August 13, 2018
Faster payments are quickly becoming a reality in today’s financial landscape. The United States has positioned itself to be the next big player, with industry organizations and government bodies developing standards and systems that will become commonplace in the near future.
As a Solutions expert at Transactis, I spend my days listening to what businesses need to improve their A/R processes and bring them into the digital age. It’s my job to build a business’ perfect electronic billing and payment solution, based on what the company does, how they currently approach billing and payments, its specific needs or requirements, and what it hopes to accomplish with our system. Suffice it to say, I spend a lot of time listening to the needs of the market, directly from businesses themselves.
One thing I can tell you is the demand is HIGH for faster payments to become a reality ASAP – especially for real-time payments. While customers are happy to simply see the payment has posted for peace of mind and financial control, that simply doesn’t work the same for businesses.
The way things work today, transactions from customers to businesses take at least 24 hours, if not more, to clear. This timeline puts many limitations on the business to accomplish tasks and goals. Most companies wait until funds have cleared before sending goods or services to customers to avoid bad payments. Any delay in the transaction could mean logistical problems with inventory and shipping, delaying the timeframes for fulfilling orders, and ultimately eroding the customer relationship. Real-time payments would address these issues by allowing for the immediate transfer of funds from customer accounts to businesses.
If a business wants to have real-time transactions today, they have to accept credit card payments, which for some companies is simply not an option. The processing fees are too high even with Level II and Level III, laws and regulations may prohibit the business from taking card payments, or there are too many compliance and security risks. The current timeframes limit the potential growth of small and midsized business, and even larger companies as well. The real solution to these drawbacks are real-time payments, directly moving money from one bank account to another immediately.
As real-time transactions become a reality in the United States, the impact on businesses cannot be overstated. It opens doors for companies to improve timelines and business functions to achieve goals faster and better. With immediate transactions, businesses would benefit from reducing risk of NSF / fraud, improvements in operational, logistical, and financial processes, and affordable pricing, as real-time payments specifically will be processed at lower rates than credit cards. The ultimate benefit would be improving customer relationships with shorter timelines from purchase to fulfillment.
Real-time payments can be applied to businesses across size, industry, and focus. For example, distributors in the B2B space typically require payment before shipments can be made, or they require CODs, opening up exposure to risk, delays, and issues with customers. Real-time payments would allow the business to be comfortable knowing payment has been received and cleared, and that goods or services could be released.
On the B2C side, a collections company would see reduced NSF rates and FTE costs since funds would transfer immediately, so any payments could easily be verified. A property manager consistently facing numerous NSF transactions with a particular tenant could now process payments for that tenant in real time, while processing all other payments via normal rails. Utility companies could avoid shutoffs with immediate customer payments. The real world applications are endless!
Payments has been a hot topic with the paradigm shift to digital transactions. With the evolution of this space, it has never been more important to plan for the future of payments. The applications and benefits of faster payments systems are widespread and endless. From my perspective, these systems will only make my job that much better.
Ron Bettini Jr. is Vice President, Solutions Consulting at Transactis where he uses his market expertise to build electronic billing and payment solutions customized to client needs.