Volante: Banks Must Look Beyond Speed With Real-Time B2B Payments

Real-time payments aren’t just an opportunity for consumers to send and receive money more quickly. Interest in faster payments is also on the rise for corporates, though their adoption of real-time payments won’t look the same as it does in the B2C world.

For financial service providers, instant payments offers a chance to open up new revenue streams and develop new services for corporate clients. But understanding how to position real-time payments technology to meet the needs of businesses is a challenge. According to Domenico Scaffidi, head of market infrastructures at Volante, there is a bit of a conundrum: While the most obvious value proposition of real-time payments is speed, corporate customers require value-added services alongside real-time payments on the basis that moving money in real time is not enough.

As Scaffidi recently told Karen Webster, uncovering the B2B value of real-time payments is about understanding the broader culture shift that instant payments technology has introduced to the financial services landscape. Banks must understand that shift in order to uncover the most valuable B2B use cases, he said – and that means not only embracing new payments technology, but also adopting new business models that can address the shifting needs of corporates.

A Payments Culture Shift

For years, corporate treasurers and CFOs have operated in a batch payment world, grouping together high volumes of transactions to send via ACH or other legacy payment methods.

In a real-time payment world, this paradigm is overhauled as transactions break free from the batch model. Intensifying this change is the fact that real-time payment schemes like Europe’s TIPS, SEPA Instant Credit Transfer (SCT Inst) and the growing list of real-time payment capabilities at the national level are always on — 24/7, year-round, including bank holidays.

How financial institutions (FIs) respond to this culture shift will define their ability to competitively meet the needs of their corporate clients, according to Scaffidi.

“The business model is changing,” he said. “When you start the conversation with financial institutions, you’re explaining that approaching real-time payments is not a new payments typology. It’s the culture that is changing.”

The biggest implication for banks, added Scaffidi, is that the revenue opportunity lies not in the transaction fees, but in developing new business models around real-time payments to create value-added services for businesses. As such, banks and other financial service providers must be diligent in segmenting the market, analyzing their customers and uncovering the biggest pain points of today’s corporates that can be addressed through real-time payments technology.

Uncovering The B2B Use Cases

Because speed is not necessarily corporates’ biggest payments pain point, FIs must look elsewhere to develop real-time payments-based services.

“If you think about a market like the U.K., I can say value-added services are essential for real-time payments because often, the speed of the payment is not enough to justify the new payment type,” said Scaffidi.

One of the biggest opportunities is in the ability for real-time payments technologies to not just move money quicker, but to also move rich data along with the transaction, particularly amid spreading adoption of the ISO 20022 payments messaging standard.

Wielding this data and enhancing it through artificial intelligence (AI) can empower FIs to better understand and even predict the payments needs of their corporate clients. AI can also enable FIs to automatically route certain corporate transactions via the most appropriate payment typology, whether it’s an instant payments scheme or something else.

Corporates, too, need access to transaction data for reconciliation, confirmation of payment and their own financial analysis, opening up the door for financial service providers to develop value-added services around those workflows.

There is one key opportunity for banks to wield the speed of real-time payments for corporates: liquidity management. Increasingly, corporate treasurers need to move and view their liquidity in real time across their accounts, with Scaffidi pointing to open banking as a means of unlocking that view, and real-time payments as a means of enabling instant liquidity transfers.

As banks explore new business models and revenue streams that are built on real-time payments data, Scaffidi said it’s vital that they are able to loop into as many instant payment schemes as possible to ensure interoperability and enhance their fraud mitigation capabilities. In many cases, that may mean upgrading infrastructure to support modern payment capabilities.

The pressure to modernize is on the rise, too, thanks to the global pandemic that continues to accelerate the shift away from cash. For traditional banks, internal efforts to wield real-time payments data and capabilities to develop value-added services for corporates may not be enough. Indeed, many FIs are turning outward toward the FinTechs they once viewed as competitors; today, these partners are important collaborators in developing new business models and revenue streams for joint corporate clients, according to Scaffidi.

As FinServ players dive deep into the possibilities, however, they must keep in mind the big picture: The way corporates manage money is changing.

“New business models are a must, but it’s not automatic,” he said. “It’s coming from a deep analysis where the bank is aware that they are moving from batch to real-time. It’s a new way to bank.”