‘I think same day ACH is going to be in trouble’: TabaPay’s Tim Astanov
- With RTP moving in, the choice of which payment rails to use and their cost/revenue profile matter even more.
- TabaPay's Tim Astanov joins us on the podcast to discuss payment trends, more and better choices, and how he sees monetization efforts around RTP shaping up.
What I continue to find interesting is that the fintech tech stack peels away like an onion. Even the innovators have 3rd party innovation under the hood. Sometimes it can do 3 or 4 layers deep.
Joining me on the podcast today is Tim Astanov, SVP, Product Commercialization & Partnerships at TabaPay. TabaPay is one of those companies that power payments for the fintech innovators, like SoFi, Remitly, Melio, and others. It offers direct access to 15 banking partners, 14 networks, multiple geographies, products and features in a unified API.
Tim has an awesome background – previous to his current position, he was head of P2P in North America for Visa Direct and had important roles at Discover and Amex.
We talk about the challenges and opportunities moving money in and out of bank accounts. Tim shares his views on the impact real time payments will have on the industry and its monetization efforts. Lastly we look to some of the biggest trends in the industry as a north star pointing where things are headed.
Tim Astanov is my guest today on the Tearsheet Podcast.
The following excerpts were edited for clarity.
Fintech’s need around money movement
In the past decade or so, as technology evolved, consumers know you can download a movie in a second. Probably 10 years ago in the payment industry, we started to see the need for speed, especially in a number of different verticals where you predominantly rely on ACH or legacy ACH rails.
I think consumer demand has shifted, and ultimately they want to see transparency, as well as speed. And when I'm referring to speed it’s more speed-to-money or time-to-money. There are a number of new phrases used in our industry. And that's ultimately how TabaPay came to fruition. We have three co-founders who spent quite a bit of time in the payment industry – the previous company they founded they actually sold to Mastercard. That company was focused on the disbursement side and I think they came to realize that fintech generally is very underserved. I would argue push payments, low risk payments, were then even a challenge.
TabaPay targets push and pull for a single use case
When they sold the company to Mastercard, they ultimately decided to recreate a similar engine or platform, to an extent, with the objective not only to power the push side, but also support the pull site. And when I say pull, think of ACH debit request for payment and RTP. Think of the traditional acquiring business card acceptance. In the network world, there's at least three types of main transactions that are leveraged by merchants or originators. There are two specific ones – quasi cash or account funding transactions – where we predominantly play given who we serve. The co-founders ended up building a platform that does both sides of the equation.
So think of any use cases, like loan disbursement, for example. A lending platform at some point needs to disburse cash. Let's say, if I apply for a small business loan, I need to be able to get money into my bank account.
We power transactions that require an originator, in this case, a loan originator, to send money to me. And then at some point, they have to collect it back, like via reoccurring collections. So we power both sides of the equation. For a consumer, it's a single credential that I have to ultimately link to my account. Let's say it's a debit card, the money goes in. And then I use it as I need for my personal expenses or business expenses. And at some point, once a month, ultimately, the lender will collect the funds, the principal amount plus the interest. So any flows like this, where we can enable both sides of the equation, we ultimately do push as well as pull.
Importance of collections today
Lending probably represents close to a quarter of our business and in all of its flavors – the lending platform that serves consumers, as well as SMBs. I think we've seen a spike on both sides. I don't necessarily know at this point whether we see a significant increase given the interest rates. We continue to see the same growth that we've seen three years ago when there was plenty of liquidity in the market. But lending has been doing really well.
We've expanded in recent years into new verticals. Digital tipping came out of nowhere. And I think that COVID contributed to that, to be honest, because no one carries cash anymore. Imagine the use case where you want to tip a valet driver, and since we don't have cash anymore, it's as simple as you can tap an acceptance device with some sort of EMV, that ultimately will push out a notification to your phone. You open the phone, you link your payment with your Google Pay or Apple Pay on whatever device you are using – say $5 – and it's a preset amount. You can also leave a rating. It's almost like an Uber experience, you can leave the rating to the valet driver – think of software that sits on the backend that knows exactly who was servicing me.
