The insurance industry may be exactly what all payment technologists are looking for: a gigantic market with billions in transaction flows and an outdated taste for paper checks.
"There's a massive need in the insurance industry to digitize payouts," said Nandan Sheth, head of digital commerce at Fiserv, which just cut a deal with State Farm to deploy the vendor's open digital payment technology. "A lot of claims are still made and processed with paper, and often there's more than one check required for some claims. This is a massive opportunity for Fiserv."
At nearly the same time, Jack Henry, another longtime bank technology company, signed a partnership with Mastercard's Finicity, which supports financial data sharing, security and standards for more than 95% of U.S. financial accounts at about 10,000 institutions.
Both Fiserv and Jack Henry are using APIs and other methods to connect parties for mass disbursements. This approach is vital to their ability to demonstrate that they can deploy their technology fast and with little effort — much like startups do.
Insurance
State Farm will integrate with Fiserv's Carat omnichannel payment system to power instant transactions for claims that have been reviewed and approved. Real-time payments are elusive for insurance, and have been a
But insurance remains reliant on checks, which make up more than half of payouts, according to
Fiserv hopes to use its work with insurance disbursements to branch into other mass payout use cases, such as companies that need to support changing payroll needs for scattered workforces.
Sheth mentioned payments to 1099 workers, referring to the tax form used by gig-economy workers, contractors and freelancers. Fiserv hopes to reach these clients while competing with firms like
There's also an opportunity to extend merchant services, which Fiserv provides following its 2019 acquisition of
"If we're doing [merchant] acquiring we're already getting inflows," Sheth said, adding the incoming payment volume can be tracked, managed and used to expedite digital disbursements. "We'll be able to use that to fund disbursements instead of that merchant having to find a firm to manage outgoing transactions."
APIs
The use of APIs and other sharable technology is one way incumbent firms are innovating on a par with fintechs, which mostly employ the technology to enable web-powered deployment of e-commerce payments and other digital transactions.
Jack Henry is bringing open banking capabilities to its financial institution clients by partnering with companies like Finicity through its Banno Digital Toolkit to deliver customer services.
"Community banks and credit unions need to invert the concept of banking as a service," said Lee Wetherington, senior director of strategy for Jack Henry. "They need to recognize their customers and members are already using third party P2P payments, personal financial management appsand fintechs."
Jack Henry is making a play to enable enrollment for digital financial services among its client base, creating more leverage when cross-selling digital services and connecting small-bank consumers with financial apps.
Open banking has its roots in Europe's PSD2 rule, and has expanded globally. As mobile payments, cryptocurrencies and alternative lending products like buy now/pay later become mainstream, the pressure will be on smaller banks to adapt quickly. Writing for
"Nothing can be done to change the reality of how account holders are using financial services," Wetherington said. "Community financial institutions should be the main provider at the center of the relationship."
