What’s the best way to disburse funds? Aha! It was a trick question. The answer depends less on you, the party sending the money, and more on who’s receiving it. For banks thinking about new ways to do disbursements, especially digital ones, and especially on the global stage, it’s less about who offers the best option; it’s more about who offers the most options.
This probably sounds overwhelming if you’re a bank that was hoping to hop on the hottest disbursements bandwagon and keep abreast of the competition that way. The reality is, there’s no way to predict what the hottest bandwagon will be tomorrow, next month, or next year. It’s like trying to pick the next hottest band. For instance, I never saw the return of Toto’s Africa coming, but I am so glad it did.
A few years ago, experts might have put their money on PayPal as the sole digital payment method of the future, but today, Venmo has carved out its own sizeable niche in the world of small, instant peer-to-peer payments, especially with the kids. Meanwhile out East, Alipay has come out of nowhere over the past three to four years, and WeChat Pay is now following the same path. Trying to guess which will become the future’s “best” disbursement method is just that: a guess. Modern consumers want to choose how they will receive payouts: Venmo, Zelle, PayPal, Alipay, WeChat Pay, debit cards … or, who knows, maybe something we’ve never even heard of yet.
The only real option for banks, then, is to offer every option, now and in the future. And that’s every bit as complicated as it sounds. If you are a bank starting to think about what this means, good: The time is now to start figuring out how you will not only keep up with the competition but, hopefully, pull ahead in the disbursements race. Yet it’s also important to do it right. That means thinking about the big questions and challenges before taking action. Here are some factors to consider:
When a large corporation, bank, marketplace, merchant, government, or insurance provider needs to send a digital disbursement to an individual or a small business, it’s not as simple as mailing someone a check at the address they have on file or submitting a direct deposit to a bank account number – in many cases, the information needed for these seemingly straightforward, “old-fashioned” payouts may not even be available.
Instead, banks may have to use a mobile phone number, an email address, a card number, or some other data point to identify participants.
Even once the end recipient has been authenticated, there is an inherent insecurity in digital communication channels. Email, SMS messaging, and social networks can all be intercepted by a savvy hacker. The benefit of digital is that it’s simple and quick, which are key components to satisfying the modern appetite for real-time everything. However, it’s always safer to assume that someone is watching.
(Sidenote: Funny how opening someone else’s snail mail would get a person in trouble, but with everything else, insecurity is just an accepted cost of doing business.)
When dealing with something like insurance payouts, the bank involved on the receiving end knows something about the policyholder, so you, the bank sending the money, are relatively safe. But if someone’s video of a cat went viral on a marketplace and your bank has to pay them with nothing more than an email address, compliance becomes a very real concern. What if that person is on a sanctions list, or lives in a sanctioned country?
When working with digital endpoints, it’s never safe to assume that the other side is doing bank-like things about compliance. This means changing how you think about KYC and KYCC. Your organization must find a way to be sure that it’s only paying Beth from Oregon for the cute video of Fluffy and not accidentally papering the pockets of criminals or worse, and that remains true for every single payout method you want to offer (and don’t forget, that’s actually all of them).
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