Over the last few weeks, the expansion of digital person-to-person payment platforms and the resulting growth in consumer adoption has garnered a lot of attention.
The Wall Street Journal sizes the P-to-P market at $1.2 trillion annually, and the recent announcement of a PayPal and Visa partnership has injected new interest in the space. But the real potential for push payments is in corporate disbursements, with almost nine times the volume at play.
Push payments emerged when the card networks decided to activate original credit transactions on their payment rails. These networks, mature channels for facilitating debit transactions, connect virtually every bank, merchant and biller with every accountholder. By activating credit transactions they have created a powerful new disbursement mechanism that leverages the proven security, connectivity and settlement infrastructure we depend on every day for card payments.
Facebook’s Messenger, SnapCash, Square Cash and other P-to-P payment services were early validators of the functionality of this network. Consumers can use these push payment platforms to send money to their friends and family in an instant, with a universe of applications—buying concert tickets together with friends, reimbursing your half of a dinner bill or paying the babysitter. The recent PayPal and Visa deal is another example of a use case for two-way rails and proves that instant push payments are a reality.
But push payments offer far more significant value than the simple convenience of repaying your colleague for the $10 she spotted you at lunch. Estimated by Visa at $9 trillion dollars in annual volume in the U.S. alone, corporate disbursements—trillions of dollars in payments made by corporations to their customers and employees—are still dominated by checks. Think of company payroll checks, contractor payments, insurance claims, refunds, legal settlements, incentives; they all predominantly flow through the paper check system with its inherent delay, distribution challenge and risk. Corporate disbursements represent the next wave for instant push payments, and it will be the truly transformational one.
Why? Because push payments provide meaningful benefit both to the corporate disburser and to the recipient of the funds. Check disbursement is familiar, but it is very expensive. Most studies suggest that it costs a business between $8 and $12 to issue a single check inclusive of internal processing, authorization, reconciliation, returned item management and distribution expense. Disbursement via instant push payment to any bank account, prepaid card, charge card or digital wallet will save companies millions of dollars a year and provide their customers and employees with the money they’re owed immediately. What’s more, this method of value exchange, using the 16-digit number on a debit, prepaid or charge card, is even more familiar than the check, and more highly preferred.
We are on the cusp of a new era of consumer choice in payments, in which a company can simply send an email or text message to notify a funds recipient of a disbursement with a link to a secure web page or mobile app where the recipient can choose—at no cost—to enter an account number off a card in their wallet and receive their money instantly via pus payment; or enter an ABA routing number and bank account number (when they find it) to receive the funds via ACH in 2 – 3 days; or enter their mailing address to receive a check in the mail in 10 to 14 days.
Which option will most people choose? Which would you choose?
Companies understand that offering payment choice improves operational efficiency, saves money and empowers their customers, which in turn improves satisfaction and engenders loyalty. We know this because they tell us, and interest from companies and financial institutions is accelerating every day.
The deal between PayPal and Visa is the latest example of the surge toward instant, safe and reliable money movement between people, organizations and the financial accounts an individual owns. It is a foreshadowing of a coming era of payments choice that will help ease the liquidity burdens faced by 138 million Americans identified by the Center for Financial Services Innovation, and will save millions of dollars for the companies that serve them.
Drew Edwards is CEO of Ingo Money