What’s Next for US Corporate Payments?
16 October 2020
by Rob Golding, Sales Director, Volante Technologies
Significant strides have made by the financial industry during the past decade that have accelerated account-to-account payment services for banks, financial institutions and their corporate customers. Results: reduced corporate check usage in exchange for more trusted, cost effective B2B electronic payments solutions built on a foundation of technological innovation, thought leadership and payments foresight. Yet, more progress is essential towards achieving 100% checkless business transactions before the next decade.
Despite a weak economy, U.S. account-to-account payments continue to grow, with 58% of electronic transactions as of 2019 and 42% of B2B payments absorbed as checks.
Modernizing B2B Electronic Payments
The modernization of electronic payments can be found in the foresight of industry leaders, namely: Nacha (ACH Network), the Federal Reserve (Fedwire® Funds Service), SWIFT, and The Clearing House (RTP® network). Together, they enable faster settlement, trusted security, transparency and interoperability that continue to redefine the relationship between corporate payers and payees and their banks and financial institutions.
The ACH Network plays a vital role in reducing paper checks and fraud with the electronic payment of vendors and suppliers. B2B payments made via ACH payments have been on the rise, increasing most recently in 2019 by 12% to 4 billion, transferring $38 trillion. Recent Same Day ACH payments advancements include: faster funds availability and a higher per-limit dollar transaction, increasing the average value of a Same Day ACH payment by 40%.
Despite the pandemic, wire payments remain healthy and Fedwire® electronic funds-transfer quarterly volume continues to rise, with combined Q1 2020 and Q2 2020 volumes exceeding Q1 2019 and Q2 2019 figures by more than 7%.
Migrating to ISO 20022
Global financial messaging provider SWIFT and its members are migrating to ISO 20022 by 2025, joining TCH RTP®, which currently provides banks with robust ISO 20022 messaging capabilities in new TCH RTP® services. As of August 2020, the TCH RTP® network held 45 U.S. financial institutions ranging in assets from $100M to $500B+, comprising more than 56% of U.S. transaction accounts.
ISO 20022 messaging will also play a vital role in wire processing through FedNowSM, the Federal Reserve’s proposed payment network replacing proprietary message formats for U.S. Fedwire® payments with ISO 20022 messages.
The ISO 20022 benefits to banks and corporations include: reduced manual effort, increased straight-through processing and the elimination of tedious treasury reconciliation.
As of March 2020, nearly two-thirds of all payments traffic on SWIFT was sent via SWIFT gpi, the cooperative’s latest response to the financial community’s goals for transacting faster, more transparent international payments while ensuring industry standards.
Building a Check Replacement Business Model
Banks and financial institutions seeking to build an account-to-account payments offering in place of checks would be well served with a business model focused on: services and experiences, interoperability, a re-evaluation of their core/payments relationship, resiliency, and corporate onboarding.
Banks able to deliver customizable payment experiences are more likely to grow their businesses and satisfy their corporate customers. Faster, more flexible payment options that simplify a customer’s business, such as a ride share company’s ability to digitally and automatically accept payment, will help banks and financial institutions retain customers and increase their customer base.
B2B electronic payments focus areas for banks and financial institutions include:
Payments services that are open and integrated, not siloed, are essential for delivering high quality experiences. For example, the service could fulfill a request for a real-time payment by sending the transaction via TCH RTP® if the destination account is available, or via Zelle™ if only the recipient’s email is available. The payment could also be routed via Same Day ACH if the timing requirements support that route, or as a regular ACH transaction if the timing of receipt is not critical.
Innovative payment services are a challenge to provide utilizing core providers who are unable to meet increasing volumes. Rather, a focus on more resilient architecture that separates payments processing from core technology gives banks the ability to more quickly identify payments opportunities.
Resiliency with Cloud-Based Processing
The resiliency, business continuity and security features of cloud-based processing are vital components of B2B electronic payments modernization. The margins for error and delay are narrowing, and downtime is no longer acceptable as electronic volumes grow and payments become 24x7, and more real-time.
Often, a corporation’s dissatisfaction with its bank can be traced to its slow onboarding processes. Obstacles experienced by corporates include: Difficulty handling corporate ERP/treasury payment, a lack of efficient automation, statement requirements and significant time and resources required for mapping files and testing their integration with bank treasury portals.
The future of U.S. corporate payments is dependent upon the unifying forces of the industry to address these challenges and offer solutions. This will enable banks and financial institutions to uncover opportunities for achieving increased adoption of electronic corporate payments that satisfy their requirements and that of their customers.
An executive briefing written in partnership with Nacha entitled, U.S. Corporate Payments: The Check’s No Longer in the Mail—A Guide to the Present and Future of U.S. Corporate Payments for Banks and Financial Institutions, explores the dynamics driving the B2B electronic corporate payments transformation touched upon, above.