When the history of the paper check is written someday, scholars will not note it was the best payments form, nor the fastest, cheapest or most beloved. Paper checks in the closing days of the 2010s are not only less than beloved, they are also widely disliked. Consumers almost never write them and don’t really enjoy getting them, and businesses don’t particularly like cutting them since they’re expensive, inefficient and present a host of security risks.
But what the paper check lacks in popularity it makes up for in sheer persistence — after a decade of proudly proclaimed plans to “kill the check,” the check just keeps on living. And for a very simple reason, Ingo Money CEO Drew Edwards told Karen Webster in a recent PYMNTS interview: the check works consistently if not brilliantly. It works particularly well in what Edwards called the “ad hoc” payments market wherein large enterprises have to make a one-time payout or series of payouts to a consumer or another business.
“If you think about a large insurance company or AP department,” Edwards said, “we have clients that are printing out a million checks a month because they have everything they need to use that form — a name, an address and amount. From that they can send an API call to a printer and from there the check is in the mail.”
It doesn’t matter who the recipient is or where they are — the check will work. The customer won’t necessarily be happy, the business is on the hook for all the costs of a check, but the job will get done. Instant payments has its biggest opportunities for growth here, Edwards noted, because the process is the most obviously problematic when it comes to ad hoc one-to-many payments. Instant payments done right in this context, he said, offer up everything the check offers but faster, cheaper and safer.
Doing it right is a challenge, he said, but one that is increasingly being met. Which means instant payments is progressing to its next phase of development — which will be less about getting them done, and more about what new things can be done with them.
Giving the Customer All of What They Want
That customers want instant payments is not a fact that can be contested. Edwards noted that within a few weeks of launching with a large insurance industry partner and offering customers the choice between a check and a digital payment, 90 percent of customers chose to ditch the check. And of that 90 percent who preferred digital, 90 percent preferred getting digital instant payments.
The problem that businesses often fail to grasp, Edwards said, is that while nearly every customer prefers an instant digital payment, not everyone prefers to get that payment in the exact same way. The customer only wants the payment they have a mechanism to receive — an already existing mechanism.
“And this is where we as Ingo step in to engage the recipient of the payments and create an environment where they can tell us how they want to be paid and where we can authenticate dynamically based on the payment choice that this is the right person and the right account to be pushing funds to with a variety of questions and data points,” he said.
“You’ve killed the check — but no one had to call in and sign up, it’s a process very much like onboarding to use a P2P service,” he said.
The same logic, he said, can be applied to any accounts payable (AP) department — a place where large firms have spent years upon years trying to stop sending checks, but have foundered on the rocks of trying to get all their recipients signed up for a single electronic payments mechanism. Even if they can capture a large share of potential payees, there is some segment that just isn’t compatible with their system or feasible to manually engage with. They might very much prefer an instant payment in principle, but in practice they will favor whatever payment method is easiest for them to collect, and for principle and practice to align and an instant payment to displace the check, it has to be just as easy and offer the qualitative improvement of speed alongside.
The good news for instant payments, from Ingo Money’s perspective, is that enterprises are increasingly catching on to the idea that their task is to provide optionality around instant payments, not to pick a specific mechanism. The more interesting news, Edwards said, is that as that is catching on and the improvements are becoming tangible, the appeal of instant is spreading, and its potential is growing.
The Next Evolution
Instant payments have an edge in what Edwards called the “ad hoc payments” arena because there was an obvious problem to solve in the form of the persistence of the paper check. Replacing ACH payments, he said, is a slightly different situation.
“I think ACH is not a bad system for recurring payments — dividends, payroll and that kind of stuff. It’s not broken or inefficient after making that first payment happen,” Edwards said, adding that, lacking the same kind of widespread dissatisfaction that appears with one-to-many payments, the impetus pushing instant isn’t as strong.
But pressure can appear on many fronts, he said. The gig economy, which now employs 15 million to 20 million people, was one of the major drivers in igniting consciousness around instant payments because of the push to move workers’ pay immediately upon completing their gigs. That, Edwards said, “broke the paradigm of the old two-week payroll,” because some 80 percent of workers prefer instant payments when it is an option.
That, he noted, left regular wage workers wondering why they were waiting two weeks to get paid.
Which means recurring ACH payments might “work” in the sense that they function — but they increasingly are not working for the people who collect wages and want to be paid faster or on demand.
And that, Edwards said, is the dynamic that is going to drive the instant payments market forward — the expanding field of what payees want and need and what services and monetization opportunities can be built out over the top of it. That might mean smarter payment arrangements, where payors can digitally offer small to medium-sized business (SMB) payees terms to either pay the full contract in 30 days or 98 percent of the contract in an instant payment when work is complete. It might mean better “me-to-me” money motion that makes it easier for a consumer to move funds instantly from one bank account to another. When the choice is shifted from the payor to the recipient of funds, Edwards said, the most important change to instant payments is that they stop being a single offering, and instead are the start of a lot of offerings.
“My bigger long-term vision and goal is that with our marketplace, when the payee gets to choose, you have an environment where people will work to influence what the consumer chooses,” Edwards said. “Every time I go buy something, the first thing that comes to my mind is which card will reward me the most for making this transaction. Why can’t it work the same way when someone pays me?”
Those rewards, when it comes time for a customer to pay, he said, vary. It might be cash back, or points or a discount — but whatever the method, the goal is the same: to be valuable enough to the customer that using it is worth their while.
He believes the same shift is coming to the world of consumers and SMBs getting paid. The competition will be to influence the payee’s choice when they get paid, and the attempt to win that race, he said, will be what drives the future of the industry.
“How that will translate to instant payments remains to be seen,” Edwards said, “but I think the opportunity will create a new monetization paradigm that doesn’t exist today.”