To get a sense of where faster payments are headed, look to the consumer.
There are dozens of faster payment schemes rooted or taking shape around the world — 54 at last count. Some of them have been mandated by governments, readying for anticipated demand. That’s a staggering leap from the 14 live faster payment schemes that existed worldwide in 2014, when FIS first released Flavors of Fast.
“If you look across the technology industry and the payments industry, the pace and movement of change is accelerating,” Mike Kresse, division executive for card and money movement at FIS, recently told PYMNTS in an interview. In fact, Kresse said changes in the digital age have become so all-encompassing that they can be likened to a fourth industrial revolution, changing the way commerce is done in any setting.
The Consumer Case, Leading To The Business Case
There’s a natural progression, a ripple effect, that drives the move toward faster payments, and the building of faster payment rails across the globe. Yet, Kresse pointed out that, ultimately, individual consumer behavior drives changes in business behavior. As a result, he predicted that the entrenchment of faster payments will be a linear progression that moves from consumer-to-consumer (C2C) to consumer-to-business (C2B), then to business-to-consumer (B2C) to business-to-business (B2B).
So, from the beginning, start with the individual consumer. It’s become commonplace, he said, for consumers to expect peer-to-peer (P2P) transactions to be conducted with lightning speed — whether during a dinner outing, paying for a babysitter or paying the lawn care service. The increased use and adoption of P2P technologies, like Zelle and Venmo, demonstrates the consumer demand for this type of frictionless payment option.
Settling funds faster, no matter the use case, benefits the entire ecosystem, and takes liquidity risk out of the equation. In corporate settings, there’s a clear advantage, as reducing liquidity risk accelerates working capital, giving firms more leeway to put money to work and capitalize on growth opportunities.
Particularly in the U.S, Kresse said there has been notable demand for real-time and faster payments from commercial entities, especially for commercial clients of FIS’ financial institution (FI) customer base.
One desire of those corporates — in B2B, or even in C2B — is to avoid having to pay interchange fees on transactions, he said. Large telecoms or utilities benefit from receiving real-time payments on their bills without needing to have payments go through the card networks, he added.
The Messaging Factor — And Getting The Message Out
Along with demand for faster payments, the information conveyed in them has significant value. Commercial payments, for example, have long relied on inefficient practices — like paper stubs that accompany paper checks, or lists of invoices paid and payments allocated to each invoice. Despite moves toward ACH payments and card payments, Kresse reminded that the classic B2B transaction is still fraught with emails and PDFs, which often disconnect critical data from the payment.
However, with real-time payment modalities, and through the messaging standard ISO 20022, data can be easily uploaded into firms’ billing systems.
Despite that, there is a better option, as roughly 40 percent of B2B payments are still done by paper checks. Kresse attributes this inertia to entrenched processes, both at the enterprise level and within some FIs, especially where lockbox services (including receiving and scanning payments) are large revenue generators. Likewise, companies have invested a significant amount of time and money into their ERP systems.
“The financial institutions in the U.S. have the ability to claim the first mover advantage to transform this paradigm. By telling corporate clients ‘we’ve enabled you to receive real-time payments’ that are interoperable with the current back-end infrastructure and desired formats in place, all of those behind-the-scenes mechanics — like lockbox imaging, the reconciliation and deliveries of data-rich files — can all be done and settled in a single day,” said Kresse.
There’s a bit of heavy lifting involved, he acknowledged.
“There’s a fundamental lack of awareness about faster payments, especially if we go below the Fortune 2000 or Fortune 3000 companies,” said Kresse. “For those who are aware of faster payments, there’s all sorts of confusion. ‘How is this different than a wire? How does this differ from a SWIFT transaction? How do I interface with my bank?’”
There are many “flavors of fast” across interoperable systems, like Same Day ACH transactions, real-time payments and several daily settlement windows available from the FED. It’s incumbent upon FIs to educate their corporate clients on the different faster payment services and products on offer. Processors, including FIS, he said, can act as the technology department of their FI clients.
The Low-Hanging Fruit
When asked by PYMNTS which use cases may see critical mass sooner rather than later, Kresse pointed to B2C, and scenarios like insurance claims that can be paid out with speed in a one-to-many setting. In the case of an approved claim, for example, an insurance payment can be pushed directly to consumers’ debit cards or bank accounts, removing the cost of printing and mailing checks — and the waiting game.
“It’s a delightful customer experience,” he said.
Then, he added, from disbursements, faster payments adoption will bleed from disbursements to B2B accounts payable (AP) transactions — domestic to begin with, then branching out across borders.
“A B2B AP transaction is a situation where you’re leveraging the payload capability of the message so that remittance does not become disconnected from the electronic payment,” he said. “You’re getting that immediate response back that [the] payment actually has been received — confirmation of payment.”
As for a time frame, he noted, much of that migration will take place through the next three to five years — and the value, of course, is in the trillions of dollars. Naturally, this payoff could add to the continued adoption of faster payments throughout the ecosystem — which may soon transform how consumers, corporates and banks view the norms of money movement, in terms of both speed and experience.
“When we talk just a few years from now, we will likely talk about the displacement of all of these transactions that have moved to real time,” said Kresse.