B2B Payments

Why Real-Time B2B Payments Adoption May Be A Molehill, Not A Mountain

Paper checks are often pointed to as an example of how difficult it can be for corporates to change their payment behaviors. With newer digital, automated payment technologies emerging in the B2B space, businesses continue to stick to what’s familiar: paper.

It can sometimes appear that the pace of FinTech innovation far outpaces corporates’ FinTech adoption. With that in mind, one can assume that real-time payment technologies are far from the top of businesses’ priorities when it comes to embracing new payment processes.

However, according to Benny Cooley, CEO and founder of PaySett, the set of challenges related to real-time payments adoption are quite different from those pertaining to shifting businesses away from paper checks. Indeed, real-time payments adoption hurdles may be easier to clear for businesses.

Looking back at the adoption of paper checks, and the subsequent (and ongoing) efforts to encourage companies to migrate away from them, Cooley pointed out in a recent interview with PYMNTS that businesses often designed their internal, back-end systems around the paper check, making it a logistical headache to shift to electronic payments.

“Financial institutions had what was considered a ‘push’ issue with checks in that they had to push the users of checks to transition from writing checks to originating transactions electronically,” he explained.

While financial institutions upgraded their technology to handle electronic batch payments, it was corporates’ systems that prevented quicker adoption. The process added friction not only to payment processes, said Cooley, but also in terms of reconciliation and the ability to access payment data.

In that push for electronic payments, businesses have gradually adopted standardized enterprise resource planning (ERP) and electronic data interchange (EDI) systems.

A Different Kind Of Challenge

Amidst those back-office changes, the shift from electronic batch payments to real-time payments faces a far different kind of adoption challenge, with a burden that weighs more heavily on the financial institution than the corporate payer.

“The transition from batch to real-time will occur faster because the technology has progressed rapidly to allow for real-time processing,” he said. “The environment is also benefitting from a ‘pull’ effect, where the consumers [or] corporates are requiring this level of service from the financial institutions — and these institutions are having to meet these demands.”

Businesses’ back-end systems are often agile enough to leap from batch electronic payments to real-time payments more seamlessly than the leap from check to electronic, he said.

Of course, that’s not a universal truth, particularly for smaller businesses with back-end systems still built around the paper check, or those with “less technical proficiency,” explained Cooley. With any change in payment behavior, businesses must assess the cost of adoption and process disruption and weigh that against the cost of continuing to rely on legacy, sometimes outdated, technologies.

However, while corporate adoption of real-time B2B payments will not happen overnight, he noted that there are other factors beyond back-office upgrades that support a more painless transition.

Speaking The Same (Payments) Language

One of the most prominent payment industry trends to support real-time payments adoption is the focus on ISO 20022 payment message standardization, said Cooley. This is particularly true, he said, when supporting faster payment capabilities across borders.

While it is indeed true that payment services must adhere to the unique market needs and regulatory requirements from one jurisdiction to the next — and while ISO 20022 can support transaction format standardization with cross border payments, it does not address those individual market demands.

However, ISO 20022 does offer a way to standardize what data moves with transactions, as well as how that information is presented, regardless of the market. Only weeks ago, payments messaging firm SWIFT released its first set of guidelines for financial institutions adopting the standard for cross-border transactions.

“ISO 20022, through its ability to accommodate the requirements of many organizations and counties, and the widespread global adoption of this standard, has allowed for electronic payments that are truly very similar between various countries as it relates to transaction formats,” Cooley said.

The adoption of the ISO 20022 standard is yet another example of how the burden of adoption of payments innovations like real-time payments lay on the shoulders of banks, not corporates. However, considering the acceleration of ISO 20022 adoption, the outlook appears positive for banks to support real-time transactions for their corporates — and with corporates’ back-office systems ready for the change, adoption could be faster than some might expect.

According to Cooley, payments messaging standardization only supports businesses’ adoption of real-time payments, as it allows those firms to standardize access to payment data regardless of where they make their payments.

“This standardization environment increases the velocity of the payment, resulting in faster payments and settlement,” he said. “If you will, everyone is beginning to speak in one language for the movement of real-time payments.”

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