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Wednesday, September 8, 2021

Demand spikes for payments at speed of commerce

To the list of trends accelerated by the COVID-19 pandemic, add demand for faster payments. Results of a survey released recently by the Federal Reserve reveal that three out of every four business now consider it important to offer faster payments. Nine out of 10 expect to be able to send and receive faster payments by 2023; many are already doing so.

“Businesses’ appetite for faster payments has clearly accelerated due to growing acceptance during the pandemic,” said Shonda Clay, chief of customer and industry engagement for the Federal Reserve Bank System. “Businesses are calling for consumer-to-business and business-to-business payments that facilitate quicker access to funds, the ability to post payments immediately and automatically, and timely notification of payments.”

Faster payments is an umbrella term used to describe a variety of payment types, including same-day ACH, digital wallets and push-to-card services like Visa Direct and Mastercard Send that leverage debit card networks.

The Fed has been working on a service it calls FedNow to support near instantaneous and data-rich payments, 24/7/365, but that’s not expected to be operational until late 2023. The Clearing House, a bank owned collaborative, already supports near-instantaneous payments across a network infrastructure it calls RTP, for real-time payments. TCH said RTP can reach 60 percent of demand deposit accounts at U.S. financial institutions and is being used, among other things, to support instant payments using popular P2P networks, like Zelle and Venmo.

Leading acquirer Elavon also uses RTP to fund merchant accounts, generally within hours of batch closeouts, according to Steven Velasquez, head of partner business development at Elavon.

Accessing funds faster for better cashflow

The Fed commissioned a survey of a cross-section of businesses—from microbusinesses with under $1 million in sales to businesses with more an $250 million in revenues—in late 2020. Just over 2,000 businesses were queried about their attitudes toward faster payments. The results indicate the driving force of interest in faster payments is cash flow considerations.

“Businesses want to use faster payments for quicker access to funds and the ability to post immediately/automatically; they also want immediate notification of payment and remittance details with the payment,” the Fed wrote in a report on the survey.

Nearly 75 percent of micro-businesses and 60 percent or more of all other businesses cited managing cash flow and working capital among their greatest needs. “Coming out of the pandemic, many are focused on offering additional digital/online payment options, ensuring payment timeliness, and growing sales and revenues,” the report stated.

In fact, the most commonly cited use cases for faster payments closely align with cash flow management needs. They include:

  • Supplier payments
  • Just-in-time payments
  • Tax and fee payments
  • Merchant settlement
  • Consumer bill payments
  • Ecommerce
  • Payroll
  • Internal transfers

Current and future plans

Most of the businesses surveyed have already sent and received some type of faster payments in the past 12 months, primarily same-day ACH, digital wallets and push-to-card services. But not all are satisfied with the options they are using. Half, or more, are satisfied or very satisfied, and cite reasons like ease of use, convenience and quickness/efficiency. In contrast, dissatisfaction is attributed to a greater variety of causes, including processing delays, difficulty of use, limited reach, costs and lack of certainty for out-of-network payments.

In general, midsize and large businesses are more likely to have used faster payment options. However, checks are still used more than faster payment options, “suggesting that actual usage of faster payments may not be particularly high or extensive at present,” the Fed report stated.

More than half of midsize and larger businesses, and a third of micro-businesses surveyed said they are accelerating plans to move to faster payment options. And they’re willing to switch banks to get there. Nearly two-thirds of all businesses surveyed, and three-quarters of midsize and larger companies, said the availability of faster payment options would influence decisions regarding future banking relationships.

In preparation for adoption and more extensive use of faster payments, three-quarters of the businesses surveyed are planning and/or undertaking a variety of actions. These include:

  • Engaging with providers and software vendors
  • Readying project plans and project teams
  • Allocating budget funds
  • Beginning customer awareness efforts, as well as internal education and training
  • Testing and implementation.

“While the plans and priorities of individual businesses can shift, it is significant that one-third of businesses indicated they were already engaging with vendors, preparing project plans and setting aside project budgets,” the Fed wrote. “This suggests the pace of adoption could accelerate int the coming years – particularly as financial institutions and other providers recognize the opportunity to leverage faster payment rails to offer their business customers value-added services.” end of article

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

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