Payments Go Real-Time

Tough economic times call for greater efficiency in finance and payments, Modern Treasury CEO and Co-founder Dimitri Dadiomov writes in the PYMNTS eBook, “Baseline 2022: What the Next Six Months Holds.”

With markets seizing and fears of recession rising, it becomes ever more important for businesses to be efficient. Payment operations are core to every company’s efficiency, and many companies have work to do.

Harris Poll research shows that more than 4 in 5 companies (84%) face payment operations problems. Slow payments, a high rate of payment failures, returns and refunds, and data quality errors result in wasted time for finance teams. One-third of payments are still manual. Less than half of the companies making B2B payments — the lion’s share of money movement in the U.S. — say their current payment operations are efficient.

The impact of inefficient payment operations is felt both on the front line with employee frustration and loss of productivity, and the bottom line with increased risk and even lost revenue.

When an economy is booming, companies have more room to absorb those inefficiencies. In tougher times, doing things the smart way becomes ever more important. Companies that automate payments using modern software and APIs will see big gains — not just with finance team productivity, but also with faster payments, reduced risk, fewer errors and greater insight into finances.

These gains will enable them to more quickly adjust to changing market conditions, and give them more time to focus on strategy versus chasing down and reconciling payments.

At the same time, we’re about to embark on a major sea change in payments in the U.S.

The growth of Real Time Payments (RTP), the first new payment rail in the U.S. in 40 years, and the pending launch of FedNow, sets the stage for the U.S. to join the rest of the global economy in adopting faster payments.

An intriguing possibility that faster payments allow is disbursing payroll payments on an ongoing basis instead of on a monthly or semimonthly basis. This would delight workers and help with cash flow, and help businesses improve efficiencies.

On-demand pay means that workers can access earned wages before their traditional pay day, which we expect more workers to do in a downturn to meet their obligations. Companies will need to adopt software to calculate, in real time, what wages have been earned, what taxes need to be paid, and what workers can access.

Whether B2B or B2C, real-time payments will require replacement of older databases and tools. The good news is that tough times help hasten innovations. Uber, Airbnb, Slack and Venmo all launched in or around the Great Recession. As we see payments only getting faster and, and ultimately, instant, we’ll also see software innovation continue to meet the demand for efficiency.