How Small Businesses Ride Their Payment Rails

NACHA released new statistics late last week on growth of ACH transaction volume in the U.S. According to the firm, B2B transactions were a key driver of ACH transaction growth in the third quarter of the year, leading NACHA Chief Operating Officer Jane Larimer to describe the ACH Network as “thriving.”

“Governments, financial institutions, businesses and consumers are all reaping the benefits the ACH Network provides,” Larimer said in a statement. “More people than ever are benefitting from Same Day ACH. With the enhancements to Same Day ACH, the ACH Network is delivering the capabilities requested by corporate end users.”

As NACHA expands Same Day ACH functionality, it’s unclear how small and medium-sized businesses (SMBs) will embrace the faster payment capability. What is clear, though, is that ACH is a growing part of businesses’ accounts payable (AP) and other payment operations, with industry service providers pushing corporates away from paper checks. ACH may be the most popular ePayments rail option for B2B transactions in the U.S. today, but it’s not the only one. New data has emerged about how SMBs use other payment rails, including cards and wire transfers.

With the new research finding opportunity for wire to disrupt checks’ hold on accounts payable, and millennial entrepreneurs shying away from business credit card products, the latest data signals changes ahead for the way small business owners pick their payment rails.

In Q3, 896 million B2B ACH payments were completed, NACHA said in its latest release, signifying a 10 percent year-over-year increase in volume of B2B ACH transactions. In all, more than 3.3 billion ACH debit and nearly 2.3 billion ACH credit payments were made during the quarter, with online ACH payments growing 14 percent year over year. NACHA said 43.2 million Same Day ACH payments were made during the quarter, a 192 percent year-over-year increase, though NACHA did not disclose what percentage of that volume was made by business payers.

Ninety-four percent of corporates surveyed by The Clearing House said remittance information included with wire transfer payments is valuable, with nearly two-thirds describing this feature as “very valuable.” The Clearing House and the Federal Reserve surveyed 381 corporate decision-makers about their use of wire payments, finding that corporates are demanding a more streamlined way to send and receive remittance data along with their wire transfers. Most companies surveyed said they would be willing to pay an additional fee to have remittance information move along with a wire payment. According to the report, though, smaller businesses — which make up the majority of B2B payments volume — are most willing to shift payments volume from check to wire if the wire payment costs are lowered.

A 47 percent increase in B2B wire payments volume would need just 2 percent of B2B check volume to switch to wire, the Federal Reserve and The Clearing House’s report found. Researchers emphasized the importance of financial service providers to promote wire payments for business clients, thanks to the speed and security of the rail. For that migration to occur, however, financial institutions must streamline wire payment and remittance management offerings, and make the payment rail cost-effective, particularly for SMB customers, the report said.

Twenty-four percent of small businesses said they carry a balance on their credit cards from month to month, according to a new report released from Mercator Advisory Group this past week. Analysts noted the card rewards programs as a key benefit for small businesses that choose the relatively more expensive financing option over more affordable bank loans or lines of credit. Yet, small businesses are more likely than the average consumer to occasionally carry credit card debt: About half of SMBs surveyed said they carry debt on occasion, compared to one-third of consumers. Interestingly, half of millennial small business owners refuse to use a commercial card product.