KEY TAKEAWAYS:
--When implemented strategically, instant payments yield back-office efficiencies and delighted customers. However, poor implementation can have the opposite effect, resulting in siloed internal systems, repetitive remediation efforts and confused, frustrated customers.
--To ensure the success of your instant payments initiative, you must focus on delivering a seamless experience for users, providing them with as many payment options as you can and (this is the hardest part) integrating your back-end systems and processes with payors.
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As a consumer, you enjoy the convenience of instant payments in various aspects of your life, from splitting the bill with friends using Venmo to receiving direct deposits for your salary. But as an insurance professional, the idea of instantaneous payouts, claims checks and other transactions has been a long time coming.
Instant payments in insurance are finally gaining traction—and for good reason. In 2022, 20% of all claims payouts were made through an instant payment system, and it’s easy to see how they offer benefits to both customers and insurers. Customers benefit from increased convenience and faster receipt of claims payouts. Insurers enjoy advantages such as reduced payment fraud rates, increased customer satisfaction and decreased manual efforts involved in tasks such as accounting reconciliation and mailing paper checks.
Providing instant payouts is also increasingly necessary for insurance providers to maintain their competitiveness, especially with the emergence of Gen Z in the policy pool. To meet the expectations of tech-first consumers, insurance companies must prioritize and invest in an instant, seamless payout experience.
Instant payments are the future
While the Automated Clearing House network (ACH) has served as the go-to method for electronic payments, it involves a delay of three to five working days. Although an improvement over mailing paper checks, it ultimately falls short of a real-time experience.
With instant payments, on the other hand, the recipient receives their claim seconds after it’s been sent. The future of payments is undoubtedly heading toward instant transactions, as evidenced by the support of prominent institutions such as the Federal Reserve, which is investing in advancing instant payment solutions. In fact, the Federal Reserve plans to launch its own instant payment platform, FedNow, in 2023.
There will soon be three forms of instant payments available (excluding peer-to-peer apps). In addition to the soon-to-be-released FedNow, they are the Clearing House Real Time Payment network (RTP), which has been processing payments since 2017, and push-to-card payouts, which instantly transfer funds to cardholders' existing payment cards.
With instant payments accessible to the vast majority of consumers, insurers that have not yet adopted ACH can leapfrog from paper checks to instant payment. For those that have already adopted ACH, instant payments are still worth considering. Faster receipt of claims instills confidence and reduces uncertainty in recipients, creating a seamless, satisfying experience for policyholders.
See also: Ready for Era of Real-Time Payments?
Three things to consider
When implemented strategically, instant payments yield back-office efficiencies and delighted customers. However, poor implementation can have the opposite effect, resulting in siloed internal systems, repetitive remediation efforts and confused, frustrated customers. To ensure the success of your instant payments initiative, prioritize the following practices:
1. Focus on the user experience
The digital world is littered with failed websites, applications and services. No matter how innovative and valuable your application may be, if the service has a cumbersome user experience, customers will quickly abandon it.
That’s why it’s important to make the digital payout experience as intuitive and seamless as possible. For example, customers shouldn’t have to leave your app to enroll in digital payments or re-enroll every time they have a claim. Minimize the number of steps and redirections involved, and keep everything embedded within your app.
2. Provide policyholders with a choice
Your digital payouts should accommodate all three types of instant payments: RTP, FedNow and push-to-card. Additionally, consider integrating popular peer-to-peer (P2P) apps such as Zelle and Venmo to reach a wider range of consumers. Customers should have the freedom to choose their preferred instant payment method. Your user experience needs to keep these enrollment processes embedded within your app.
Fear of fraud is a common concern when it comes to digital payment transformation. Surprisingly, digital push payments actually experience lower rates of fraud compared with paper checks because the receiver's identity has already been verified through digital channels. Physical checks, on the other hand, are susceptible to uncontrollable external circumstances such as mail theft and misdelivery.
3. Integration with back-office processes
In addition to delivering a top-notch experience for customers, you need to provide back-end integrations for payors. Integration of systems and processes is a key requirement to fully realize the benefits of digital transformation. By doing so, you simplify workflows for insurers and employees, reduce the risk of manual errors and minimize time-consuming remediation efforts.
Transforming back-office processes and integrating instant payments with existing systems is the most time-consuming aspect of adopting instant payments. However, investing time and effort into this integration is necessary to establish a solid foundation for your payment processes.
While insurers can build out their own instant payment capabilities, proceed with caution. Honestly consider the costs and expertise to: a) maintain instant payment processes, b) handle exception cases and processing issues and c) stay up to date on evolving payments technology and make necessary upgrades. Keeping up with these demands within a homegrown system is more expensive, difficult and time-consuming than outsourcing these efforts to payments specialists.
See also: 5 Trends to Ride in 2023
Future-proof your business with instant payouts
With the proliferation of instant payment options, insurance providers have a pivotal opportunity to revolutionize their operations and deliver a competitive customer experience. The growing emphasis on instant payments by prominent payment players underscores the significance and relevance of this transformative payment method in the financial space.
By embracing instant claims payouts, you can unlock benefits such as enhanced internal operations and reduced fraud rates while further future-proofing your business.
