JPMorgan: Real Time Payments Will Speed B2B Payments, But ACH Has Staying Power

The headlines paint an ominous picture for the holiday shopping season — and, indeed, for everyday commerce.

Supply chains across a broad range of verticals are being disrupted, causing cash flow pressure for buyers and suppliers.

J.P. Jolly, Head of Payments at J.P. Morgan, told Karen Webster that the current landscape is illuminating the importance of banks in helping client firms manage payments — and, especially, in modernizing B2B payments.

Real-time payments (RTP) are promising but may not wind up displacing entrenched B2B payment modalities, given the time it will take to get to critical mass.

Jolly maintained there’s room for a broad range of payment options to be considered, reflecting the increasing leverage suppliers have with buyers.

He said that innovation has accelerated around business payments because the pandemic has forced companies to think about how they make payments, and, especially, how to digitize payments flows.

And drilling down a bit, he added, an area ripe for more innovation centers around how banks work with enterprise clients and the technologies that are being deployed.

After all, as Jolly said, “these companies buy ERP and they buy treasury workstation systems,” but the question remains: How can banks work creatively with these companies to make the integration more seamless?

The urgency is there, he said, as clients have been pivoting to embrace eProcurement systems, and join eMarketplaces to link with their supply chains.  Inertia, to put it simply, has diminished.

It may be no easy task, but seamless integrations are critical, as these client enterprises may want to embrace new payment modalities that their current banks do not provide.  And that just may spur the firm to find another FI.

The goal, increasingly, is to “consumerize” B2B payments.  The treasurers and CFOs at the helm of client firms, he said, want B2B payments to be as intuitive as the programs they use outside of work.  Ideally, they want to be able to open apps and use them to navigate their buyer/supplier relationships, using banking portals and APIs to do so.

“The main piece of technology that really has accelerated for our industry has been around APIs,” he said. “In treasury services, the first set of APIs rolled out in early 2017, and now we’ve seen a real acceleration across banks and across the technology providers.”  Through the past few years, he said, banks had been focused on virtual cards and supply chain finance.  But there are of course other options, such as dynamic discounting or negotiating supplier terms, which aid and abet the overall movement away from checks.

“We could have done more of that as an industry,” he said of the efforts to digitize payments, “and that’s not just the banks, but also the clients.  We could have accelerated the whole integration of the use of technology and get them better data so they can reconcile their transactions and their accounts receivables.”

Unlocking Liquidity  

At the moment, buyers and suppliers are trying to unlock liquidity, and better information flows and a broad range of payments can help. Along the way, said Jolly, banks have always played “an important role” around supply chain finance.

In an age where supply chain finance is not just a tool to extend working capital, successful supply chain interactions are rooted in having a strong purchasing card or virtual card program in place, said Jolly, and making sure that buyers have other payment options to pay suppliers most efficiently.

Suppliers have more leverage now with buyers than they might have had in the past and can use that leverage to incentivize buyers to pay for goods and services more quickly.  Buyers, he said, are more actively looking at dynamic discounting, using (buyers’) balance sheets to pay suppliers sooner and give them better terms.

In the bid to make those payments timelier, real-time payments can play a significant role, said Jolly, as funds move directly between buyer/supplier accounts.

But as Webster noted, we’re far from ubiquity when it comes to real-time payments.  And to get to even 10 percent of B2B payments moving over real-time rails, said Jolly, well…that will take some time.

“When our clients look at RTP or real-time payments right now, they’re more looking at it in terms of business-to-consumer or businesses-to-small business payments,” he said.

Clients are adopting RTP chiefly for meeting on-demand payments — increasingly a requirement in a challenging job market where employers must meet the demands of their workers.  Those payments are easily facilitated, he said, where firms can use recipient IDs like emails or phone numbers to get payments (including disbursements such as insurance payouts) done.

The more they use RTP to cover such operational expenses, the more likely enterprises will be to pay smaller suppliers who may not be willing to accept virtual cards.

“As more and more banks support real-time payments, client firms will look more closely at B2B payments,” he said. But the shift will be gradual, as firms move away from the paper check to digital payments, and as the cloud makes it easy to digitize and automate formerly paper-based and manual processes.

“One of the reasons why businesses still use checks in this market is the beneficiary details that surround the information that comes along with the check. And that’s why clients still use that payment method,” he said.

As more information is digitized and sent with payment requests from suppliers, and ACH and virtual cards are already being used in buyer/supplier transactions, the move to RTP will be faster.  It will be more intuitive and represent less of a cultural leap than moving directly from paper checks to RTP.

No matter the modality, the banks’ role will remain central as supply chains modernize.

“Banks have been there to extend the credit, to extend the facilities, to sign up the suppliers in order to leverage supply chain finance,” he said.  “A number of companies have been leveraging supply chain finance, but I think companies need to look at supply chain finance end-to-end. And it’s not just about having a supply chain program.”