Consumers live in a real-time world. Their use of mobile devices fuels the expectation that what happens on the other side of a click or a swipe will be delivered in real time — or as close to it as possible.
That expectation increasingly extends to how consumers want to access their money.
And for good reason, Ingo Money CEO Drew Edwards noted in a recent conversation with Karen Webster and Ingo Executive Vice President and Chief Product Officer Lisa McFarland — instant payments present a world of interesting possibilities for creating better consumer experiences across a wide range of uses. The concept is both incredibly simple and incredibly intuitive: Offer customers 24/7 access to good funds on demand, however and wherever they want them.
But delivering on that concept — and providing instant push payments on demand — is far from simple. It involves a lot more than just providing immediate access to those funds, as a variety of use cases — from peer-to-peer (P2P) to gig economy payments to insurance claims payouts and loan disbursements — are being challenged to “go instant.”
“Of course, instant payments have to be secure, risk-managed and in line with regulatory requirements,” Edwards told Webster. “What we see more and more, though, is that it has to work for many different types of businesses who want to push those funds instantly, and consumers who want to receive them in a variety of ways. Instant payments are a terrific customer experience, but delivering that choice is far from easy.”
An Explosion of Rails
The recent announcement that the Federal Reserve has decided to throw its hat into the instant payments ring with the development of the FedNow system has only further heightened the importance of the speed at which consumers and businesses can access funds.
That said, Edwards said it would be a mistake to view the Fed’s actions, or its forthcoming FedNow rails, as a major catalyst in driving instant disbursements in the U.S. “I don’t think it hurts matters any — but they are a bit late to the party, and didn’t start all of th[e] discussion around instant.”
Ingo was one of the earliest to arrive at the instant payments party, so to speak, McFarland noted, releasing its first instant push payment product in 2013 as an upgrade to its check-cashing services. That perspective, along with the evolution of instant payments, shows that the catalyst for instant disbursements was P2P marketplaces, she said, as well as the upsurge of volume on platforms like Venmo and Zelle over the last three to five years. From there, instant as an enabler to payments access spread to the gig economy, where the ability to pay workers instantly emerged as a major competitive differentiator for marketplaces looking to attract workers.
“Those two things were really the catalyst that turned instant payments into a tidal wave here in the U.S.,” Edwards said. “And now it is spreading to payroll companies, lenders, B2B businesses, treasury banks, insurance companies — everyone wants a piece of ‘instant.’”
But use cases for instant push payments aren’t the only thing rapidly proliferating, Edwards and McFarland noted. At the same time, options for how consumers and SMBs can receive those payments are expanding. As recently as three or four years ago, the only two games in town were push-to-card options via the card rails, Visa Direct and Mastercard Send.
Today, those two services have exponentially increased their range, but are now joined by other options. There are push-to-card services for challenger banks and payroll providers, as well as push-to-wallet options for PayPal, Square Cash, Apple Cash and others. And there are account-to-account services emerging, such as RTP from The Clearing House, Same-Day ACH and, slated to launch in five years, FedNow.
“From our perspective, as a disbursements marketplace, the more ‘rails’ the merrier,” McFarland said, adding that more options mean more choice for consumers and SMBs in how to receive those instant payments.
“We want to enable all networks at scale for our clients,” she said.
However, the proliferation of rails enabling instant payments, Edwards observed, raises a more fundamental question about “how to instant.” Picking the “right rails,” he said, is the wrong way for banks and corporates to think about instant, as it is short-sighted to think there will be a single winning rail. Certain payment methods in the U.S. may become less important over time, but will never truly die entirely as long as enough businesses and consumers are using them.
“Somewhere in this country, there are people paying each other with rocks and marbles, as they have always done,” Edwards joked. “The real sea change coming in instant payments will be the realization that there is not going to be a single winning rail at all, because that is not how payments have ever worked.”
Navigating What’s Next
The opportunity and challenge going forward for instant, Edwards and McFarland noted, is to create ubiquity by offering consumers and SMBs a choice in how to be paid. That is similar to consumers deciding how they want to pay today: a mix of cash, debit, credit, digital wallets and even checks — all payment methods supported by the merchants they do business with. Forcing consumers or SMBs into a particular instant payment method won’t work, because that’s inconsistent with how they decide to pay today.
Both Edwards and McFarland agree that the future of “how to instant” for banks and corporates is putting as many options on the table as possible and letting the customers’ preference be their “North Star.” Ubiquity, then, becomes a function of choice.
“Banks and corporates today are too focused on how to connect to ‘the rail’ and how to pick the right one,” Edwards remarked. “The better question worth answering is about the experience they are trying to create for that consumer or SMB — and then what’s required to deliver the maximum number of levers to create that ubiquity across all of those endpoints and end-users.”