Ingo Payments says balancing on the edge of regulation is a testing ground for BaaS

As the banking and payments sector enters the second half of 2024, many executives say we are at a tipping point that will require a steady hand on the wheel.

“Regulatory regulation and regulatory scrutiny have taken center stage in the industry,” Ingo Payments CEO Drew Edwards told PYMNTS CEO Karen Webster during a “What’s Next in Payments” conversation. “We’ve been through a lot of those cycles over the last 23 years, but this regulatory environment is where the bank sponsorship (model) is getting tighter and tighter and more difficult.”

This heightened vigilance has led to a more cautious approach among banks and payment processors, which has affected the approval and implementation of transactions. It has also led to the emergence of trust as a key element in the engine of industry growth.

Edwards shared insights from a conversation with his banking partner, highlighting that trust in new FinTech solutions has declined, while trust in existing relationships has increased.

“Trust is at stake in this industry,” he said, emphasizing the importance of reliable partnerships in navigating the regulatory landscape. “The cream is at the top.”

While the current situation poses challenges, market disruptions can also lead to eventual consolidation and improvement, resulting in a more robust and healthier ecosystem.

“I hope it doesn’t mess up what’s in the soup; the market is crying out for soup,” Edwards said, noting that competing with something shiny and new can be a challenge when your own development is focused on being compliant and doing what’s right.

“It’s so powerful — this idea of ​​faster funds, embedded accounts and embedded payments — until you understand banking properly and realize that this is your curfew,” he added.

Navigating the Transformative Payments Landscape in 2024

Given the potential changes to the regulatory framework and even consumer behavior and political climate, the rest of 2024 promises to be a transformational year for the payments industry.

The first anniversary of the launch of FedNow® Service marked a milestone in the instant payments space. The Federal Reserve’s entry into the space, along with The Clearing House and major banks, has impacted pricing and market dynamics. Edwards noted that the presence of the FedNow platform has lowered the network’s costs and increased its importance.

“It’s part of every conversation now, asking, ‘Do you have RTP® and FedNow?’” he explained.

At the same time, despite the hype surrounding instant payments, consumer behavior still somewhat favors traditional payment methods. Edwards emphasized that push-to-card transactions still dominate consumer use cases, while bank transfer rails are more critical for B2B and business transactions.

“For B2B and business applications, these bank transfer rails are critical,” he said.

The importance of trust, compliance and adaptation

Among the groundbreaking events and trends impacting the payments ecosystem this year, one trend stands out: the macroeconomic environment.

The broader economic landscape remains a wild card for the payments industry, with Edwards highlighting the impact of the economic slowdown on transactions, which is being driven by regulatory turmoil, reduced investor funding and the general economic slowdown. He explained that while some sectors, such as gaming and insurance, may be more resilient, the effects are starting to be felt across the board.

At the same time, consumers are becoming more price-sensitive, looking for better deals and adjusting their shopping habits to keep up with economic pressures. This trend is evident in the anticipation of major sales events as consumers look to save on essential purchases.

Looking ahead, as the Consumer Financial Protection Bureau prepares to issue a ruling on open banking requirements, the industry is anticipating changes that could reshape payments. Edwards said he expects the regulations will promote privacy and consumer choice, potentially increasing trust in logging in with bank credentials and enabling new opportunities.

He added that the interplay between instant payments, open banking and faster funds will continue to be worth watching in the second half of 2024, as it holds the potential for innovation and disruption.