It Takes A Village To Build An Instant-Payments Ecosystem

The idea that money should be able to move instantly between sender and recipient has long been gaining ground in P2P payments, the gig economy, the insurance industry and more. But interest in the concept has virtually exploded over the past several months thanks to the COVID-19 pandemic, experts in our latest On The Agenda digital roundtable told Karen Webster.

Joining Webster on the panel were Ingo Money CEO Drew Edwards; Cecilia Frew, senior vice president with Visa; Manish Kohli, Citi’s global head of payments and receivables; Jim Magats, senior vice president at PayPal; and Russ Waterhouse, executive vice president of product development and strategy at The Clearing House.

Panelists told Webster that the pandemic has only sped up interest in instant payments.

“People were already eager and interested, and really, now the conversation has changed to: ‘I need to go faster. How do I move faster?’” Visa’s Frew said. “And it’s no longer really just a domestic question, it’s a cross-border question.”

That need for speed stems from necessity, panelists said. After all, cash flow has become (even more) king for individuals and SMBs during the pandemic.

Waiting even a few days for payment no longer works for anyone. Gig workers, eCommerce merchants and people waiting on insurance payouts increasingly know that instant payments are available for some but not all just yet, and they’re wondering how they get in on the action.

In fact, if anything good has come out of the pandemic, it’s the “accelerated drive to digital and accelerated drive to instant,” Citi’s Kohli said. He said interest in those areas are making themselves felt in conversations that Citi has with its corporate banking clients, including some of the world’s largest companies.

Kohli said such customers are looking to turn the shutdown into an opportunity by rethinking some manual processes that their payments workflows are still chained to. He said such analog processes just don’t “gel” with the explosion of digital demand. Instead, treasury banks are on the road to expanding past their legacy limitations and into a richer set of instant-payment offerings.

The Clearing House’s Waterhouse added that “I do think we’ve actually turned the corner on paper, which [we’ve] been stuck with where it was 50 percent of business payments.”

Waterhouse said necessity caused by the pandemic has pushed both businesses and consumers to embrace digital payments instead. “For workers and businesses, it really is about getting that money today, because they’re desperate for liquidity,” he said. “I think that the advantage that real-time payments bring is that they’re sincerely authorized and done right then and there. There’s [no] couple of days or a week while one is waiting on that ACH window.”

PayPal’s Magats said demand for instant funds has doubled in recent months among SMBs who want their money quickly, although he admits that’s partly because PayPal removed fees for instant disbursement.

“[Instant payment] has been a phenomenally well-used product by our standards,” Magats said. “Typically, you roll out a product and say: ‘If [we] get 10 percent of people to use it, then that’s a good number.’ [But] we’re in the 40 to 50 percent level of people using this product experience.”

He thinks usage could even rise to 100 percent except for the fact that not every SMB currently has the technical capabilities to receive such funds. Magats said that to offer instant disbursements widely, PayPal has to “stitch together all of the different members of the ecosystem to be able to create our version of interoperability.”

Magats said the company has managed to do that well enough to offer about 80 percent of merchant and individual customers instant payments. That’s a good start, but since PayPal and its Venmo unit have some 175 million accounts, millions of customers still can’t access their money in an instant.

Visa’s Frew said the industry is currently tackling two different problems — turning today’s paper checks, vouchers and cash into real-time digital payments and making some payments that are already digital move even faster.

She said the latter involves things like “slow ACH” payments to gig workers who want their money right away. “Because [that’s] already a digital payment, we’re just speeding it up,” Frew said, adding that that’s easier to do because the payer probably already has the recipient’s bank credentials.

By contrast, she said it’s harder to wean users away from paper checks, cash or vouchers and onto electronic equivalents because those are one-time transactions where the party paying the money doesn’t typically have the payee’s bank information. “The trick becomes, how do I connect with you given the proliferation of [payments] apps?” Frew asked.

Ingo Money’s Edwards said that’s a challenge given that the U.S. economy still uses $30 trillion of checks and ACH payments per year. He said businesses and government agencies need to switch to a PayPal-like model for disbursements instead. “It needs to get modernized [with] something along similar lines, and that’s what we’re focused on doing in terms of how companies and governments pay people,” Edwards said.

Building A New Ecosystem Collaboratively

Unfortunately, expanded consumer and business interest in instant payments won’t automatically push payments processes into modern, instantaneous forms. Rather, panelists agreed that doing so will require a team effort by all interested parties.

Completely closing the gap and offering all companies and individuals instant payments will require more cooperation between interconnected players, who could also offer consumers a choice of exactly how they want to be paid.

Ingo Money’s Edwards said his company was built to be agnostic among payments rails like ACH, Visa and PayPal. But he added that making payments choice truly ubiquitous means having all choices integrated if one wants to build a transformational customer experience.

Edwards said that will require a team effort between instant-payment providers like Ingo and treasury banks. For instance, he said, treasury banks will have to upgrade their systems away from the slow batch-processing methods that tended to dominate old-school payments systems.

“The exciting part is that it has started interoperability conversations across the industry,” Edwards said. “That [is] how we really accelerate adoption.”

“The big corporates are going to want their own branded experience, and they want it to work with their bank,” he added. “But there are 500,000 more consumers or businesses that are originating checks and ACH today through their relationship with the bank. We’re trying to help transform to what we would call ‘recipient choice.’ That allows the recipient to decide how they want to get paid. And we very much believe that 10 or 15 banks in America are the key to that $30 trillion worth of checks and ACH that are out there today.”

Citi’s Kohli agrees that no single player has the power to really push payments to their next iteration. “Payments really is a team sport,” he said. “So, we’re working with everybody on this panel, and I think what we are doing is building out so these services can all be complementary to each other. We’re all maniacally focused on solving problems for our customers, and each player brings a unique proposition and set of assets to the table to provide the components of pushing this forward.”

The Future Will Be Here Sooner Than You Think

As for the timeline of moving forward, it’s not yet clear when instant payments will move from being a wow-inducing add-on to a standard and expected part of the payments experience. All of our panelists agreed that it won’t be overnight, but that instant payments are already more an expectation than an add-on in areas like eCommerce and the gig economy.

Frew sees the next major step for instant payments as moving into government disbursements and regular payroll services. However, adoption in some areas will likely take years rather than months — although the number of years is less than five, according to Edwards and Frew.

The exact pace will depend on how well collaborators in the ecosystem pull together to make it happen. “I always say it takes a village to build a new payment ecosystem, and that’s really what we’re all doing,” Frew said. “Really, everyone on this [panel is] part of that village.”

She said the if the industry works together, “billions of people around the world will get access to their money faster and more conveniently.”