Beyond Payments, FinTechs Face Big Challenge in Managing Heavy Lift of Mobile Money

March 14, 2022

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Build versus buy is the perennial debate in all areas of technology. Nowhere is the choice more pressing than in payments, especially for FinTechs.

Ingo Money CEO Drew Edwards told PYMNTS’ Karen Webster that enabling money mobility is a bit like buying a boat: It looks good at the boat show, but no one thinks about the all-in costs.

“Paying the network and transaction costs is like buying diesel for the boat,” he said. “But, you’ve still got the maintenance and operation of the boat.”

For FinTechs, the key challenges, as outlined in the just-debuted Money Mobility Playbook, lie with enabling consumers to use any number of payment methods to move money across any number of different endpoints.

Those may be the consumer expectations, but for the providers — banks, FinTechs and a range of other enterprises — getting there is no easy task. Behind the scenes, it requires coordination and maintenance, a hyper-vigilance of the nuances of shifting network rules, redundancy, exceptions — the list goes on.

Right now, FinTechs are focused on access and giving consumers the payment methods they want on demand, no matter if it’s instant payments, ACH, Venmo, Zelle or even checks.

For the FinTechs, flush with cash and with many a smart mind at the helm, the impetus may be to do it all in house. After all, bringing on service providers is akin to taking on another mouth to feed (via fees and provider contracts). But, to bring back that boat analogy, they’re only looking at the integrations — kind of like looking at that boat out of the dock. There’s a lot to be done after connectivity is established via application programming interfaces (APIs).

“The maintenance and the ongoing operation of multiple rails can be misunderstood, unless you’ve actually done it before,” Edwards said.

Things can get complicated quickly. Edwards said that consumer-defined ubiquity is not well-understood either, as FinTechs may think that one or two alternatives may be enough to satisfy demand for payments flexibility. However, once consumers get a taste of the payment methods that are on offer to them, it becomes a rapidly linking chain of add-ons.

He added that FinTechs often start out thinking about ACH and push to card, then find out quickly that they need to add PayPal, Venmo, Real-Time Payments (RTP), cash payouts, checks and more — and all of this is just domestic. There are also cross-border and foreign wallet considerations, too.

“It becomes, literally, a never-ending evolution,” he said.

Ingo itself has 32 different rail or proprietary settlement integrations, Edwards said. The integrations themselves depend on the use case — and the mix for online sports betting is different than for loans, which in turn are different from insurance.

Moving on From the ‘Build’ Mentality

In the debate over build versus buy, the first question for any FinTech is how many payment choices they are going to make available, Edwards said.

“It’s not as simple as saying, ‘We’re going to do push to card, and we’re going to pick Visa Direct,’” he said.

That’s just a starting point for all the considerations that then flow from that connectivity choice.

Right off the bat, there are challenges on the road toward establishing those connections — for example, picking a partner and a sponsor bank that is comfortable with a particular use case and the rail that enables it. Edwards added that there are also challenges involved in managing the risk, velocities and flows, which vary by rail and use case.

Eyeing the Operations

To get a sense of just how often things change across the maintenance and operations processes, the upgrades can occur as frequently as once or twice a year per rail, per network.

Edwards noted that Visa,  Mastercard or PayPal can alert FinTechs to the fact that there might be a new API the enterprise needs, or there’s a new protocol or standard, and everything must be in place by a certain date.

“If you’re like Ingo, and you’ve got 32 different integrations that are upgrading once or twice a year, then that’s a full-time effort,” he said.

Taking a Cue From the Merchant Acquirers

FinTechs can take a cue in the “build versus buy” debate from the emergence of the “original ‘money in’” activities, Edwards said — namely, merchant acquiring.

Nobody really built that functionality by themselves, he said. By and large, companies don’t gain a lot by doing the integrations, the maintenance and the operational heavy lifting by themselves.

For the FinTech that tries to do everything alone — the one that thinks simply integrating to an API is enough — the advantages of the “buy” model, and linking with a provider and platform such as Ingo’s, becomes quickly apparent.

“It’s the exception handling that becomes an operational [burden],” he said.

There can be dozens of reasons why transactions fail, and they can vary across different dollar amounts and merchant codes. The network may say that a transaction worked, but the consumer said it didn’t. Across all of those exception scenarios, the FinTech then has to do research to prove back to the network that the transaction did not work, or to the consumer that it did.

Multiply that scrambling across everything that may be in the consumer’s digital wallet — and four, five, six or even 10 connections and rails — and the operational tasks are daunting.

In the end, he said, the biggest reason to partner with someone with a relatively broader footprint is risk management. Having a view of the good and bad actors is one of the key reasons why a FinTech should be part of a network, instead of on an island doing it themselves.

Risk mitigation has always been harder when you’re alone on that island and not gaining the benefit of bad actors across the marketplace. Why should the FinTech have to meet all the bad actors for the first time on their own?

Lastly, FinTechs should ask themselves the “why” question: “Why do I want to do this on an island? What is my benefit?” Building it yourself doesn’t make it any better, and it doesn’t make it a lot cheaper, Edwards told Webster, but it saddles you with a lot of work.

“If you don’t have a partner that’s doing all of that for you [and spreading the costs across many clients],” he said, “then that will fall on the personnel in your own operations — and that goes right into your cost.”

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