Why debit became the go-to for faster payments — for now
Same-day ACH debits rolled out last month, a year after same-day credits, cutting processing time for these payments from a couple of days to a few hours — but for many emerging use cases, that’s not fast enough. So what's filling the void?
In the expanding array of ride-sharing and delivery services where payout speed is paramount, debit push payment services like Visa Direct and Mastercard Send ride on card network rails to move funds in seconds. Debit push payments also are available around the clock, which isn’t necessarily the case for the same-day ACH payments.
This is vital for instances such as a Lyft driver who needs to receive a fare payment immediately to refill on gas. But debit-based systems require the use of a debit card, a process that omits many potential recipients — and creates a pain point that Lyft and others are eager to eliminate.
Despite this limitation, there are many immediate opportunities for instant debit payments.
Mastercard sees continued demand for immediate payroll funding coming from the gig economy, but there’s an even bigger opportunity for debit push payments to modernize the $4 trillion person-to-person and corporate disbursement market with debit push pay, according to Jessica Turner, Mastercard’s executive vice president of digital payments and labs for North America.
The travel industry is a key vertical that’s driving new use cases and growth as airlines and other suppliers shift paper-based travel vouchers and reimbursements to debit push payments, she said.
“What’s nice about this business model is we’re not competing against similar providers as much as we’re competing against checks, paychecks and certificates, and it’s a big pie,” Turner said.
Recent technical advances have helped accelerate growth of debit push payments, with back-end providers like Stripe streamlining the integration process for merchants and corporates looking to add core services like Visa Direct and Mastercard Send.
“It’s not just the gig economy that’s driving demand for quick debit payments—we’re positioning to serve a new demographic group of millennials who expect things to move instantly, for immediate gratification,” said Michelle Young, senior vice president of debit segment sales for First Data Corp., which recently entered the debit push arena with its own Disburse-to-Debit service leveraging Acculynk's debit routing technology that First Data acquired last year.
Acculynk’s backbone is its ability to identify the least cost debit network available, which may include First Data’s Star, or other competing networks like Pulse, NYCE, Accel, Shazam and CU Alliance. Debit push payments have a wide array of use cases—including person-to-person payments— but corporations are the primarily audience for them, Young said.
The insurance industry alone spends vast sums gathering the account details of recipients, and 25% of call center volume is tied up in chasing check details for consumer and business payments, an expensive and time-consuming process, Young said.
“People who are used to receiving person-to-person payments instantly don’t want to wait days to be reimbursed by a company,” she said. “Many corporations may continue to use traditional disbursement methods, including check and ACH, but with Disburse-to-Debit in most situations we can offer those services at a lower cost in real time."
Small businesses also are taking advantage of the increasing ease of integration via APIs to add debit push capabilities.
“For a small business owner who uses a merchant acquirer with these capabilities, it’s improved cash flow to the business,” said Cecilia Frew, head of Visa Direct for North America.
More than half of small businesses use some type of debit card for business purposes and nearly 90% express interest in using a debit card to receive instant funds transfers, Frew said.
Despite these promising signs, debit push payments aren’t likely to supersede same-day ACH debit payments in the long run, experts say.
Nacha is introducing an array of faster ACH payment types in phases. Last year's same-day credit payments now account for nearly 200,000 transactions a day.
It’s still early in the development cycle of same-day ACH debit developments, and over time the service is expected to be fast, affordable and ubiquitous and easy for large corporations and financial institutions to access on a broad scale, observers say.
But in the near term, debit push payments may capture significant market share in certain niches, said Sarah Grotta, director of debit and alternative products at Mercator Advisory Group.
“It’s interesting that these [debit push payments] are seeing growth prior to a real-time debit payments platform that checks all the required boxes to meet the effectiveness criteria of the Federal Reserve’s Faster Payments Task Force,” Grotta said. “I believe some of these debit push products that are finding more uses in bill pay, disbursements and payroll and P-to-P transfers will take away from the available market for real-time payment products.”
Cost currently favors debit push payments, which are priced competitively and may go lower with more providers entering the fray.
“The pricing for same-day ACH debit is still being worked out and I suspect pricing across ACH-originating banks will be in flux for a while as the market figures out where the right value is,” Grotta said.
When same-day ACH debit catches on more broadly, debit push payments likely will continue to serve specific niches, providers say. “We’ve seen steady growth for debit push payments since 2015, and the ecosystem around us continues to find use cases,” said Mastercard’s Turner.