Why 2021 Is All About Disbursements 3.0

The original use case for instant payments had an anniversary last week.

It was March 17, 2016 when Uber launched its beta version of Instant Pay, a push-to-card solution that gave its drivers the option to get paid instantly after a ride was completed. The product – and its announcement – laid the foundation for a wave of push-to-card solutions that leveraged the digital relationships gig workers had with those digital platforms.

It would take another three years before the next wave of instant pay use cases would emerge, this time with a different focus and increasingly different challenges.

“Disbursements 2.0 moved instant payments beyond a point-to-point solution with a debit card, to use cases between payors and payees where there was a desire to offer that payee instant [payment] and choice, and also where no digital relationship existed,” Ingo Money CEO Drew Edwards told Karen Webster.

Choice, Edwards said, wasn’t just about picking a speed setting for funds to flow into the receiver’s bank account, but also giving receivers as many options to receive payments as they currently have to make them.

“Choice may be different for different payers at different times of the year, or during certain weeks in a month, depending on what a receiver is dealing with in their cashflow world,” Edwards said. “Having that capability is important, but to offer choice requires a flexible, configurable disbursements marketplace, because every one of these business use cases has different rules, different regulations, different timelines and different processes that need to be solved for.”

From Gig Payroll To Insurance Claims Payments

Disbursements 2.0 gained momentum in 2018 as insurance company chief financial officers, the stewards of millions of claims payments sent out to claimants every year, began to balk at the high cost of checks that represented the bulk of those payments.

At the same time, insurance company marketing and product executives saw the rise of InsurTechs that, like the gig platforms, established a digital relationship with the consumer from the start. Instant claims payouts to a debit card were as easy for them as for Uber paying its drivers in 2016.

Instant payments with receiving choice suddenly became a top-of-the-house imperative at insurance companies – a solution that offered the immediacy of instant with something that InsurTechs couldn’t match: a diversity of receiver end points ranging from debit cards to digital wallets to direct-to-bank account. The business case for “instant with choice” claims payments was an easy one to make, even if the integration challenges were not so easy.

Insurance companies may not even have had relationships with recipients – and if they did, they weren’t necessarily digital relationships. There is a variety of customer touchpoints – agents in the field, call centers, mobile apps, web, emails and text are all part of managing the claims process. A digital payout solution requires that any and all of these touchpoints offer the same customer experience and have access to real-time information about the status of claims payments. Furthermore, varying state regulations that govern these payouts dictate disclosures, timing and even methods of payments. Moving from “the check’s in the mail” to a compliant digital experience gets more complicated.

Then there is the not-so-simple act of transitioning from a simple check made out to multiple parties to a digital experience involving multiple parties. It’s straightforward to send one claims check to a husband and wife, both of whom are on the homeowners’ policy because both names are on the mortgage – but it becomes more complicated to handle these multi-party payments in a fully digital experience.

And that paves the way for Disbursements 3.0, said Edwards.

Mass Ad-Hoc Payouts Without The Pain

Like many other payments processes, Edwards noted that the last year has seen an acceleration on the part of large payors to leverage digital methods and marginalize the check. In a Disbursements 3.0 world, instant payments expands beyond simple, single-party use cases to more complex scenarios associated with multi-party, B2B and recurring payments, along with a variety of ad-hoc use cases.

In addition to gig worker payouts and claims payments, Edwards has seen a growing demand to solve for mass payouts to thousands of smaller receivers for which access to funds represents a compelling competitive advantage for payors. That includes marketplace sellers – particularly multi-level marketing platforms, vendor payments to SMBs and incentive payments. “Every one of these business use cases has different rules, regulations, timelines, economics and process challenges that must be addressed,” Edwards said.

More use cases, more choice and more customer touchpoints means more complexity.

“Payors need access to multiple rails and the technology to solve for the process complexities if they want to offer choice, let alone monetize it,” Edwards explained, adding that all of the rails (choices) have different risk management, authentication methods, speeds and dollar limits. Payors attempting to manage instant payments choice via one-off integrations into a series of point systems is simply impractical, he said.

It also presents an opportunity for payors to benefit from new business models that promise to both monetize speed and influence receiver choice beyond just push-to-card and ACH. “Moving past that to a solution for payors to deliver a better receiver payout experience, and monetize payout speed and choice, requires a platform that makes it easy for them to move past the check to a modern disbursements experience,” Edwards said.

Done right, he believes there is a tremendous upside for payors, receivers and the platforms that enable speed and choice to be monetized: There’s still roughly $30 trillion being disbursed, including some 21 billion checks written each and every year.

Disbursements 3.0

There is no single answer to how instant, on-demand payouts with choice will unfold in 2021 and beyond. According to Edwards, the most interesting thing about the onward evolution of the disbursements ecosystem isn’t the payment frictions that it will eliminate, but the innovations it will enable. PayPal, Uber and others have created revenue streams by offering choice – something he described as the “tip of the spear” when payees have a variety of choices and payors have an efficient way to offer and monetize them. Imagine the impact of “choice” on the prepaid-centric incentives industry when the recipient can choose from payout methods that each have different economics for the payor and payee – this can literally change the economics of the industry, he said.

“This is happening right now, and it will be exciting to see what business models come out of these new ecosystems and this new way of paying people,” Edwards remarked. “When you can really simplify payouts and modernize and scale them on a global basis, there’s no turning back.”