Stimulus payments are again in the headlines and on the horizon.
But how consumers will get those payments — hundreds of millions of payments, covering hundreds of billions of dollars — well, that’s open to some discussion. And if past is prologue, as the Hill wrangles over who gets paid, how much and when, the disbursement process will be messy.
That points to the need to go digital. In a panel discussion, three payments executives discussed the ways disbursements on a huge scale must make the leap beyond the paper check, beyond the ACH conduits.
Panelists joining PYMNTS CEO Karen Webster included Ingo Money CEO Drew Edwards; Wells Fargo Senior Vice President, Head of Global Payables, Treasury Management Michelle Ziolkowski; and J.P. Morgan Managing Director Industry Head for Public Sector Treasury Services, Wholesale Payments Eva Robinson.
Headaches, Everywhere
One word can sum up the last go round, where the CARES Act got $2.2 trillion into the hands of individuals, families and businesses: headaches. Big ones. Congress, the Federal Reserve and the Department of the Treasury must confront the ghosts of stimulus disbursements past, where tens of millions of individuals had to wait for paper checks to be delivered by snail mail or paid cards (and at least some of the cards may have been thrown away by recipients by mistake, which led to reissuance).
Then of course, there was the fraud problem to contend with. Trying to get $269 billion into the bank accounts of 160 million Americans in a short timeframe is a Herculean task for any payments system, but there are ways to address the gaps and the cracks.
Tech-driven ways, of course.
Noted Ziolkowski of Wells Fargo: “In terms of setting up the process, the fact that we do still from a government perspective distribute so many of our federal payments to individuals in a paper fashion is an incredible challenge."
Electronic methods are gaining traction, she noted, and the pandemic may be the tipping point that finally kills the paper check, especially with the high costs involved in making up those checks and mailing them out.
Yet, if the government were to pass a stimulus bill this instant, the ecosystem would still face the same challenges.
Speed Vs. Accuracy
Among those challenges, according to J.P. Morgan’s Robinson: the speed at which the payment is made and the accuracy/integrity of the payment. In context of mass-scale disbursements, she said, one concern wins out over the other — and this time, speed won out. Along the way, too, payments choice matters, and many individuals opted for paper checks. (Even in an ideal environment, where Zelle and RTP are on offer, some may default to that option). That gives an opening for fraudsters.
But there are some best practices that government can learn, even if the evolution toward digital will be done in stages. Robinson said that the government is increasingly looking to the payments players and banks to help with analytics, third-party data and even craft data sets.
“I am seeing a receptivity in terms of a lookback that will allow them to be hopefully in a better position with a second round of stimulus,” she said of government efforts to embrace both speed and accuracy.
But in the end, and beyond the stimulus activity, said Ingo’s Edwards, the government is not in the payments business and probably does not need to be, and instead should likely rely on bank partners to do that.
In terms of the mechanics of it all, ACH still remains largely as an offline mechanism. It’s important to solve for risk management and the rails (and the fact, too, that multiple agencies have been involved, such as the Bureau of Fiscal Services). Edwards noted that many checks bounced, and fraud still is a problem. Banks and large treasury partners can help solve some of the friction inherent in the last mile of payments.
A collaborative mindset, between tech firms, banks and treasury partners, maintained Ziolkowski, can foster data sharing and satisfy regulatory issues, such as electronically validating account information.
Technology is not a default, according to Robinson, but a good meeting point to get that conversation between private and public stakeholders.
“If you had to prioritize, maybe more prioritization would be placed on reducing the volume vulnerability to fraud or improper payments or waste, which then slows the process,” she said, and hits the most vulnerable populations the hardest.
Said Edwards: "The payments industry is very robust. There's very good technology and tools to manage fraud, but the best tools are digital and online."
The key and most immediate challenge is to close the digital gap that exists for the government (and where tokenization, artificial intelligence and digital accounts, leveraged already by the private sector and by banks, could be of significant benefit).
The problems have not gone unnoticed, as the government has sought to improve validation processes and steps, according to panelists, with pilot programs in the works at banks.
“The government literally right in this moment has no way to reach out to me and start that process,” Edwards said. “So that's the first gap the government's got to solve and could solve in this upcoming tax cycle by adding [digital conduits] that to their tax forms and collecting email and contact information from Americans.”
That type of data collection can help improve government disbursements beyond stimulus payments, according to Edwards. And in terms of cross dialogue, Robinson noted that firms such as J.P. Morgan have been “able to leverage our network of FinTechs to bring them into the equation” where collaboration has already been successful, as she added that "I don't see any reason why that model cannot be replicated across state, local or federal governments."
The dialogue continues, stated Edwards, as there is accelerated openness among the large banks to work with FinTechs, leveraging banks’ expertise with rails and FinTech’s experience with innovation. Each of those parties, he said, can solve problems of the other — and together, they can solve governments’ disbursement frictions.
As for digital dollars and FedNow — they’re likely to impact the way disbursements are done, but the impact will be a few years out (FedNow, the instant payments system making its way from concept to reality, will not debut until 2023 at the earliest). Interoperability will be key, according to Ziolkowski, and any new payments system will need “an incredible level of ubiquity” to change the way future stimulus may make its way to end consumers.
Looking ahead, she said, a year from now some of the same issues tied to speed versus accuracy will be under debate.
“Incrementally the government will be able to address some of the challenges that they’ve faced, but unless there's broad-scale change from a technology or process perspective in capturing information,” we’re unlikely to see seismic shifts, she said.
Edwards stated that 2021 is they year that treasury banks will “get tooled up and start taking solutions [such as RTP] to their clients.”
“The real traction of killing the check,” he said, “starts in 2022.”
