A Real Business Case for Real-Time Payments

With offices closed and staff working from home, the effects of the coronavirus pandemic have shed light on the challenges many businesses face with manual bill payment collection and reconciliation processes. “Companies of all sizes are looking at the way they bill customers and the way they receive payments,” said Joe Proto, Transactis CEO in a panel discussion on the business case for real-time payments at the recent AFP 2020 virtual conference. “They are looking to modernize their payment systems.”

For DLL, a large global financing company wholly owned by Rabobank, nearly 20% of customer payments received each month prove difficult and time consuming to reconcile. The cause, noted Chris Moritz, Director of Customer Operations for the group, is a lack of remittance data associated with checks and even wire transfers. Moritz mentioned his agents have to go through a lengthy process to manually research unapplied payments, typically resulting in calls to the customer.

“It’s a match game: printing off emails and trying to match them to a wire or match them to an ACH,” added Chris Ward, Head of Product & Operations for PNC Treasury Management. It’s simply not efficient nor effective for his bank’s business customers.

These manual processes drain a company’s time and employee resources, do not offer a great customer experience, and can result in financial delays. As Moritz noted, about 1% of DLL’s payments are refunded each month since they cannot be applied to a customer account.

Real-Time Enables the Digital B2B Economy

In the consumer space, the digital economy has become virtually ubiquitous, and that in turn has driven expectations for B2B. “The I’s have it in the digital economy – it’s Immediate, Interconnected and gets Interrupted as demands shift,” noted Ward. B2B customers expect an immediate, integrated experience with their vendors, and those vendors must be able to adapt their processes to meet these demands. For payments systems, real-time capabilities are enabling the digital transformation of B2B economy.

The Clearing House has focused on this with the growth of its RTP® network – developed in collaboration with Vocalink, a Mastercard company. “We looked at the industry and asked, ‘How can we support future innovation and drive toward a digital economy?’” said Peter Davey, Head of Product Innovation for The Clearing House. “To achieve this, we are working with the industry including corporate end users to foster better collaboration across the payment ecosystem.”

The world is evolving toward a 24/7 real-time economy, and data is the key to streamlining processes to meet this expected level of speed. For payments, this means not just faster but also smarter payments – what Davey calls conversational commerce. Rich data capabilities enable remittance information to be carried with the transaction, with data and dollars moving together in real-time.

The flexibility and choice provided by real-time capabilities is attractive to businesses on both sides of the B2B transaction. The level of transparency, immediacy and security added to these payments by real-time capabilities maximizes efficiency with a minimal level of effort.

B2B AR Strategies are Being Reimagined

The benefits of real-time and rich data capabilities allow for a reimagining of receivables strategies to enable innovation beyond the transaction. Non-payment messages like request for payment / request to pay can enable electronic bill presentment, helping businesses to realize even greater efficiencies.

For businesses, like DLL, the resulting conversational commerce offers a more transparent, immediate and secure transaction with their customers, aiding reconciliation of supplier accounts receivable (AR) and buyer accounts payable (AP). It enables automation (or straight-through-processing) of the ‘match game’ with person-to-person research evolving to machine-to-machine for unapplied payment resolution.

“What’s important for companies like DLL is the ability to move those receivables and apply them quickly, accurately and securely, shifting from manual processing to digital,” said Proto. Staff who typically spend time manually tracking down remittance data can now be redeployed to revenue generating activities. Exceptions and refunds are virtually eliminated, and it’s a better overall experience for customers with the trust and flexibility embedded in the entire payment process.

“We’re prioritizing the real-time payment option, promoting it among our customers ahead of checks, direct debits and wires,” Moritz said. For banks like PNC and real-time enablers like The Clearing House, the focus is on preparing the entire ecosystem. “It’s a journey to move toward a real-time environment and most of our backend systems aren’t geared toward 24/7 processing,” noted Davey. Businesses, and the banks they do business with, have been working to become real-time enabled, with the reach for the B2B side growing beyond what we see on the consumer side.

In the US, digital options dominate consumer preference for bill pay with 70% of people preferring electronic channels[1]. This is a rising trend in the B2B space as well, but when will digital real-time bill payments become the norm? It could be in the new few years, maybe even as early as this time next year. “We’ve had a monumental shift – the adoption and new usage of real-time payments as a method is accelerating,” said Ward. This will only continue in a post-COVID world as businesses look for effective ways to digitize and align AR and AP processes.

[1] ACI 2020 SpeedPay Pulse Report