And my valet driver knows exactly how much he earned for the day. Depending on the financial situation, do you want to get paid on demand? Do you want to pay it in some sort of cyclical way, like via payroll? The tipping platform ultimately will connect to TabaPay, and we provide the infrastructure layer to support all payments, regardless of the form factor that consumers actually want, whether it's a bank account or card in today's environment,
We have two or maybe even three types of business units within our company and who we serve. We have roughly 16 or so fintech-friendly banks on our platform. We cover the US and Canada. These are traditional banks and all over the US. If you look at the fintechs, I think it's primarily East Coast and West Coast, at least today. The geographical split is predominantly on the West Coast at the moment. And then if you look at the third layer, where we leverage infrastructure for ISOs and registered PayFacs – in that case, it's broadly all over the United States.
Where is the growth coming from?
A lot of our growth is organic, a lot of it is net-new. It's not just lending – we see it across the board. Asset to asset is actually high growth. There are plenty of different verticals where we move money between two asset accounts – think of a debit account to a debit account. We see a huge path of growth there, as well.
About 4 years ago we started to see growth in on-demand payroll – many customers call themselves early or earned wage companies. Many of these firms started with push. So they want to deliver money in real time to a consumer, whether it's push to card, RTP, or push to account. Then slowly, they started pivoting to say well, we also need to have subscription fees. We need to somehow collect the subscription fees. Well, guess what, it's the same unified API – you’re just sending a different message saying instead of sending a push, now you need to create a pull of some sort.
Another use case we see is many fintechs getting into the digital banking space, whether they provide a high yield savings account or typical transactional spend checking account. In these cases, they all of a sudden need an account funding transaction because they want to make sure that the accounts are funded in real time. Then they need to enable instant withdrawals. Because we are focused primarily on instant, we offer ACH, which is kind of a must have at this point. But ultimately, with a shift to real time, we're starting to see with every single existing customer that they start to expand from one to another, to a third to fourth and fifth product or solution that we offer.
Visa+ and fighting for control of the alias directory
The most recent use case that we've launched (it's not quite launched yet, but it's about to go live) is our partnership with Visa on the protocols of Visa+. The product was designed with certain controls in place and economics to create a bigger P2P space. And what I mean by that is Visa first went after PayPal and Venmo. What it ultimately will do is, as a PayPal user, let's say we'll be able to send money to Venmo users, which previously could not be done.
And it all comes down to what we call the alias directory. Whoever owns the alias directory, ultimately, will control payment flows and the traffic. And in order for you to participate, let's say if I were to send you $50, you have to register with Venmo. Let's assume I'm a Venmo user in order for us to transact with each other. What Visa+ does is think of it as almost like a master layer of multiple directories combined into one where they create a public token, like TimAstanov@venmo. So now I can share that public credential with anyone. So no PCI scope, nothing sensitive about it. Think of it as a digital token that’s enabled to receive funds. Now I can send it to you as a PayPal user in this case, without asking you to register with Venmo.
It’s app to app, but the only difference is it seems like they laser focused on the P2P space, because clearly there's a lot of volume in P2P. But by creating this interoperability among all P2P players, it will continue to expand the volumes across the networks, across real time payments and verticals.
I ran P2P at Visa in my previous life. And we've seen a number of smaller fintechs, who were trying to get in, but soon realized that it's extremely hard and in a competitive space, simply because those alias directories already pretty much cover everyone in the United States who is willing to participate in P2P. So it's it's very challenging place to break in yet at the same time, they also understand that it's necessary to build something to be able to offer to the customer. So this Visa+, in my mind, not only creates interoperability among existing players, but it's also expanded the pie by allowing new entrants to actually come in and play bold P2P ball using this single public token that anyone can enable.
What will change with RTP
I think there are a couple of different changes for originators. Real time means high risk, right? That’s one thing when I send something via ACH – it takes a while to clear, you can batch process. There's tools you can put in place to mitigate fraud. I think with real time, it's substantially harder to do so. And for originators, they need to be aware of that and ultimately prepare themselves for real time payments.
But there is also an opportunity to monetize. Let's take P2P as an example: for those of us who use the Cash Apps and Venmos of the world, if I were to send you money, it’s actually a free transaction to me, because their job is to capture the flows that capture deposits, at some point, especially in a stage P2P as they call it, because there's some sort of stored value or wallet account that sits in your name within one of those apps. When I send you money, now money ends up in one of your accounts.
