The Inevitability Of Instant Disbursements
October 20, 2020
Big business and big treasury banks don’t make big changes on a whim. In fact, they don’t make them at all if they can avoid it, Ingo Money CEO Drew Edwards noted in a recent digital discussion with Karen Webster.
They often only make fundamental changes when something pushes them — usually a demand from customers and the risk of losing clients to competitors if firms don’t make revisions.
“There’s always some market leader that forces everybody else to change,” Edwards said. “We’d all still be taking taxis if it wasn’t for Uber. We’d all still be going and standing in line at checkout at Target if it weren’t for Amazon.”
He said those industries didn’t voluntarily change but only did so because “their customers’ demands did.” Edwards said organizations don’t change out of a love of innovation, but because innovations get baked into customers’ expectations.
Companies then either evolve with their customers or wave goodbye as clients move to competitors that will. Edwards added that once the innovation flywheel gets spinning, it doesn’t stop — it only gets faster.
Such is progress in the world of instant disbursements. The “secret” of instant payments is out there thanks to big advances in places like gig economy companies and peer-to-peer (P2P) payments firms, where instant disbursements are becoming the rule.
As Edwards said, that means banks and other firms that are falling behind on offering instant payouts need to catch up. The only remaining questions are how fast they can do so and what hurdles stand in the way of fulfilling overwhelming consumer demand for instant payments.
“The banks are following the [changing] demand of their customers, and those changing customer expectations started with the FinTechs — with the innovators,” Edwards said. “And now the expectations of those large corporates that they’re presenting to their treasury bank partners [is]: ‘Why can’t we do this?’ We are seeing instant working its way to the last mile of that food chain — these big treasury banks. It is slow-going, [but] the good news is once they get it right, we will see those big corporations really moving toward instant digital disbursement.”
The Uneven Press For Instant
Edwards said no one should be surprised that instant disbursements first took off at companies like Uber and Square, as digital-first firms didn’t have the legacy technological infrastructure. They never had to contemplate a switch to digital because they were digital from day one.
By contrast, when instant payments began to creep into older industries like insurance, it ran into legacy COBOL mainframe technology that it had to overcome. Edwards said the pace at which such industries switch to instant payments would vary.
Adoption will come sooner “in businesses like insurance, healthcare, tipping, lending, etc., where the payment is core to the product,” he said. But the pressure won’t be as intense for verticals where payments are almost an afterthought — something to be figured out on the back end by lawyers.
But Edwards believes that’s only temporary. After all, players like Amazon are catching on to the fact that if companies move payments from the back of the sales funnel to the front, an enhanced payment offering can become part of an experience’s overall offering.
For the enterprise side of instant disbursement progress, payments are either already core to the business or “need to become core” very shortly, he said.
A Necessary Banking Evolution
As Edwards noted, the pressure on treasury banks is becoming more intense as they aim to figure out two challenging issues simultaneously.
First, there’s a technological problem, which he said is the easier of the two to solve. Firms need to get access to the variety of instant payment rails, which almost none of them have at this point.
Edwards noted that people used to dealing with the retail banking side of the house would likely be surprised at how much slower the progress has been in bringing instant payments capacity to the treasury side of the house.
“The gap they’ve got [is that some] don’t even connect to the rails — not in a gateway fashion, not in a way where they can pull all their capacities together and ask the customer how and where they want to be paid,” he said.
To make instant happen in any capacity, banks need to get the necessary technological infrastructure into place. And that’s even before they look to work with a platform like Ingo to fill in the gaps and solve the various consumer experience issues that swirl around instant disbursements.
Goodbye, Batch Processing
But Edwards said the even bigger issue is the need to abandon the batch processing system as a relic of a bygone era.
He said batch processing is simply inconsistent with the instant payment paradigm. However, Edwards said many treasury banks are hesitant to abandon the batch and the many layers of processes that have been built on top of them over a span of decades.
But they really don’t have a choice, he noted, because instant is out there. Consumers and businesses know about it and have repeatedly said they want and need it (particularly in the COVID-19 era) — and there is clearly a competitive advantage in offering it.
For example, Edwards said his firm has seen two very large insurance companies open accounts with new banks to access the Ingo platform and offer their customers instant disbursements.
The bad news is that quite a few banks have a lot of technical and process work to do before they’ll be ready to offer a serious instant payments solution.
But Edwards said the good news is that while massive players might change banks to get such access, they aren’t going to ditch banks altogether and go to Square as long as treasury banks get moving on instant payments.
And perhaps even better news: Edwards said that treasury banks “have woken up to this situation.”
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