For ISVs, Integrators & Aggregators

Disbursement Methods: Payer Directed or Payee Selected?

Offering payees a choice of how to receive their payments is good for most disbursement use cases – but not all. Solutions designers must decide.


Anyone designing a payment distribution process very quickly comes to a key decision point: do we want to or need to control the specific method used by payees to receive their funds or do we want to provide them with their choice of payment?   

In a prior post., Global Payment Options: A Primer on Payment Service Providers, we detailed the list of global payment options including a brief overview of the key entities in the global payments ecosystem and the many payment variables from payment types, rails, funding sources and formats to the means of payments using digital wallet architectures to receive, store, send and transfer funds.    

Primary among the many benefits of using digital wallets for disbursement use cases is the potential for providing recipients the choice of how they would elect to receive their funds. 

However, as with so many digital design decisions, while we know intuitively what the best answer is, ultimately, the answer is: it depends.

 

Benefits of Choice Using a Payments Platform 

By far the most compelling reason for offering payees with the choice of how they would prefer to receive their payment, is consumer demand.  

A recent Mass Payments US study published by PYMNTS.com reports that “Mass payment recipients would prefer to have a say in how they receive payments and would be eager to pay extra for the ability to do so. Forty-eight percent of all U.S. consumers who received at least one mass payment in June (2021) say they would be “very” or “extremely” willing to pay a fee if it meant they could receive mass payments using the method of their choosing.”  Among that group, digital wallets were the preferred payment method and “not only would 52 percent of consumers pay a 1 percent fee to receive mass payments as they prefer, but 49 percent would pay up to a 10 percent fee if it meant they could collect payments using their preferred methods.”   

Beyond customer demand there are also significant advantages to the payment service provider or payer including lower costs, better speed and increased payee satisfaction.   

Lowering the Total Cost of Payments 

Managing multiple payment methods can be costly if each method is managed as a separate workflow with variable processes. Digital wallet architectures that leverage payment platforms featuring digital wallet-to-wallet transfers uniquely solve how to provide multiple options without creating incremental costs associated with managing each of the workflows.

Automated processes create additional efficiencies lowering the total cost of payment by providing payees with multiple options with self-serve tools to receive, send and transfer funds from their digital wallets.  

This also enables payers to avoid security costs associated with maintaining Personally Identifiable Information (PII), managing Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, as well as providing tax reporting data (including US 1099s), all of which can be managed by the payments platform.  

Eliminating Perceived Speed Bumps  

While the recipient's individual choices may take as long as traditional disbursement methods for final settlement after transfer from the payments platform to their selected end point, digital wallet exchanges transact instantly in near real time.  The Payee can see the funds in their digital wallet immediately -- and in their preferred currency. 

Thus, any delay in using the funds is largely placed on the recipient’s shoulders —  whether it’s waiting a couple days for an ACH transfer to become available in their local bank account, using a virtual debit card or digital gift card online immediately for an e-commerce transaction, or using push-to-debit functionality to transfer funds via debit card for immediate deposit to their bank account using the card network rails rather than ACH.  

Using a digital payment platform should eliminate queries traditionally answered with “the check is in the mail” but it doesn't preclude the payee from requesting a paper check.  Payment speed truly is in the hands of the payee.   

Choice Drives Higher User Satisfaction 

Payees like choice.  This has been consistent since the ‘pre-internet’ days when mass disbursement use cases were principally for employee or channel partner incentives.  Choice always tests better than any given choice.  For example, when given the choice between selecting merchandise from an on-line catalog or redeeming points for the full cash value using a prepaid debit card, the vast majority of incentive program participants will pick the prepaid debit card.   However, those same participants when asked by program designers what rewards they want to see in their program will select "give me choices" over any particular type of reward.    

This is still the case – perhaps even more so – with the digital transformation of payments and the explosion of new mass payment use cases.  Digital payment platforms featuring digital wallet-to-waller transfers uniquely solve the how to provide multiple payment methods via a common process: a prepaid digital wallet that securely stores users' funds.  From their digital wallet, recipients can transfer funds directly to any endpoint they choose -- EFT direct deposits, wire transfer, Virtual Visa, digital gift card, push-to-debit deposit or even analog options including a physical prepaid card or paper check.  A multi-currency digital wallet can be used to receive and store funds in multiple currencies to streamline cross-border payments

Payer Control: The (Use)Case for Limiting Choice

As with many digital design decisions, we know intuitively what the best answer is, but ultimately, the answer is: it depends. 

Many use cases begin with a pre-determined method of payment.  Adding additional payment choice options may lead to unnecessary or unwarranted complexity.  

Given that using a digital payment platform can lower payments cost, there are several use cases where the only driver for using the platform is to simplify processes and reduce expenses.  Adding choice may not result in adding any value.  So, designers can simply select which payment process is the default payment process and use APIs and the payments platform to effectively bypass the digital wallet altogether, sending funds directly to a specific end-point, e.g. the recipient's bank account (if known) via ACH or to a prepaid debit or digital gift card. 

The recipient may never experience a choice or even know that the funds were sent using a digital wallet middleman.  In this case the only ‘user experience’ provided via the payments platform is the receipt of funds in their bank account or a direct link to a digital prepaid card or gift card.  

Beyond lower cost, there may be compelling business reasons for pre-selecting a single payment method or limiting payee choices to a sub-set of all available methods.  Fortunately, controlling the payment method options is easily accommodated when designing payment workflows using the payments platform and APIs.

Conclusion

Payment innovation leading to new and improved disbursement methods will continue just as new B2B, B2B2C and B2C use cases will emerge.  Accommodating unique use case requirements for PAYER CONTROL and PAYEE CHOICE using a common digital wallet architecture and payments platform is key to enabling XTRM Partners to aggregate payment workflows to serve the needs of their customers and their payees. 

At XTRM, our mission is to provide the technology to make payments easy, efficient, integrated, global and transparent.  Simplify your B2B and B2C disbursement workflow with XTRM's multi-currency digital wallet platform and APIs.  Our platform and APIs are used by leading companies to send, receive, exchange and embed global payments. Connect with a payment specialist today.

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