The Rise of the Smart Payment

Corporate Payments And Payables


Ron Shevlin

Nov 26, 2018

Today, the business payment industry is primarily focused on speed. But speed is really just the tip of the iceberg in terms of what the real trend in business payments will be: intelligence. The rise of the smart payment is now upon us – but what does that mean, really?

With smart payments, we will begin to see the incorporation of value-added services into each payment transaction, such as letters of credit, shipping insurance, credit protection, export insurance, and logistics.

While these services are all obviously available today, they can be difficult to source and manage individually. In the future, banks will have the ability to automatically source the appropriate services and insert them into the payment transaction. This not only makes the payment faster but makes the entire transaction itself more efficient and valuable.

Building a Payment Ecosystem

Traditionally, banks have offered their services in-house. As we move to smart payments, banks will need to reposition themselves as a platform or ecosystem that contains all the different types of services their clients could need. To do so, they’re going to need to partner with other providers, particularly emerging FinTech players who understand B2B needs.

While there’s a possibility that a well-funded startup could come along and disrupt the entire industry, the reality for smaller FinTech players is that selling their services on a one-off basis is a huge undertaking that requires large sales forces. If they can piggyback on financial institutions' existing relationships, then there's a better opportunity for them to provide those services.

It’s a win-win situation for all parties. Banks can better differentiate themselves through value-added services, FinTechs can achieve a lower cost of customer acquisition, and business payers can take advantage of those capabilities in a very convenient way at the point of transaction. Eventually a payer will be able to go to a bank and choose from various providers or alternative services, rather than being locked into the one provider a bank has negotiated a deal with, as a customer would today.

The Barriers to Smart Payments

Right now, there are a few roadblocks to achieving smart payments. The first is regulatory. Places where business payments are highly regulated, such as Europe, have seen a more consistent push toward digital. In the U.S., a lack of regulatory pressure means the drive to smart payments will fall on the shoulders of business, which can be subject to fits and starts as companies jockey for position.

Another roadblock is cybersecurity. While this is a huge threat in the payments industry, digitization provides an opportunity to introduce new tools and technologies to effectively combat those threats.

However, yet another roadblock makes achieving effective cybersecurity more difficult: paper. The artificial intelligence, machine learning and advanced analytics required to mount a defense against cybersecurity and fraud currently don’t work as effectively as possible because —in a world dominated by heavy, manual processes to manage paper and checks — the data simply isn't there.

For many organizations, it’s a classic chicken and egg problem: Companies are reluctant to digitize because of fraud and security fears, but their lack of digitization makes it so the tools that can address those fears won’t work as well because the companies don’t have the data necessary to spot patterns.

It comes down in large part to inertia. In the B2B space, if you’re a business with established payment mechanics that your providers or customers trust, it will be difficult to make a change to a digital-driven solution, even when there’s an obvious benefit.

The way we’ll likely overcome the inertia is by business payers becoming comfortable with alternative payments and digitization in the personal, consumer side of their lives. As they seek that same convenience and capability on the business side, we could easily see a wave of digital adoption that provides the data needed to power these cybersecurity tools.


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Ron Shevlin

Ron Shevlin is the director of research for Cornerstone Advisors and the author of "Smarter Bank," Snarketing blog and Cornerstone's Insight Vault. He specializes in financial services marketing strategy.
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