The day has arrived: Your daughter is getting her first car. She’s been a good saver, having accumulated the entire amount needed for a used Kia Soul and she’s ready to take a significant step toward a new level of responsibility. However, she’s still a minor and can’t do this alone, so the two of you head to the dealership together.
You’ve done your research and found the right model at the right price. What you don’t know is how you’re going to pay – finance, credit card or cash? Being in the banking business, this is an opportunity to pass on some financial knowledge – especially about the differences in not only what you pay (a little “wheeling and dealing”), but how you pay (cash, credit, financing, instant payments).
You’re curious about what the dealership offers, knowing that businesses are increasingly coming on board with real-time payment rails such as FedNow® and RTP®. Even small businesses are learning that real-time payments offer benefits in speed and liquidity, enabling 24/7/365 movement of funds with immediate confirmation. Businesses that offer real-time payments can improve cash-flow forecasting and reduce working-capital buffers – while also offering their customers convenience and immediacy.
So now, having taken a test drive to make sure the Kia is what she wants, it’s time to sit down with the finance manager. You’ll guide your daughter along in the negotiation of the final price, decide upon any add-ons and discuss payment options, showing your daughter how each would impact the buyer as well as the seller.
Option 1 – Financethrough the dealer. She could finance and invest the cash, but interest rates for used vehicle loans these days aren’t great. You calculate the total – and discover that the Kia would end up costing an additional $2,100 in interest, more than she could count on by investing the same amount. She declines; the money is saved up and she doesn’t want or need to pay more.
- For the dealer, financing is neither final nor irrevocable – and if something goes wrong, the dealer has recourse.
Option 2 – Credit card. You then ask if you can put it on a credit card. That would be good for your daughter: she could pay you the cash while you rake in the cash-back rewards. The dealer says, no; their policy limits card purchases at $5,000. It isn’t due to the interchange fee as much as the dispute process: They had gotten burned by customers who paid with a card and claimed it was fraud – and the dealer never recovered their inventory. So, that option is out.
- For the dealer, credit card is neither final nor irrevocable and the dealer has potential recourse – but maybe not.
Option 3 – Cash. “Of course, we’ll take cash,” says the finance manager, “although it’s not preferred.” In a lower-volume, but higher-dollar business, dealing with high volumes of cash can be a liability for the business, as well as for the employee walking around with a bundle of cash – also requiring daily runs to the bank. You didn’t bring cash anyway.
- Cash is final and irrevocable – but a bit of a pain.
Option 4 – Cashier’s Check. This is an option, but would have required more planning on your part. You hadn’t gone to the bank for the check and your daughter doesn’t want to wait until Monday; neither does the dealership, as it opened the possibility of losing the sale.
- Cashier’s check is final and irrevocable, but with a bit of friction on the part of the customer.
Option 5 – Wire. Nope. Your bank doesn’t offer online consumer wire transactions. That’s the norm with community financial institutions and common for the big ones, too. And even if online transfer was an option, it is not possible on a weekend.
- Wire transfers are final and irrevocable with intentional friction from the FI – but only available on weekdays.
Option 6 – ACH credit. Not this either. If you had the ability to generate a one-time ACH credit via online banking, that would be nice – but it’s not a generally available option, except in BillPay, which this is not. Also, it’s a Saturday, and like a wire, ACH also takes a few days to clear as it needs to run through the Federal Reserve, which only operates on weekdays.
- ACH credit is neither final nor irrevocable, only available on weekdays – and not generally available as a one-time payment.
Option 7 – An Instant Payment via FedNow or RTP. Being in the banking business, you see this as a perfect use case – but suspect it’s a no-go or the finance manager would have offered it in the first place. Still, you take this as a great learning experience for your daughter, as well as an educational opportunity for the dealer. So, you ask: “Out of curiosity, where does this dealership bank? What’s your annual revenue? Have you calculated the float on selling a product today, but not receiving settled funds for a few days?”
The finance manager is a bit suspicious, but also curious. You explain further, “If the dealership banked with an FI that participates in an Instant Payment network – as mine does – then I would have the ability to create a one-time irrevocable payment credit directly from my daughter’s checking account to your business checking account in seconds.”
You continue, “If your dealership had Instant Payments in place, we would make the transfer, you could refresh the account activity screen in your online banking portal and see funds posted immediately.”
With Instant Payments, the dealer would eliminate float on receivables, making it possible to schedule outgoing payments on the due date. It has a tremendous benefit of optimized and transparent cash flow, which can lead to better working capital and more interest earned.
- Instant Payments are final and irrevocable, instant and painless.
The reality is, we are getting there. The participant list continues to grow, and as businesses latch on to the value proposition, they may shop around for an FI that offers it – or become even more loyal when their trusted FI rolls it out.
Postscript: So, How Do They Take the Money?
Option 8 – Personal check. That’s right: The payment instrument that has been around for hundreds of years. Businesses understand checks. Consumers (above a certain age) know to bring a checkbook to a closing or a dealership. This is, however, a behavior that’s changing with the increased ubiquity of a growing instant payments network.
Of course, your daughter does not have a checkbook, nor has she ever written a check, so you write one. Then the two of you settle up via an account-to-account transfer.
And the check? Written on Saturday, it will likely post in three business days.
