptive for them.
She said instant payments are “important to banks, [but] there are other things that they’re having to deal with right now that are impacting their ability to focus on certain activities. So, I would say on balance, they are less aggressively moving forward now than they were earlier in the year.”
But McFarland believes interest will re-emerge among financial institutions as pressure from corporates concerned about customer retention rises. As a result, she expects some notable progress on instant payments as 2021 and beyond brings better days to the market.
“At the end of the day, if corporates are pushing, generally, banks listen to their customers,” McFarland said.