As billing and payment become increasingly critical touchpoints between businesses and their commercial and consumer customers, many banks and billers will make taking the friction out of these processes a strategic priority in 2022. We see that playing out on multiple fronts.
B2B Payments Get Real (-Time)
There has been lots of news about real-time payments in 2021. In 2022, the promise becomes a reality for the general market. Here’s why:
· Customers want goods shipped more quickly, and suppliers will prioritize buyers who pay more quickly.
· Sellers (as always) want to reduce their cost of getting paid and get paid more quickly. That means avoiding card payments wherever it makes sense.
· Everyone wants to reduce the risk of fraud.
Bank-powered real-time payment (RTP) rails not only increase the speed of payments, they also reduce the cost of the payment and reduce the risk of fraud. Consider: when a customer pays on a website, the responsibility for fraud is on the seller. If the product gets returned and the buyer used a card, the seller has chargeback rates. RTPs shift that chargeback risk (#1 in the credit card business) to the buyer. The seller sends a request for payment to the buyer, the buyer approves the payment, and the bank sends the funds. The push versus pull is the biggest shift. RTP eliminates the friction of the buyer initiating the transaction and getting it approved on the bank side. That’s been the major obstacle to date.
Conversational Payments Up the Volume
As consumers and businesses continue to get more comfortable with voice-enabled technologies, they will make a lot more “conversational” payments with tools like Alexa, Google Assistant, and Siri – via home assistants and mobile smart devices. One of the biggest obstacles to date has been the potential for fraud by voice bots. The use of voiceprints as biometric signatures now provides an added security layer to overcome these concerns.
As in most areas of payments, B2C use cases such as rent, utilities, and other recurring payments, will lead the way, but B2B payments won’t lag far behind as users get more comfortable with conversational transactions. The other thing to watch for is banks’ adoption of these capabilities. Consumers already do some online banking by voice. As demand grows on the payment side, banks could accelerate adoption dramatically by incorporating conversational payments into their digital services.
FinTechs Target the SMB Credit Crunch
Financing has always been a challenge for SMBs, and the pandemic only exacerbated that problem. Some are deemed too risky; others lack the proper credit history. Either way, they can’t get access to the credit they need—either in the form of loans or business credit cards— to maintain and grow their business.
At the same time, we’re seeing the explosion of solutions like “Buy Now, Pay Later” providing consumers with short-term access to funds. To date, the focus has been on consumer-facing businesses. And it has not done anything to help SMBs establish a credit history for their long-term health. That will change in two primary ways in 2022:
· BNPL solution providers will expand their focus on B2B merchants and their customers. These relationships will assist both SMB merchants and their buyers while eliminating much of the lending risk and predatory rates that exist at the B2C level.
· We’ll see new small business card solutions that integrate daily receivables with card accounts to pay down balances on a daily basis, while building a long-term credit history for the future.
ACH Payments Move into the Fast Lane
30 billion payment transactions ran on ACH rails in 2020, with 33 billion expected in 2021. ACH transactions are popular because they are both cost efficient and secure. The only thing holding ACH back these days is a lack of speed due to its time-intensive account validation process. As a result, some billers push their customers to credit cards. This costs them more, but it provides certainty of funds.
In 2022, Nacha will continue to work with the payments ecosystem to streamline the account validation process, so it more closely mirrors that of a credit card transaction. The goal is to detect invalid, frozen and closed accounts in advance to reduce return rates and increase the success rate of ACH transactions. This is speeding funds flow while reducing costs and providing more certainty of funds.
About the Author:
Jed Rice has more than 20 years of experience building, managing and leading innovative technology companies, with a focus in fintech, from inception, through rapid growth and then to commercial scale. More specifically, Jed has led leadership roles at edocs and Siebel Systems (electronic bill payment and presentment), Paydiant (mobile/digital payments) and, most recently, PayPal (mobile/digital commerce) where he spent several years leading a global innovation team following the successful acquisition of his last company.