Within the digital age of business-to-consumer and business-to-business payments, both end user and company alike are constantly seeking ways to make the payment process as seamless as possible.
Patricia Partelow, Financial Services Consulting Managing Director at EY, gives a US perspective on how B2C and B2B payments can be further accelerated to create a streamlined or “utopian experience” that benefits both the receiver and sender.
Payment Expert: Firstly Patricia, what have been some of the contributing factors into the acceleration of both B2C and B2B payments of recent years?
Patricia Partelow: The COVID-19 pandemic accelerated the adoption of digital payments in the B2C and B2B spaces as we saw trends that had been slower to evolve being pushed to the mainstream. This change has been primarily influenced by younger generations who seek immediacy and instant gratification with their payment experiences.
Technological advancements are largely responsible for the shift towards digitalisation, and cost reductions associated with smartphones and the internet have made e-commerce experiences commonplace in the retail, grocery and food sectors.
The ability to buy online and pick up in-store has also contributed to the increased desire to adopt digital payments, and this has only gained popularity with the “appification” of shopping.
The popularity of faster payment networks is growing, redirecting transaction volumes from traditional card and debit systems to real-time payment rails. Spaces like gambling and cannabis, which have historically been excluded from traditional card networks, are seeing an increase in demand for faster payment systems and the use of direct accounts due to security and safety concerns of cash.
From a consumer’s perspective, why do you believe there has been such a growing appetite for faster payments compared to years before?
The growing appetite for faster payments largely stems from consumers’ desire to have funds available in real-time. Consumers want to be able to transact wherever and whenever they please.
Real-Time Payments (RTP) are what will give both the sender and receiver of funds an almost utopian experience. Legacy bill pay solutions will no longer cut it for consumers. Consumers want the efficient experience they have come to experience in other digital-first areas of their lives.
Having to enter a payment over 10 days in advance and never knowing it’s been received is no longer acceptable and neither is depositing a check and not being able to use the funds for seven to 10 days.
Faster payments are still a new phenomenon in the US, as we have only had RTP for seven years, and FedNow only launched last year. We are in the early innings of faster payments, with only 20 banks currently able to send outbound RTP and FedNow payments.
This is a very different story than the one in the UK, Europe and parts of Asia, which have been living on their systems for 10-plus years and have regulatory mandates for their bank’s participation in the schemas. I expect its popularity will continue to grow in the region.
What should payment companies first consider when adopting these new payment rails/services?
Before adopting any new payment services, companies need to research use cases that they want to mirror and consider whether their current payment platforms can support the new method and/or payment rail that they want to implement – which has caused many of our clients at EY to think about modernising their payment platforms.
Because many payment methods operate in real-time, companies must review their operational processes to manage payment instructions that need repairs or system retries. Instant payment rails are 24/7, but having teams that can provide 24/7 repairs is not feasible.
Having operational readiness for queue management, payment instruction needing repairs and system retries will be critical. Businesses must understand their cash positions across their operational markets as well.
How can instant payments help transform not only a company’s customer journey, but also its future growth?
Unlocking new payment use cases provides opportunities to capture growing volumes up and down the volume chain. This includes capturing revenue for instant payouts or lowering transaction costs by moving from higher-cost payments to lower-cost rails.
Companies can share the savings with their clients equitably. One strategy is rethinking the payment products holistically. Ask yourself, “What can you build on top of a real-time payment?” and consider invoicing with remit (Request for Payment) and industry-specific disbursement solutions like instant insurance payouts.
Charging a premium for immediate payments can be a viable option, but it does not work in all geographics, for example, the EU. Those regions will need to consider alternative strategies.
Why should Treasury departments place greater emphasis on emerging payment innovations in regards to how and where money is stored and moved?
It is important for Treasury departments to have complete visibility into deposited funds and for them to take more aggressive cash management positions so that they can capture more float – holding onto funds longer and utilising the money in the interim.
Treasury departments must prepare for the future of money movement – this will likely be batch-based. End-of-day settlement processes today don’t match the real-time future. Round-the-clock money movement requires different operational support.
Customers are also seeking greater freedom with their payments. How can payment service providers and merchants help personalise this process?
Payment service providers need to ensure that preferred methods of payment are embedded, frictionless and secure. Customers want to have a choice in their method of payment – whether it is paying with a debit card, credit card, bank account, wallet, or even buy now, pay later.
Ensuring a smooth transition and the availability of payment methods ensures customers are getting the complete, seamless, and secure experience they desire.
Lastly Patricia, and thank you for your time, how will the acceleration of artificial intelligence and other emerging technologies further the speed of transactions in the years to come?
AI and other emerging technologies will certainly play a role in this. I see AI and similar technologies being used to help detect fraud, more efficiently embed payments while removing friction, and help personalise solutions to lead to payment loyalty, which overall can help to establish trust.
Additionally, technologies such as queue management tools, smart repairs and system monitoring can help meet the needs of the new payments economy 24/7, 365 days a year.
