Banks have honed their systems for decades to manage payments seamlessly and efficiently, while providing great client service with Titanic amounts of volume. However, they face a challenge when it comes to working with emerging forms of payments.
“It’s hard to get those systems now to interact with things that are very different,” Modo CEO Bruce Parker told PYMNTS. To that end, Deutsche Bank recently took a stake in the firm to expand its existing digital business-to-business (B2B) and business-to-consumer (B2C) payments business.
For starters, the way that newer payment methods identify customers might be different than traditional banking systems. Instead of using routing and account information under NACHA-style interaction in the U.S., they might use email addresses or mobile phone numbers. In addition, a writing bank may have a presumption that another bank has done some work from a know-your-customer (KYC) perspective when someone writes a check. However, that task is not so simple in a gig economy or marketplace world.
“Everything about all that infrastructure assumes we’re talking from a bank to a bank,” Parker said. “Now all of a sudden you’re talking from a bank to not a bank.”
At the same time, beneficiary choice might be between a check and an automated clearing house (ACH) transfer. The expectation today, however, is to be able to pay someone with email, verify who they are and where they live. Based on that information, the idea is to offer them a choice between systems such as PayPal, Zelle, Venmo, Alipay or WeChat Pay.
That said, bank accounts are still part of the payments process with emerging methods. If people want to pay someone through a digital wallet, they need to have a balance, and, in order to have a balance,they need to deposit funds into a digital wallet from a bank account. All of those steps — such as moving money into a mobile wallet and paying for purchases — are separate steps that need to be completed. Data and operational process loads that have changed need to be created or invented for these transactions to occur.
How does one make existing banking systems interoperable with these new payment choices? The answer depends on the network and country, but companies such as Modo seek to make sure that data can flow between systems. While Modo doesn’t do authentication, settle funds or move money, it seeks to provide the way that payments are communicated. According to Parker, “Our job is the interoperability. Our job is connecting the dots.”
