Faster and real-time payment initiatives broke new ground in 2017, but so far, B2B payments has yet to really find its place in an accelerated world.
In December's PYMNTS Faster Payments Tracker, powered by NACHA, the numbers on faster payments in the U.S. presented a clear picture of growing adoption of the capability. 2017 was the year that The Clearing House's (TCH) Real-Time Payments (RTP) system went live, and NACHA said nearly 2 million same-day ACH debits were made in the first 11 days of the service.
Together, those transactions were worth about $1.5 billion, but B2B payments made up just 6 percent of that volume. The rest was the result of consumer-to-business (C2B) and peer-to-peer (P2P) transactions.
Industry players still expect faster and real-time payments to gain traction in the B2B space, though, especially as more solutions like Zelle launch and as more B2B use cases for those tools emerge. In the U.S., closer attention to faster payments capabilities among NACHA, TCH, the Federal Reserve and others means continuing growth in the use of the technology in 2018.
And, as the U.S. continues along its faster payments path, it will be watching other markets with more mature faster payments services.
Where B2B Payments May Benefit
The U.K. is one of them. The country's Faster Payments Service has been in operation for several years. Myles Stephenson, CEO of Modulr Finance, recently told PYMNTS his predictions for how B2B payments may gain further traction in Faster Payments in the coming year.
“Faster Payments enables better customer service, efficiency and treasury management, and here's a vast range of scenarios where a business is likely to embrace it,” he said. “The two most likely drivers come down to either a business's need for speed, or a need for certainty of payment — or both.”
In the lending industry, for instance, Stephenson said speed provides a competitive edge for lenders that “strive to provide their customers with funds as soon as possible after the application is accepted. Their ability to deliver funds instantly can be the determining factor in winning the business. Because it is possible to know when the payment has been accepted by the recipient bank, interest calculations can be made extremely precisely.”
Online marketplaces are another area of importance for Faster Payments, Stephenson said.
“Sellers often require instant payment to complete the sale and delays can result in poor customer experiences," he explained.
When it comes to reliability, payroll is another area of opportunity for faster payment solutions.
“Payroll service providers and companies that pay gig economy workers have a responsibility to ensure that people get paid on the stipulated day,” Stephenson noted. “The knock-on effect of payments not being received can prevent workers from paying their bills and honoring their commitments.”
The Focus On Consumer Payments
These use cases have been cited by others as areas in which B2B payments may find faster and real-time payment capabilities useful. But analysis seems to suggest that B2B payments continue to lag in adoption of those accelerated capabilities.
Last month, financial services provider FIS published its Flavors of Fast report analyzing faster payments initiatives in 25 jurisdictions. Of those, approximately half can handle B2B transactions, though the trend appears to be growing.
“Originally, faster payment systems were primarily focused on the retail market [person-to-person (P2P) and person-to-business (P2B)], but increasingly business payments [business-to-person (B2P) and business-to-business (B2B)] are taking advantage of the benefits that faster payments offer,” FIS wrote in its report.
But, while a growing number of schemes can handle B2B payments, FIS's rating system of those faster payments systems around the world suggested that only a handful enable B2B payments in a way that provides the most customer value. These initiatives continue to focus on consumer payments, the report concluded.
More Than Speed
B2B's lack of faster payments adoption could simply be a result of corporates not necessarily needing real-time payment capabilities.
In a survey conducted by SWIFT and the EuroFinance Corporate Treasury Network, published in October, researchers found that less than half of corporate treasurers around the globe said they want to be able to make instant payments.
What they do what, however, is real-time tracking of their payments and other value-added services that may come with various faster payments services across the globe.
According to Stephenson, much of the value of the U.K.'s Faster Payments service for corporate payers isn't just the speed — it's those added benefits of transparency.
“Faster Payments break down the barriers of long settlement cycles and cut counterparty risk within the system,” he said. “They also allow you to process a transaction and receive a confirmation notification that it has arrived in the beneficiary's account within seconds. Any issues can be rectified immediately rather than three days later — as with more traditional and slower ACH payments, including Bacs in the U.K. — or worse, when the payee calls to complain.”
“When it comes to B2B, payment speed is important, but only to a point,” said Neil Ambikar, founder and CEO of global corporate payments startup B2B Pay, in an interview with PYMNTS earlier this year. “It’s the whole package that needs to be changed and accelerated. A small business needs working capital, letters of credit, export insurance logistics, shipping insurance and credit protection. This whole area is fragmented, archaic and very costly. Faster and cheaper payments are just the top of the changes we need.”
This year, the EU's SEPA Instant Payments went live, and Stephenson said that will continue to boost awareness of Faster Payments in the U.K. Open banking initiatives — like the EU's PSD2, the U.K.'s Open Banking and industry forces in the U.S. that are also encouraging banks to open up their data to FinTechs — could address many of the points of friction of faster and real-time payments initiatives experienced by corporate payers.
In the U.K., many businesses are fine using the slower Bacs payments system because it is cheaper than Faster Payments and often doesn't require system and infrastructure upgrades — gaining technical access to Faster Payments continues to be a key barrier to adoption, Stephenson said.
“This is the reason for the emergence of new API-driven Faster Payments services, which can sometimes onboard a new business in days, while providing specific [service level agreements (SLAs)] around quality and availability of service,” he explained
The sentiment reflects how open banking initiatives could boost adoption of faster payment solutions, including for B2B transactions. With several markets around the globe undergoing a simultaneous transformation of open banking and faster payments, it's possible that innovators will make it easier than ever for corporate payers to link into faster payment schemes and drive B2B use of the tool.