And at some point, you need to do something with that money – you can choose to keep it there, you can choose to use a card associated with a wallet and spend and buy coffee or whatever else. Or you can choose to take money out of the ecosystem. So if we use Cash App as an example, if you take money out of Cash App, they will charge you for real time access to funds. So you can choose to take money out to put it back in your Bank of America or Chase account, whoever you bank with. ACH is free, which means it will take a couple of days. You are not going to be able to access the funds over the weekends.
With real time, if you're in a pinch and you need to get money right away, you can actually pay a small premium for it and take the money out. So for any fintech or for any enterprises that actually engages with real time payments, there's a few things that they need to look at at the core. They need to look at the risk profile of the customer. Ultimately, with strong KYC, there should be no issues. The second thing is you can monetize this transaction. And a third thing, at least in the United States, it's become a kind of market norm.
Consumers do not want to wait for three days for their payments, especially when it hits the weekends. I actually want access to my funds immediately. This is my money. That's what most consumers believe. And so it's a satisfaction of the customer issue – the customer ultimately increases her satisfaction rates. Hopefully, if I have all those functionalities and availability to access my funds in real time, I'll do more business with an originator on a consumer side. I just move money from one account to another account.
This is actually the real story here.
I did it yesterday, I moved money from my bank, one of the largest institutions in the United States. And as we all know, they tend not to pay anything for deposits. And with the increased interest rates, there are plenty of providers that actually offer you quite rich interest rates. So I moved money basically from a zero savings account to a savings account that actually was offering I think 4.5%, which is quite rich these days. And I had to move a decent chunk of money. When I did that it happened to be on Thursday night, so it was past hours. Then I had to check if it hit on Friday or not. So I had to open the app just to make sure. But the balance didn’t increase.
Ultimately, I had to wait for four days for the money to clear. From my perspective, it's not that I needed the money right away. I'm more fortunate on this side, at least in this example, but the fact was that I didn’t know where my money was.
I can only imagine if I live paycheck to paycheck, and we have all been there. Thankfully, I'm now fortunate enough to worry less, but there were days where I had to pay rent or pay a bill. And it was about time-to-money. It can make a difference.
RTP and 3 ways of approaching the new revenue stream
On the pull side, I think of card acceptance, like a request for payment. It's all about capturing deposits. And generally paying off liabilities. Generally, what we're seeing there is really no fees associated with those transactions. On the payout side, or disbursement side, we generally see three different models. Model A is monetized. So let's say the transaction cost me $0.50, I'm going to charge $1.50 because ultimately deposits are leaving my ecosystem and I want to make sure that I somehow recover it.
Then if you look at the second bucket of activities positioning real time payments around cost recovery, and a cost recovery will be all around. So if a transaction cost me $0.50, then I'm going to charge $0.50. I'm going to keep my customer satisfied, but I have no intention of making money because my actual costs are somewhere else. Uber would probably be one of these types. I think Uber allows access to funds instantly to the drivers. And in that case, I don't think they charge $1.50 – they charge $0.50 or something like that, which ultimately covers the cost of acceptance.
The last model I would call cost optimization. And in that case – think of check replacement. Checks are still is a big payment medium in the United States. But anytime I issue a check, it costs me probably $1.50 to $5 – it depends on where you live, which research you're reading. And it could be even more because there's a shipment cost if the object wasn't delivered, and it was too small for me to even react to and I didn't bother to follow up. Let's say it's a $3 rebate of some sort. In that case, it becomes in ratio to the actual value of the tickets and can be very high. But let's assume it's plus three bucks, for the sake of example. So in that case, if the real time payments cost 50 cents, then you're actually saving money, and you're creating a better experience for consumers.
I think same day payments are going to be in trouble. They’re pricing themselves out of the market now. Same day ACH today at least has ubiquity, right? I can reach every bank account via same day ACH. I think RTP is in the early days, I think RTP by TCH claims that they have about 65% reach. It depends on the demographics that a company or an enterprise services. If you look at fairly established folks that tend to bank with a big financial institution, RTP probably will provide you with sufficient coverage.
If you think about folks who bank with credit unions and beyond more regional players, a lot of those banks today do not participate in RTP. Therefore you’re back to ACH – it's a consumer chosen form factor using bank accounts and the routing number.