How Debit En­abled Faster Pay­ments

While the U.S. pay­ments in­dus­try works to build an ubiq­ui­tous real-time pay­ments network, ma­jor play­ers in the gig econ­omy are find­ing that debit -based sys­tems meet at least some of their needs.

ISO & Agent - - INSIDE 11/12.2017 - BY KATE FITZGER­ALD

The gig econ­omy isn’t wait­ing for the many U.S. “faster pay­ments” ini­tia­tives to take ef­fect. That’s why com­pa­nies like Lyft are re­ly­ing on debit-based ser­vices to speed up pay­ments.

Same- day ACH deb­its rolled out last month, a year af­ter same­day 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 in-

stant 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.

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