Making Money Movement Easier Across Your Accounts: Introducing On-Demand Funding

Jan 31, 2024
Jillian Smith

One of the most common tradeoffs a business starting a card program makes is between the complexity of account structures and the simplicity of operations. Demand in the payments landscape is trending toward more personalized and individualized payments. But innovators who attempt to create complex funds flows risk a more significant burden in managing money movement and reconciliation. Luckily, we built Highnote to accommodate the most intricate use cases imaginable while slashing the effort required to create and maintain them.

One way we do this? Our On-Demand Funding (ODF) feature. ODF eliminates the false choice between sophisticated architecture and ease of use while at the same time making overall operations more capital efficient. So, what is ODF, and how does it make it easier to manage your money movement?

What is On Demand Funding?

Commonly referred to as “Just In Time Funding (JIT)”, ODF is a method of automatically funding an account in real time during the transaction process. To better understand this concept, it is helpful first to understand how it contrasts with a standard funding model.

In the typical funding model, a business running a card program must preload funds into individual accounts and maintain sufficient balances for each cardholder’s transactions. This requires the company to constantly manage each account balance to avoid under-funded or over-funded accounts.

With ODF, accounts do not need to carry a balance. Instead of funding numerous financial accounts associated with cards individually and carrying balances on each card, cards can seamlessly draw from an on-demand funding account when a transaction is authorized. This feature provides unprecedented control over pooled funds, effectively eliminating the need to maintain dormant accounts with idle capital.

What is a Pseudo-Balance?

Highnote also hosts an optional, unique form of on-demand funding called a pseudo-balance, which allows customers to set a spending balance without pre-funding their account, mimicking a funded balance. This can also be thought of as a lifetime balance for a card or the total amount that could be spent using that card.

What makes the pseudo-balance powerful is that it can also be combined with spend rules, velocity controls, and collaborative authorization. This means you could issue thousands of cards with financial accounts, each with its own lifetime limit, and rather than worry about tracking the spending activity of each card; you can have unparalleled peace of mind and security that each card cannot be utilized beyond the designated spend limit.

What are the Benefits of ODF?

With both ODF and pseudo-balance enabled ODF, customers unlock a number of benefits, including:

- Reduced complexity: There is no additional infrastructure required for real-time authorization decisions, making money movement seamless and simple.

- Increased capital efficiency: Funds only need to be allocated to cards at the moment of use, freeing up capital for better cash flow management.

- Enhanced visibility: With each card being connected to the network payable ledger, teams have greater visibility into their overall money allocation picture.

- Faster reconciliation: There is no need to track all pre-loaded account balances or move funds to cover unfunded transactions.

How Our Customer Used ODF to Increase Efficiency

To understand the benefits of ODF even better, take the example of one of our customers in the healthcare research space.

This company helps hospitals and clinics conduct research trials for drugs and therapies. To ensure ample participation, our customer works with the research sponsors to issue payment cards to trial participants, covering travel, food, and other expenses. At any one time, this company may be working with up to 50 hospitals and research clinics, each with five to 10 trials running at any given time, and each of those trials may contain between 10 and 200 participants In other words, they may be responsible for managing between 2,500 and 100,000 cards at once.

In the standard funding model, our customer must fund all these cards fully, locking up valuable funds onto cards even in periods when they may not be in use and creating an extensive amount of work for the teams responsible for loading and unloading each individual card. With ODF, our customer can authorize the same aggregate limit on all the cards but fund a fraction of that total in the On-Demand Funding account. This is the kind of operational and capital efficiency that can make a difference in the success of a card program.

ODF: A Key Tool in the Belt of Innovative Fintechs

Payments use cases are becoming increasingly unique, complex, and personalized. The innovative companies able to seize on this trend and meet the growing demand are poised to dramatically outcompete those who remain stuck in the status quo. On-Demand Funding, with its ability to enhance control over funds flows, can be a powerful way for forward-looking platforms to rise to the challenge of shifting payments expectations. Highnote’s On-Demand Funding framework was built by one of the most advanced teams in the payments industry, and we are ready to work with you to craft a solution that unleashes the full power of our platform to realize your most creative visions.

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