When thinking about the future of business payments, it’s interesting to think about the role payments play in business today. Consider this: A company like Amazon can get an order shipped and delivered almost instantaneously, before the payment ever gets moving. For companies like this, a slow, complex payment cycle can be galling. Here you have companies that want to restock or reinvest in their business but can’t because the flow of money takes several days. So when will real time business payments become a reality?
Demand by businesses is what will finally bring real-time business payments into the big time. Thanks to regulators, real-time business payments are already reality in much of the world. However, in the U.S., there isn’t the same regulatory pressure in place. Most American banks see real-time payments as an expense and not something they can charge for. What will likely happen is that one or two banks will take the lead and capture new customers, which will then drive the other banks to roll out real-time payments to keep up.
How Real-Time Changes Business Payments
The move to digital takes a lot of steps out of the process of receiving payments, issuing payments, and knowing where payments are. The European treasurer of a major enterprise told me, "If I send a FedEx package, I can just go on my computer and see exactly where it is. For incoming and outgoing payments, I have no idea until they actually arrive.” That level of insight is going to make a big difference in liquidity planning and management.
That will also mean that businesses will become more agile and intelligent. One of the things that will happen to the real-time payment system is it will use ISO 20022, which sends remittance information along with the payment. This will make it a lot easier for businesses to use systems such as their Oracle or SAP ERP to make and receive payments.
Another thing that will change is people. If you get a payment for $3.4 million that covers 20 different invoices, you're not going to need staff to reconcile that. The system will be able to instantly take care of everything. In addition, as the gig economy becomes more prominent, real-time payments could even become a way to attract top talent.
Overcoming Legacy Technology and Thinking
There are two things that can hold businesses back from taking advantage of real-time payments. The first is technological. Many banks and enterprises still use systems that are relatively old. Modifying or replacing a legacy system with a modern system can be costly and time consuming. A company running a 40-year-old mainframe is going to struggle to adapt, especially against a younger competitor that may already be using modern technology.
The other major obstacle will be the internal thinking of staff. For example, a colleague recently participated in a digital transformation project for major money center bank. Her experience with their IT department was one filled with conflict. Everything took two or three times as long as it should to get done. IT was protecting its turf: They saw the automation project as a threat, instead of an opportunity to be champions of digital transformation.
The End of Paper
One thing is for sure: real-time payments represent the end of paper checks. Payments that don't have remittance information with them are doomed. If they're not forcibly removed from the system, then somebody's going to at least be charging more money for it. In addition to making payments faster and simplifier, digital remittance information will provide companies with valuable data about their payments, so they can use Big Data and analytics to unlock patterns and inform their liquidity management.
Download The Future of Business Payments to learn what global industry thought leaders think about the opportunities and obstacles facing the digital transformation of B2B payments.