Faster payments have an uncertain future in B2B transactions. At present, payroll and gig worker payments may be the most emphasized use cases for faster payments capabilities in the corporate world, with fewer experts expecting payments acceleration to gain traction in accounts payable and supplier payment scenarios. The uncertainty around how, exactly, businesses will adopt faster payments could play a role in how banks are or aren't establishing a clear road map for launching real-time payment services.
Developed by The Clearing House (TCH), Real-Time Payments (RTP) is a new payment rail that supports near-instant transmission of funds and information. Despite its promises, the introduction of an entirely new rail inevitably leads to logistical challenges for the financial institutions (FIs) looking to offer this faster payments capability to their customers.
A recent survey of 20 of the top 60 U.S. banks, conducted by Aite Group, found these FIs aren't entirely sure how much they'll charge for corporate RTPs, who will be in charge of overseeing these services, or even when RTP for B2B payments will be available to business customers.
"It was surprising how many of the banks planned to go live with Real-Time Payments for corporate clients, and planned to do so in the next 12 to 18 months, but really have not dug into what their timeline is, what funding they need to make it happen," said Erika Baumann, Aite Group senior research analyst and author of two recent reports on banks' approaches to RTPs as it relates to B2B transactions.
Baumann summarized the sentiment of these banks: "I plan to offer it, but the 'how' behind it is still lacking."
There are other imbalances in banks' RTP plans for B2B payments, too. For instance, Baumann said that through her research and conversations with banks, she's discovered that, though top banks plan to introduce the capability for businesses to receive RTPs, fewer are focusing on the ability to initiate such a transaction.
Lessons From Integrated Receivables
According to Baumann, her research points to banks sometimes deciding to integrate RTP capabilities for corporate, less because they see the value proposition and more because they simply don't want to be the last institution to jump on the bandwagon. About a quarter of the banks she's surveyed expect RTP corporate transaction volume to surpass 100,000 transactions a month within 36 months after implementing such a capability. Another quarter, she found, believes that volume will fall short of 5,000 transactions a month during that time-frame.
"Some banks say they are going forward with this, but they don't think there will be transactional volume en masse," she said.
At present, many businesses are still skeptical that corporate RTP will offer a significant return on investment (ROI), particularly as they question corporates' demand for such a solution. Baumann said there may be an opportunity here to learn from the recent past as it relates to banks' adoption of integrated receivables capabilities.
"A lot of banks responded that they don't have their clients coming to them asking for this capability," she explained. But banks thought the same about integrated receivables technology, and it presented an opportunity for third-party financial services providers to fill in the gaps.
"I did research around integrated receivables — one report from the bank's perspective, and another from the corporate's," Baumann recalled. "Banks said they didn't think corporates needed payments automation technology. But the corporate survey results were just the opposite — corporates said they needed it, and banks were not providing it, and that they were going to other third parties to get it."
The imbalance between what banks offer and what corporates want is documented in other reports.
Analysis from FIS published last year revealed that, as interest in RTP capabilities increases, only about half of the RTP initiative researchers, analyzed from across the world, included capabilities for corporate transactions.
Separate data from the EuroFinance Corporate Treasury Network (ECTN) found that about 44 percent of corporate treasurers in Europe at large firms want instant payment capabilities. In the U.S., however, TD Bank found in 2016 that 47 percent of professionals said RTPs are not essential to their operations. It's not surprising, then, that FIs may be reluctant to go all in for RTPs for corporate customers.
"Sometimes it pays to be a first-mover and early adopter to capture transactional volume," she said. "But some banks say they don't ever plan to offer Real-Time Payments for corporate payments. They just don't think there will ever be a use case for it."
FinTech Companies Hold A Stake
Corporates aren't the only ones that lose if a bank decides not to implement corporate RTPs. According to Baumann, FinTech firms have a massive opportunity to collaborate with FIs in their RTP strategies, but may be caught off-guard when they realize those bank partners don't have a clear timeline or strategy to implement the capability.
"For most banks, they don't build, they buy," said Baumann. "That really speaks to the disconnect with FinTechs and how they are partnering, and what they think is actually happening when it comes to the strategic roadmap for banks."
This is especially true for smaller institutions. According to Baumann, there are 100 or fewer banks in the U.S. that can be considered large or mid-sized. While larger FIs plan to adopt RTP capabilities for corporates, that leaves thousands of smaller and community banks across the U.S. that may be struggling to integrate RTP. This could have a significant impact on The Clearing House's goals for ubiquity, but as TCH's list of third-party gateways and partners grows, Baumann said FinTech companies are positioned to address these logistical and operational challenges of banks offering RTP for businesses.
"There is a real chance for FinTechs to partner with banks and say, 'Let me help you,'" she noted. "It's a good opportunity for FinTechs to say, 'I've worked with other banks, and here is how we can help.'"