Over the last decade, financial services designed for underserved consumers have proven to be a harbinger of mainstream, cutting-edge fintech and consumer finance offerings. Traditional banked consumers across the income spectrum have acquired prepaid debit cards, accessed alternative lending services and adopted instant check deposit.
In part, the broad appeal of these services is a result of a demographic shift—the desires of millennials and the needs of 1099 economy workers. It’s also a reflection of the macro-economic environment: Persistent cash flow challenges no longer are reserved for low-income consumers. Unbundled financial services are primed for success because they fill niche needs more efficiently and appeal to digitally empowered consumers who seek convenience, control, speed and certainty in their day-to-day financial transactions.
As we look ahead to the innovations likely to dominate the financial services and fintech headlines over the coming year, it’s useful to consider the emergence and application of real-time push payments innovation.
The infrastructure and ecosystem that underpins our settlement system today was conceived and implemented decades ago and introduces inefficiency and friction in a modern financial transaction. Fortunately, there are many companies, organizations and regulators hard at work to update this system. Modernizing it though will take time, money and cooperation—a luxury not enjoyed by the millions of workers in the 1099 economy, financially underserved families and those caught in a cash flow crunch that need to receive money and make payments now … today … immediately.
Take, for instance, a typical moderate-income family with two working parents—perhaps the mother operates a small business cleaning homes and the father works as a fleet driver for a local delivery company. Both are paid by checks from consumers and businesses, and their incomes fluctuate depending on hours worked, which often don’t line up with due dates for rent, car loan, credit card and utility bills. They’re unable to maintain a sufficient bank account balance to be extended the provisional deposit credit from their bank that higher balance customers are offered, and they can’t afford to wait the standard three to five days for their checks to clear.
This family is not unique in its struggle. More than 138 million Americans and 15 million small business owners face this same financial strain—people across the income spectrum living paycheck-to-paycheck, micro-business owners collecting service payments in checks and contract employees without direct deposit benefits. Historically, consumers like these have had to rely on payday loans, pawnshops or check cashing services to make ends meet. Several companies, including Ingo Money, are enabling instant, guaranteed check deposit services for accessing funds from paper checks, but immediate access to income addresses only half of the cash flow equation.
How do families and small business owners transfer the funds now available in their accounts to meet their urgent payment obligations and avoid late payment penalties? All too often they’re left without options. Sending a check payment or transferring money online—processes that again may take three to five days to settle—are no solution.
Solving the second part of this instant money movement equation is precisely the domain of push payments: the process of authorizing or “pushing” a payment from one’s account in real time, versus requesting a “pull” from another. It’s a new way for individuals to pay bills and for large companies to issue payroll, insurance claims, loan proceeds and other disbursements. An emerging set of service providers has overcome the days-long settlement window and is enabling real-time push payments to destination accounts.
The beauty of this solution is that it is possible now—not in some far distant future—because it relies on existing U.S. card network infrastructure. While much has been made of the development of new payment rail infrastructure to enable faster payments, the truth is that card networks are capable of delivering this functionality today. Card network rails, which connect virtually every bank, merchant and biller with every accountholder, were originally built to debit funds from a customer account on the swipe of a card as payment for goods and services. The advent of a new credit (or push) transaction with its own set of origination and settlement rules and a unique interchange model that balances value exchange and risk, makes the same proven network infrastructure as efficient at supporting credit transactions—push payments—as it is for debit transactions. Companies like Ingo Money have stitched this network infrastructure into a money movement gateway, enabling ubiquitous funds delivery in real time to almost any destination across a globally connected, secure and compliant network.
With this foundation, it’s now possible to move beyond instant digital deposit and enable instant digital push payments—to move money from nearly any source of funds to almost any destination account. That’s a valuable service for consumers—and one for which they’re willing to pay.
Building on the real-time account funding infrastructure underlying our own instant check deposit service, and the P2P example of companies like Square Cash and Venmo, Ingo Money enables consumers, small businesses, corporate treasury departments, insurers, health care providers and others to execute direct digital payments to destination consumer and business accounts. This push payments gateway leverages existing networks and infrastructure to remove risk, increase speed, reduce cost and improve convenience for all participants in the payments ecosystem.
The key to unlocking the potential of real-time money movement is the delivery of an intuitive and seamless experience across accounts. As demand grows among early adopters—underserved consumers, millennials and those in the “gig” economy—a larger, more mainstream consumer audience will take note and engage.
We at Ingo Money believe that tapping card network rails—rather than waiting on the industry collaboration required to build new ones—will make 2017 the year of instant push payments.
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.