Digital payments were considered a luxury in many markets before 2020, but that changed as the COVID-19 pandemic accelerated slow-moving trends away from cash and cheques and towards reliance on digital payment solutions and real-time payments.
Countries with robust digital payment infrastructure coped better than those without when dealing with the pandemic’s economic impact. Digital payment solutions have enabled both governments and businesses, working with their financial institutions and service providers, to accelerate the much needed—faster movement of money.
The accelerated adoption of digital payments and solutions, particularly in markets like Canada, indicates that unpredictable market events can alter cash and cheque trends even in markets with strong economies.
Since the beginning of the COVID-19 pandemic, due to many economic factors such as distribution in the global supply chain and reduced business activities, we have noticed more people being financially impacted. More Canadians require additional funds like personal loans or financial assistance.
However, lockdown restrictions and business closures have reduced consumer access to lenders and financial institutions’ branches.
Now, this is time for lenders and borrowers to work together to adapt to the new environment and take advantage of alternative ways to interact with one another.
Inefficiencies in Traditional Payment Solutions for Lenders
Traditional payments, such as cheques, impact a business negatively as a whole, as we described in our previous blog post.
Alternative to traditional cheques is Electronic funds transfer, known as EFT, which moves money from one account to another. This payment method is most used by lenders but has challenges when processed by major Canadian banks and financial service providers.
1- Manual Processing and Labour Intensive
EFT payment services available through banks and credit unions are offered via an online banking service or through a file processing system. In both methods, the client needs to manually submit the transaction and it takes 3 to 5 business days to be cleared. Then the client must ensure that the transaction status is updated accordingly to reflect correctly on their book. This is challenging for lenders with hundreds of transactions; this process has a high risk of human error. It becomes more complicated when the lender needs to collect installment payments and then repeat this process weekly, biweekly or monthly.
2- Lack of Visibility and Transparency
Like cheques, if a lender accepts and sends payments using EFT, they cannot verify any information about the payer’s bank account, ownership or availability of funds. They cannot predict if the payment is successful, and it can take up to 5 business days to have final confirmation.
More importantly, the inability to connect existing banking systems to the lender’s software or platform they use to manage their loans will result in manual reconciliation and updating of the status of each borrower’s account. This can result in costly financial errors.
How Lenders can Benefit from Digital Payment Solutions
Considering the above challenges, choosing an alternative digital payment platform is the best approach for lenders. It can assist with automating the payment processing from initiation to reconciliation and enables full visibility into each transaction. Going digital gives lenders more control and flexibility to streamline the payment processing and focus on their core service offering—talk about rapid scaling. What better way to grow your business than to have a solution that improves its value when customers are added?
Moreover, data-driven payment solutions can add more value to lenders by offering simplified onboarding and collecting account information. From customer onboarding to payment processing, digitization of the lending processes brings several powerful benefits for lenders and consumers, including better decisions, improved customer experience, and significant cost savings. Offering more simplified ways to pay can make or break the customer experience.
When selecting a digital payment solution, it is important to consider how it can integrate with lenders existing software. An API-driven solution can simply integrate into a business’ platform, enabling a fully autonomous approach.
Choosing EFTs through a provider like VoPay means simplification. It means seamlessly facilitating payment processing by connecting to North America’s banking system. And truly simplifying the automated collection and disbursement of funds through a single platform.
Choosing a Right Partner is the Key to Future Success
Never an easy task. With a provider like VoPay, lenders are empowered to offer efficient and cost-effective real-time funding options while reducing NSFs and returns during payment withdrawals through next-generation EFT. For example, a lender can simplify the issuance of the loans and disburse them to customers automatically once a loan is approved and also automate the collection and recurring payments.
One of our standout performers for lenders is iQ11 EFT. By utilizing Open Banking technology Intelligent EFT / ACH (iQ11) adds a layer of data intelligence to online bank account transactions to verify them instantly and process them at a much lower transaction fee. iQ11 Solution: Can reduce NSF and return transaction rates by verifying the balance before the loan transaction initiation.
VoPay’s payment services can be used out of the box with no development resources or it can be fully integrated into existing workflows using our developer-friendly API. VoPay is accredited by the Canadian Lenders Association and received the award for Fintech of the Year 2021 for our contribution to digitizing lenders across Canada.
Whichever way you decide to go—the direction is undoubtedly digital. So, whether you’re plowing ahead and going fully autonomous or pivoting towards digital payments, the time to do it is now.
Contact us today to learn more about making the switch to digital.