By 2025, 30% to 50% of B2B payments will not only be done digitally, they’ll also be done in real time.
FIS Senior Vice President of Digital Payments Ginny Chappell made the bold prediction to Karen Webster in an interview, noting that B2B payments are, digitally speaking, “catching up” to other types of transactions.
She pointed to the fact that peer-to-peer (P2P) payments have been growing dramatically, spurring more B2C real-time payments — and in turn, providing a tailwind for B2B.
The awareness of the benefits real time could give to B2B payments, chiefly in the form of enhanced cash flows, is incentivizing firms to commit more fully to payments modernization.
Chappell said chief financial officers (CFOs) and treasurers are actively investing — or are readying to invest — in real-time payments solutions, with an eye toward embedding real-time functionality in their payments flows.
Corporate executives are considering how real-time payments can positively impact liquidity and cash flows. Real-time payments can cement one of the critical ingredients of the financial system and the interactions between buyers and suppliers, she added.
Knowing that a transaction will settle in seconds rather than days can boost confidence in the B2B relationship, and with vendors and partners. Executives are also freed up to pursue other, more strategic initiatives within their firms, as digital payments carry more robust data payloads (through the messaging standard ISO 20022) and reconciliations can be done more easily.
“The notions of better communications and liquidity management are not to be taken lightly,” Chappell told Webster. Without real-time payments, she noted, “there are still treasurers in many organizations who spend their days calling their banks to understand where the payments are. Those are real pain points.”
Roughly a third of B2B firms have embedded real-time payments, according to Chappell, who referenced a recent survey of finance executives conducted by FIS, which indicated there is plenty of “low-hanging fruit” to pluck.
The Advantages
“The lowest-hanging fruit is obviously replacing checks, and slowly ACH, for use cases where people have a need for speed,” she said. “Those use cases could be for accounts receivable, or it’s a business-to-consumer experience where the consumer has a need for faster funds.”
Wire transfers are clumsy and have attendant fees, she said, which means that lower-value transactions (say, for less than $100,000 in B2B) might be done more efficiently across RTP rails.
And as Chappell pointed out, eligibility verification, anti-money laundering (AML) and know your customer (KYC) “are baked into the whole experience” and foster trust in the system, which can have positive ripple effects up and down supply chains. She said the “precision” of real-time payments can help companies manage inventory more effectively, with just-in-time transactions, and can make cross-border transactions most transparent and efficient. The move to digital payments also promotes flexibility throughout the B2B ecosystem, as receivers can have choice in how they get paid.
The Gaps
As with any pivot to advanced technologies, there are gaps that impede progress, chiefly in the form of knowledge skills gaps. Those gaps can impede ubiquity, said Chappell.
The move to implement real-time payments — and capturing the advantages — is easier said than done, which explains why some verticals have more readily embraced real-time functions.
Chappell took note that knowledge gaps can be among the biggest barriers to real-time payments adoption and are rooted in the general transition to digital, which may have to come before a full embrace of RTP.
The hospitality and travel sectors, she said, have proven adept at transforming themselves to be digital-first or digital-only companies. But other firms, in the life sciences industries, for example, may be charting their digital transformations over periods of years, not months.
It takes time to move fully away from paper-based and manual processes even though executives are keenly aware of pain points. To handle the complexities of the technical integrations with aplomb, Chappell observed that executives have to prioritize skills improvements within their back-end staffing even as companies embrace partnerships with third-party providers to modernize their operations.
Looking ahead to about four years from now, she said, between 30% and 50% of B2B payments will ride real-time rails, as “we’re going to be in a different world,” since so many executives are explicit in stating that they will embrace real time. The increased adoption will come as 42% of executives across B2C businesses have already adopted real-time payments or are piloting those changes. A groundswell in B2B will naturally follow, Chappell predicted.
Of the digital real-time payments pivot for commercial payments, she said, “I think we are going to get there by 2025.”