REI INK
Unbreakable Financial Discipline

Technology Continues to Reshape What is Possible with Digital Wallets

Jake Harris

Oct 1, 2021

How much more could we accomplish if unbreakable financial discipline was hard-coded into our projects? If lenders, owners, general contractors and subcontractors had complete trust and confidence in one another? If funds were available whenever needed, and could only be used for their intended purpose? How much time and energy could be returned to the work at hand, and away from project politics, playing the cashflow shuffle, and undue financial stress?

Real estate investment is the ultimate platform for those who want to improve themselves and the world around them. Once the players, process, and products are known, it should be a simple rinse-and-repeat moneymaker all the way to retirement. But why isn’t this true for everyone? Surely it is for some, but unfortunately for most it is the exception, rather than the rule. What stops most of us from living the dream? It is a simple yet undervalued skill. It’s not taught in school, and it will never go viral on TikTok, but it is nonetheless essential to our success.

Financial discipline. Those who have it will prosper, but for those who don’t, countless avoidable professional failures will usually follow.

Achieving Financial Discipline thru Technology
It’s elusive because there cannot be any weak links in the chain. All parties involved need to practice financial discipline for ultimate success—not just a select few. It is just as important that the owner practice responsible budgeting and cashflow as for the GC and the Sub. Any weak link, and any project is in danger of crashing down, no matter how big or how small.

And of course, projects are complicated. They involve the work of many individuals over many months, and no two projects are alike. This has made the concept of financial discipline so hard to realize in the past. But technology can now step in where analog plans once fell short.

“Digital wallets” are real, financial accounts that allow users to store funds, pay for, and receive payment for goods and services, on a simple, single digital platform. Their groundwork was laid in 2019, when the U.S. Office of the Comptroller of Currency changed our laws to allow American banks to create and manage digital wallets for their clients’ funds on deposit. This change was unprecedented. For the first time, funds could be moved by a computer program, not by an individual. This drastically increased speed and efficiency for these transactions without increased overhead or the risk of human error.

Since this banking regulation change, many product platforms have come forth with their own digital wallets to expedite processing speed and avoid expensive transactional charges from traditional credit cards and slow, bank-to-bank ACH transactions.

The Possibilities are Endless
However, digital wallets provide much more possibilities than a one-time payment processing platform. Because they are now able to combine project management technology with back-end banking transactions, they also offer a platform that can behave like an escrow service with a trusted lawyer. Funds can be programmed and held by a disinterested third party for a specific and definite purpose. Rules and qualifications from contracts can be programmed in and met prior to allowing the transfer of funds from one wallet to another. In brief, funds can be programmed from their initial start, all the way down to their final destination.

Purpose-built software planning combined with banking execution unlocks a great number of direct yield benefits for real estate construction and improvement projects.

For a start, it allows for more successful loans. Having funds kept and distributed by a disinterested third party eliminates the risk of misappropriation or commingling. This process promotes a healthy portfolio of loans and borrowers with a faster project turn and lower default rates, allowing any lender to focus on growing stronger and more productive loans.

Second, it leads to increased speed and efficiency for the GC and construction team, who no longer have to suffer financial stress from their project. By having the funds secured and ready for deployment, the construction team can advance at a much more rapid pace, reducing the time of construction and getting more projects done year after year.

Third, digital wallets create a powerful reduction in overhead. Technology has always been used to automate routine tasks, but for the first time, our industry has a system that puts the project scope of work directly in line with the payments, and all with the ease of a button push. This technology is automating and securing entire layers of paperwork and administration duties, making them obsolete while saving time and manpower for everyone involved in the project.

The Industry Has Finally Arrived
We now live in a world where we can check our e-mails midflight from coast to coast. Where cars can be purchased before we even arrive on the lot, and prescription medications can be requested, prepared, and delivered in minutes. Even more amazing is the fact that these modern services all operate the same way: powerful innovations in technology have afforded us access to these conveniences through a phone and a few swipes of the thumb.

But our own industry has taken longer to catch up. Up until very recently, owners were still blind to daily job site progress. GCs and Subs still relied completely on paper invoices and checks in the mail. Lenders held meetings to review portfolios of past work to gauge relative risk for a loan. That’s because the financial discipline problem could not be solved by a quick fix—it’s taken more than just faster bank transfers and emails. It has required a fundamental change in regulations, technology, and a new way to think about the way projects should be completed. As technology continues to catch up to our industry’s age-old problems, we’ll be able to create new in-roads into what is possible, finding more opportunities and unprecedented success.