Obsolete payment rails is not a new problem for the US banking infrastructure, but the collapse of Silicon Valley Bank has thrown it into the spotlight, especially for payment companies that had their payment rails at the bank.
A payment rail is a network for how payments move from the payer to the payee. We have seen newer rails appear in recent years, for example the blockchain, and within the consumer world with peer-to-peer payments via apps such as PayPal, Venmo and Zelle. Most payments take place in real time.
Airbase was one of those fintech companies that had its pay rails with SVB. CEO Thejo Kote told MinRegion+ that the company needed to make an effort to help customers ensure that their wage and supplier payments could resume and also remain secure.
The current payment rails, particularly in the US, are decades old and were created long before digital payments became a way of life. In recent years, financial technology companies have built rails on top of existing infrastructure, for example, Stripe, Plaid, and the like, but it takes years and millions of dollars to do it. Visa, too, recently partnered with PayPal, which also owns Venmo, and others to help people make digital payments no matter what app you use.
But even with this technology, some fintech founders say decentralized financial rails built on the blockchain may be a better answer. Especially since building on the current outdated payment rails is expected to become more and more of a problem. This Finextra article notes, “as time goes on and the payments industry increasingly moves to micro, international, instant payments with volumes that will be orders of magnitude greater than today, these issues will become much more visible.”
“It’s definitely archaic at this point and it’s a pretty slow method of moving money around, but it’s also the most common and popular payment network in the US when you’re moving money from bank to bank. There’s a lot of innovation going on right now, so a real-time payment craze is coming,” Kote said, referring to the Federal Reserve’s new FedNow service. Launching in July, it promises faster payment rails for financial institutions.