Instant Payments Are Here — Now, About That ROI…
There are many ways a firm can measure the value of instant payments, and determine how much of a return on investment (ROI) it can expect to reap. A firm can look at it in terms of how much it will save by stepping away from the costly and inefficient world of paper checks, or it can evaluate in terms of the auxiliary services and features it will be able to offer to its customers, and potentially monetize in the future.
However, as Ingo Money CEO Drew Edwards told Karen Webster in a recent podcast, there could be a simpler way to frame the inherent value of instant payments. The real question firms need to ask themselves, he said, is what the ROI is of staying in business.
“I’ve been around for some shifts in the market, and this is one of those changes that if you miss it, then you’re extinct,” Edwards said. “The reality is you’re not going to be able to compete if you’re mailing out checks or reliant on anything but a modern disbursement system. The ROI, at its most basic level, … will depend on this, because the entire financial services world is changing around it.”
A year ago, Edwards noted, about 10 percent of consumers experienced receiving an instant payment. Today, according to soon-to-be-released data from Ingo Money and PYMNTS, that figure is north of 40 percent. The word is getting out — more than 80 percent of customers have heard of instant disbursements, and even if they haven’t yet had the pleasure of being paid on demand, they will desire it. That is just the natural response of a human being owed money, Edwards said: They want it as fast as possible.
The firms that survive and thrive in the rapidly approaching era of instant disbursements won’t just be able to pay out quickly to someplace, he noted. They will need to pay out exactly where the customer wants to receive the funds, right when they need them.
“Every once in a while, you come across an idea like the drive-through window in the restaurant, where once you see it, you ask, ‘why wasn’t it always like this?’” Edwards said. “I think that is [what is] happening now with instant payments — it’s such a naturally desirable thing that the question isn’t if it’s going to happen, but how it will evolve.”
Instant As The New Sticky
The fact that customers want their money as quickly as possible is a rather unsurprising revelation — money in hand has the distinct benefit of being spendable. Whether the customer is spending from necessity or desire, Edwards noted, the appeal of instant payments is unaffected, though it is felt in slightly different ways.
For the two-thirds of Americans who report living paycheck to paycheck (or the 15 percent who report struggling to pay their bills as they wait on funds already earned), it is a particularly galling experience. It is also an expensive one. The paycheck-to-paycheck crowd faces what Edwards referred to as “the high cost of being poor,” where any unexpected expense can lead to a cascade of late fees or the need to resort to a costly means of accessing funds.
“The appeal of instant here is obvious: It puts money in their pocket and food on the table,” Edwards said.
On the other end of the economic spectrum, he noted, there are customers who have lots of money and choices about how to use it, and who are still encountering friction when looking to do something relatively simple, like move money between their accounts at various financial institutions. Those customers are more likely to be willing to pay a low marginal fee — or perhaps respond to incentives around specific payment types — in return for an easier path to move their money where they want it to go.
In either case, and at either end of the spectrum, two points of commonality exist, noted Edwards. The first is that the conversation isn’t just about instant payments, but about the connected question of where to send those instant payments. An instant payment to a prepaid card is different from an instant payment to a mobile wallet, which is different still from an instant payment to a bank account. The right instant payment, Edwards said, is the one that goes to the account the consumer actually uses.
However, instant payments with choice are just starting to unlock the real potential of on-demand disbursements.
“That is what drives stickiness and competitive advantage, and spurs returning customers,” Edwards said. “Consumers are drawn back to the experience that they know is going to be painless and fast.”
The Bigger-Picture Future
While Edwards dreams of a future where there is no such thing as checks, he also believes that dream will likely go unrealized. Checks aren’t ever going to disappear entirely, he said, and he even encourages some businesses to keep them as an option for certain payments. There will be consumers who make that choice, he noted, and even increasingly narrow cases where they might want to encourage that choice.
“Those choices from customers are generally going to tip toward instant, of course, but we still need to watch how this evolves,” Edwards said.
That evolution will continue to be the interesting part of this story. That instant payments are coming — and quickly — is a foregone conclusion. The lightbulbs that still need to go off for most companies, according to Edwards, is what possibilities will open up once a modern disbursements experience is in place, and when consumers have the same level of choice and speed of transaction in receiving money as they do when spending it.
“One or two brands are really thinking it through, and just as soon as you get some of those live in the market and succeeding, I believe you will see the fast followers come along behind them in the market,” Edwards predicted. “I think this is a peripheral conversation today, but in a year, it will be the center.”