The reasons why consumers hate checks are numerous: waiting for a check to arrive in the mail, finding an institution to deposit it, waiting another three to five days for funds to clear, then fearing it might bounce. Nearly everyone would agree that it’s an antiquated process filled with stress and wasted time.
The fact is that today’s customers want and need guaranteed money NOW. Modern consumers—from millennials to mass-affluents to small-business owners—live their lives at Web speed. Increasingly, they expect their money to operate in the same way: on demand.
The realities of modern living mean that people, whether they are a small-business owner in need of cash or one of the 78% of Americans living paycheck-to-paycheck, can no longer wait three to five days for their money and then risk having the funds bounce later.
A recent Forrester study uncovered an interesting opportunity for banks to meet this consumer demand for instant money while growing both customer count and revenue. Forrester’s deep dive on the use of instant funding for checks at one top U.S. bank found that customers expressed a 95%-plus satisfaction score for instant check funding, and that such fast funding resulted in as many as 30,000 new annual account openings and an additional $47 million in related fees over three years.
So how should we reconcile this seeming disconnect: a deep-seated dislike for checks on one hand but an enthusiastic response to instant check funding on the other? The answer is that the dissatisfaction is not with the instrument itself, but rather with the experience.
By catering to consumers’ demand for “now” with instant, irreversible funds, banks can emphasize what is good about the check and earn customer plaudits in the process. If banks can embrace instant-money technology to close the settlement window, eliminate the fear of bounced checks, and open up deposits to non-customers, then people are happy to visit the branch, open new accounts, and even refer a friend.
The key is that these new instant-money services must be irreversible, and be available for any check, any amount, and any customer. Some banks that offer faster deposit times do so only for current customers and for certain check types (for example, payroll or government issue). This leaves much of the growth opportunity of instant check deposit unrealized.
Of course, the prospect of instant funding also raises the question of risk for banks. What happens if you deliver guaranteed funds on a bad check? Keep in mind that standard deposit products with limited funds availability that banks already offer on their own normally result in some level of deposit-related losses.
The advantage in using third-party services for instant check funding is that they actually mitigate risk for the bank. These providers improve the consumer proposition to 100% instant good funds while bringing bank losses to zero because they assume all the risk through their algorithms and underwriting process.
Many companies across many industries are already moving upstream to #killthecheck. They digitize payments at the source in response to consumer demand and to save money. Likewise, instant funding for checks is the magnet that will attract customers and revenue for banks, and can serve as an acquisition strategy for a bank to transform its service, modernize its technology, meet customer expectations, and jumpstart growth.
—Drew Edwards is chief executive of Atlanta-based Ingo Money.