Corporate payments still don't have a clear role in driving the adoption of faster payment technologies and systems in the U.S. The obvious assumption in the business-to-business (B2B) landscape is that faster payments are not only unnecessary, but unwanted, as corporates don't necessarily need to move money immediately.
Some industry experts are beginning to challenge that notion, though, particularly when it comes to internal cash flows and treasury management processes. Still, others have said that B2B payments should be largely left out of the faster payments conversation.
The U.S. remains in its early days of faster and real-time payments adoption, so neither of these two schools of thought have been proven correct. However, regardless of how corporates adopt faster payment technologies, many experts agree that the acceleration of payments in the country will have profound effects on the broader financial services space, and those changes are likely to impact how companies manage money and operate in a new ecosystem of payments innovation.
Bill Schoch, WesPay president and CEO, and inaugural chair of the Center for Payments, said the emergence of faster payments in the U.S. reflects a larger shift in the market — one that could certainly have profound implications for business payments.
"We are seeing, what I think is, an unprecedented amount of change that is being proposed and introduced in terms of [payment] operations," he told PYMNTS in a recent interview, emphasizing that his remarks are his personal viewpoints, and not those of WesPay or the Center for Payments. That change, he continued, is largely why WesPay and 10 other payment associations formed the Center for Payments, an initiative aimed at providing the payments ecosystem with market intelligence and guidance as innovation continues to disrupt the market.
The Center intends to guide its collective financial institution (FI) and corporate members, represented by the associations, in addressing key challenges in today's market. Those challenges include the costs of investing in and deploying faster payment systems, understanding and meeting the demand for these technologies, and navigating a shifting operational model of payments.
When it comes to faster payment systems, fundamental industry shifts are emerging that will affect the way corporates manage funds and transact — regardless of their actual adoption of real-time and faster payment capabilities.
Schoch pointed to that operational model as a key example.
"We're starting to look at solutions that have significantly different modes of operations," he said. "Our [payment] systems are looking at 24/7/365 solutions. These present a really significant change, and, in some cases, disruption to the way FIs are processing payments today."
They could also disrupt the way corporates are able to operate, as well as how treasurers and financial chiefs adjust to an always-on, always-available payments infrastructure.
Other operational changes emerging from faster payment initiatives include the focus on individual payment processing, which could be a significant disruption for corporates that historically operate on a batch-processing strategy.
"What we're seeing evolve [with] faster [payment] systems, especially with RTP by The Clearing House or RTGS that is proposed by the Federal Reserve, is that these systems are handling each individual payment on its own," said Schoch. "The question that I have is, 'How are we going to bridge this batch-operating environment in which many businesses are operating today into a single-payment, on-demand conversation that is the model of the new [payment] systems we're seeing?'"
This focus on faster, single-payment processes has also introduced shifts in payment security and fraud mitigation efforts, which are likely to make a mark on corporate payment strategies moving forward. Since these transactions are irrevocable, pre-transaction authorization and Know Your Customer (KYC) checks are even more essential in the risk mitigation process.
Schoch said the payment associations' members are being encouraged to focus on that pre-payment initiation process to ensure that those initiating payments are actually authorized to do so, and that adequate compliance and customer checks occur to proactively address the risk of fraud and non-compliance. For businesses, this would similarly represent a significant change in operations when transactions occur.
FIs have return on investment (ROI) at the center of their faster payment strategies. Adoption and implementation will rely significantly on market demand. Indeed, it's not B2B payments, but peer-to-peer (P2P) transactions that drive FIs' investments in faster payment technologies today, said Schoch.
However, even with limited adoption of faster payment capabilities in the B2B market, the broader industry changes resulting from faster payment initiatives are sure to affect the way corporates transact. According to Schoch, corporate adoption of faster payments is likely to occur in a segmented way: There may be a need for companies to embrace real-time payment capabilities in the business-to-consumer (B2C) disbursement segment, for instance, while real-time payroll is also a potential use case for faster payments functionality in the corporate sphere.
The Center for Payments wants to help FIs and corporates understand where those opportunities exist, and assess whether investments in those opportunities would be profitable. FIs and corporates must also be able to compare where their industry peers are in terms of their own investments and adoption, making market intelligence an important part of progress in this space, Schoch said.
While it remains to be seen whether B2B payments will become a driver of investment and implementation for faster payments functionality, Schoch believes the corporate payments landscape will, nonetheless, see significant impacts from the nation's progress toward payments acceleration — so FIs and corporates must be ready.