Why Visa and Ingo see the paper check as a path to faster payments
In a world filled with a growing number of options for instant and same-day payments, the paper check still holds strong as a barrier to innovation.
Ingo Instant Payments and Visa want to look to the paper check instead as an opportunity.
The areas where paper checks remain dominant are those most in need of a faster payment alternative, the companies say. As many as 29 billion payments from checks or the Automated Clearing House a year could be converted to push payments through the Ingo Instant Payments platform, representing a $10 trillion opportunity, said Drew Edwards, CEO of Atlanta-based Ingo Money.
"Of that $10 trillion, we view about $1.2 trillion as peer-to-peer like Square or Venmo, but the other $9 trillion is corporate or government disbursements," Edwards said.
It is those instances in which an insurance company or government agency has to send thousands of checks to consumers to settle claims, or make significant payouts for various reasons a couple of times a year, that make them perfect targets for Ingo, Edwards said. The companies will focus on business, insurance, health care, and government or financial institution clients.
Ingo Money added Visa Direct to its gateway three years ago to develop a consumer peer-to-peer check digitization option, and the company is expanding on its relationship with the card network in seeking more clients for a faster payments platform.
When Ingo acquired Fuze Network in late 2014, it opened the door for the push payments platform to bring all of the PIN debit networks, along with PayPal and other alternatives, into the gateway along with Mastercard and Visa.
"Ingo Instant Payments really is a network of networks," Edwards said. "We are now working with Visa to build additional components on the front end to make it easier for these corporations to access these rails."
Ingo will face the same challenge other faster payments providers encounter in that some companies may want the money on their balance sheets longer, rather than instantly moving it to customers, said Gil Luria, analyst with Los Angeles-based Wedbush Securities.
"The consumer proposition is one thing, and most consumers today probably don't care if they get paid today or tomorrow, but a faster push payment process is important for how a company works behind the scenes," Luria said.
The practice of sending and processing checks is a significant cost for most companies, Luria added. "Digitizing the process is a benefit, but getting the money to a consumer faster can be a drawback."
Still, Ingo Money has a solid platform in place because it operates through existing rails, said Marc Cochrane, independent senior payments advisor.
"It makes a lot of sense because these rails are efficient and highly regulated with all of the standards in place," Cochrane added. "The companies Ingo seeks as clients don't have to go through the process of setting up all of the infrastructure on their own."
Ingo plans to include ACH payments as an option early next year, but Edwards said the company predicts that push payments to debit, credit, prepaid or mobile wallets will be wiser for their clients because those options resonate with the younger consumers they may serve.
"They are going to accelerate ACH payments, but it is still a batch process, so it may mean you'll get paid tonight or tomorrow," Edwards added. "It also requires the consumer to give bank account and routing information, but the millennial crowd doesn't carry a checkbook around. They use a debit card for everything."
Even though faster payments initiatives have been in high gear the past couple of years, Edwards contends new payments rails are not really needed.
"Why build new rails to do fast funds? It already exists globally because everyone already has it in their pocket with a debit, credit or prepaid card," he said.
But Cochrane says that mobile wallets could alleviate any concerns Ingo might have about which payment method a young consumer would prefer.
"I think most of the mobile wallets would have a field included for the consumer to input bank account details to be able to accept ACH," Cochrane said. Even if they don't carry a checkbook everywhere, "millennials do have checking and savings accounts," he said.