Historically, innovative financial institutions have always found solutions for friction or client pain points that have resulted in better customer service and more revenue for themselves. By identifying some of these same challenges in our current practices, we can then start instituting additional solutions for today’s challenges. The following are four examples of existing friction and pain point solutions that changed the world’s financial institutions forever.
CHECKS
The first example is about a thousand years old, and that’s checks. I don’t know that everybody knows that checks are about a thousand years old or more, but they are. A check is a payment order to a depository institution, somebody who’s holding money on behalf of somebody else. It’s an order by the depositor to the institution to pay somebody else. That’s all a check is – a value that is written down on a piece of paper, which is then handed to someone else, who then takes it to a bank to be redeemed. The bank, if it thinks it’s valuable, pays it.
Just think about the friction and the pain that checks removed. Back in the day, if you wanted to pay somebody, you would have to take physical currency and have it delivered somewhere else. That might mean you take a purse with a stack of bills, or a number of coins, or gold, or bullion, and you hand it to an employee or a servant who then delivers it in a carriage, or on a horse to wherever it needs to be delivered. Think about all the problems with that. First, there’s a delay – it’s going to take time to deliver it. Second, there’s a chance of robbery. Third, there’s a chance your employer or servant is going to take off with the funds. Fourth, there’s a chance the funds are going to show up, but the payee is going to say, “Oh, you didn’t pay me enough.” The exchange of hard assets caused all kinds of issues.
It’s different with a paper check. That check is an order to a depository institution where you also need a paper record. Currency doesn’t need to be transported physically. If the payee is also depositing at the bank, assets don’t change hands at all – it’s just a ledger entry. Checks solved a lot of problems that were present at that point in time.
MONEY WIRES
Fast forward 800 years or so, and now we have telegrams and wires. In the United States, at one point in time, if you wanted to get to California from the Eastern seaboard, it would take forever. You had to jump on a train, or ride on a stagecoach, or travel by horse, or even walk. It took a lot of time if you wanted to get currency across the United States, or even to Ohio, for that matter. The answer was you take a telegram. Banks and payment services would send telegram wires to each other with payment orders. Instead of written check, it’d be verbal or a telegram. Institutions would handle the settlement and that really sped up the money transmission process.
CREDIT CARDS
Let’s fast forward to something a little bit more modern, something everybody is still familiar with. If you are a retailer and you want to be paid, you want to be paid quickly. One of the easiest ways to do this is to offer credit card payments. This is done with a vehicle called merchant services. This service is provided by banks and other third parties. A bank hands a credit card terminal, software, and access to payment processing networks to a retailer or merchant so that the retailer can accept a credit card payment. The bank helps in the settlement process and earns a small fee. The credit card has gone a long way to opening additional capital for the retailer. Because the credit card is attached to debt, it allows the consumer to spend more when they’re purchasing with a credit card. It also makes payments faster and easier to handle than when using physical currency. It’s so convenient that there are now retailers who won’t even take cash – whether that’s legal is another question.
MERCHANT SERVICES
The main point is that credit cards have removed a lot of pain in the payment process. Nowhere is this more evident than in the world of e-commerce. Merchant service payments, credit card processing, and debit card processing have become a critical part of the e-commerce payments industry. This is because you can’t order something, and then send cash, and then wait and wait and wait and wait to have something delivered after the cash is received. Banks have done a great job in jumping into those spaces, particularly merchant services where they have played pivotal roles such as custodial accounts and settlement processing.
Banking services continue to advance as technology continues to change the way we bank and purchase. The following are three modern solutions making it attractive to jump into the payment space, offer new services, offer new ways of making payments, and make payments faster. Make sure you’re taking advantage of these solutions. https://farleylawpllc.com/exciting-revenue-opportunities-in-payment-services/
Brent Farley is the managing member of Farley Law, PLLC
Farley Law, PLLC helps business owners identify business and legal strategies they can use to protect business and personal assets, increase and keep more income, and increase peace of mind regarding the way their business operates. Have a question or a comment? Send us a note at business@farleylawpllc.com, or set up an introductory call using our bookings service.