How To Make Instant Payments Ubiquitous
May 19, 2020
The U.S. consumer has literally thousands of options for financial services given that America has traditional banks, credit unions and FinTech challenger banks of all shapes and sizes.
Drew Edwards, CEO of instant payments firm Ingo Money, told Karen Webster in a recent conversation that’s how Americans like it — but one thing all financial firms should offer is a way to get instant payments to customers no matter how people bank.
“I just don’t see Americans all adopting the same thing, pretty much ever,” Edwards said. “But [consumers] ought to be able to move money instantly to whatever their financial institution of choice is — pretty much whenever, wherever.”
He said it’s not enough to simply have an option that will switch on instant payments for most types of account holders. The system needs ubiquity, where consumers can authenticate themselves and then direct the money to any account type they choose.
But that’s a challenging goal, Edwards added, first because payments are a complicated ecosystem with a lot of moving parts.
Second, the U.S. government has a tendency to favor solving access issues with single, one-size-fits-all solutions when what America actually needs is to “get modern and just be able to take advantage of the same rails that everybody does,” he said.
Case Study For Friction: Online Sports Gambling
The rapidly expanding world of online sports gambling offers an interesting illustration of how tricky it can be to get instant payments up and running, Edwards said.
He said gamblers would like to have their winnings paid out as soon as they close their efforts for the night, and card networks are willing to push the money out instantly via the Visa Direct and Mastercard Send tools.
But Edwards noted that an issuing bank will then sometimes deny and bounce back the payments. He said that isn’t irrational or some kind of a moral statement on gambling; it’s based on a very valid series of compliance concerns.
“Gambling is really tough” due to the U.S. Bank Secrecy Act and anti-money laundering law, Edwards said. “If you as a bank are accepting let’s say $20,000 of ‘winnings,’ you need to be able to make sure that wasn’t money laundering or worse, terrorist money [that’s] being pushed through the system.”
Still, Edwards said he thinks real-time digital disbursements are coming anyway to online sports gambling — and likely to the gambling world as a whole, including physical casinos. He said he also believes the U.S. government wants that to happen for the obvious reason that officials would rather track gambling winnings moving digitally into accounts than to have winners head off into the night with pockets full of cash.
But as is often the case in payments in general — and real-time payments in specific — the devil will be in the details, he said. And the details are always much more difficult than they look on the outside.
That’s a lesson that Edwards said Uncle Sam would be well served to learn soon, before it tries to build its own mobile wallet platform care of the Federal Reserve.
Why The Government Can Help Move Money (But Not Hold Money)
The ongoing payout of $1,200 U.S. government stimulus checks has clarified for citizens and government officials alike that something has to be done when it comes to modernizing federal payments — fast.
The government has been trying to make a simple one-time payment to a few hundred million people at once, but it turns out that Uncle Sam is using very old technology against very old regulations. That’s turned into a logistical nightmare and weeks-long glitch-fest.
Webster noted that one proposal now floating around care of U.S. Rep. Maxine Waters of California would be to create digital mobile wallets for all U.S. citizens, housed with the Federal Reserve. This would use a kind of propriety American stablecoin built off of blockchain, which would allow the government to instantly and easily push funds to citizens whenever necessary.
But Edwards said his instinct is to chuckle at this notion because it’s clearly not going to happen. He said federal officials floating this plan have no idea how massive an undertaking they are proposing.
Building a legally questionable digital challenger bank out of the Federal Reserve that every American has to use whether they want to or not? And creating a complementary digital currency to manage payments into it?
That doesn’t seem like the best way to go in the wake of the fiasco that the current stimulus program has been. Edwards said it’s a bit like having a hard time shooting off a bottle rocket in your yard, then deciding that the best way to fix the problem is to attempt to build a rocket to Mars instead.
More importantly, he noted, this isn’t the service that everyone needs from the Fed, as there are already thousands of options in the market to manage consumer accounts. The Fed isn’t going to do a better job than PayPal, Chase, Bank of America or Apple already have.
Instead, Edwards said that what the government should do is process the technology so it can transfer value to Americans across all of the existing rails at the press of a button when it needs to. And the tech exists today in the market to even let the consumer decide in real time how they want to receive the money. As is often the case in payments, the intentions are in the right place — it’s just the execution that needs a lot of careful reconsideration.
“The notion is good that they need to find a way to be able to transfer assistance and value to every American quickly and digitally,” Edwards said. “That’s the opportunity we have now. And as we come out of this pandemic, the question is: ‘How can we fix that? How can we do that differently next time?’ Perhaps learn from corporate America because they are already way down this road.”
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