Supply chain crunch sparks demand for cutting-edge payments services

Demand for faster payments and merchant credit could expand in the months ahead as businesses cope with global supply chain disruptions.

Manufacturing slowdowns and shipping snafus contributed to slower GDP growth in the most recent quarter and have created operational challenges for many companies. Payments services can't solve those problems, but they could help companies manage tight cash flows by more closely matching purchases to available inventory.

“The faster suppliers get paid, the more liquidity they have to keep goods moving and creating more goods by paying their own suppliers faster," said Steve Murphy, director of Mercator's Commercial and Enterprise Payments Advisory Service.

Bank of the West, Swift and SAP are among the entities offering customers real-time processing, short-term loans and virtual cards that could ease their financial strains.

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Bank of the West, in San Francisco, last week officially rolled out a product it had been testing called TreasuryNow. It centralizes treasury management products in an effort to make it easier for businesses to make payments, transfer funds and collect payments as part of the same user experience, which the bank contends will help execute transactions faster and provide flexibility for transactions.

"All of a sudden something could open up in the supply chain, and you have an opportunity to make a purchase that you didn't think was possible. You'll need to know with confidence that you have the funds to make the payment," said Stanton Miller, the $93 billion-asset bank’s head of treasury solutions.

Treasury Now includes a dashboard, payment trackers for ACH, domestic wires, cross-border wires with tracking, and integration with enterprise resource planning systems to manage routing and approvals. TreasuryNow drew a 15% increase in net new clients in one year during its soft launch, and has migrated more than 90% of the bank's existing clients, the bank says.

The product, which also supports The Clearing House's RTP rail, is designed to allow business-to-business payments to be executed or scheduled on a short time frame to match available funds or supplies.

While Bank of the West didn't launch TeasuryNow to specially address this fall's supply chain problems, Miller said the current challenges are a good use case for real-time payments. "Not only is there a need for immediate payments now, but that payment will probably require a lot of instructions," Miller said. "A wire isn't a good fit. With real-time payments you can include details around the transaction."

By enabling TreasuryNow to operate in the cloud, it can be quickly updated based on changing conditions, Miller said. "The businesses don't have to go back and do anything," he said.

The supply chain crisis grew out of the pandemic, as mitigation strategies and public health orders resulted in greater production of some goods, such as electronic devices for home offices; and less production of other products, such as supplies for large offices. That has created a lingering imbalance as economies have attempted to reopen. Burlington Stores, for example, estimates its sourcing expenses have increased 78% over the past two years because of supply chain disruptions caused by the pandemic.

The supply chain delays have brought attention to the speed of payment processing, where clearing, posting and settlement can take place at different times, said Gareth Lodge, a senior payments analyst at Celent.

"That is one of the benefits of real-time payments," Lodge said, adding traditional ACH transactions could take days for funds to reach an account, creating a risk in releasing goods before a payment has cleared. "As the payment is posted in real time, and it’s good funds, the goods can be released that much quicker," Lodge said.

If a business can reconcile payments in real time, then its enterprise resource system can trigger an rules-based event, such as a digital order to start shipping a product. That need can be addressed by new technology at the global bank-supported Society for Worldwide Interbank Financial Telecommunication (Swift), according to Lodge.

Swift in July released Swift Go, a high-speed international payments service aimed at helping banks compete with fintechs in cross-border payments. Swift Go uses Swift's Global Payments Innovation, or “gpi,” a technology that allows cross-border transactions involving multiple parties and banks to be initiated and tracked from a single source.

"Previously, a payment could take days, if not weeks, to be made and the acknowledgement flowed back through the network, especially where the banks involved were smaller. Today that same transaction can take just minutes if not faster," Lodge said.

Payments through Swift gpi have grown from 30% of international cross-border Swift payments in 2018 to 70% in 2020 and 90% in September 2021, according to Deutsche Bank, which noted that banks send more than $420 billion through gpi daily. Bank of the West's new product uses Swift gpi to power tracking.

In an email, a Swift spokesperson said use of Swift's digital trade channel, which allows businesses to digitize and standardize their trade interactions, expanded by 72.4% over 2019 last year and is up 60% in 2021. And since launch in 2021, Swift Go has attracted more than 100 bank users.

Early in the pandemic, as border closings initially curtailed cross-border shipments, SAP partnered with Goldman Sachs to link the bank's cross-border payments rail to Ariba, a business-to-business payments marketplace that's a unit of SAP, to speed payment processing.

More recently, SAP launched Supplier Financing, a product that allows small businesses to use their transaction history on the network to build a credit profile. That is designed to help more small businesses receive credit to manage their finances in the event of unexpected fluctuations in available supply. SAP additionally offers virtual cards in partnership with American Express, Barclaycard, Goldman Sachs, Standard Chartered and others, enabling fast issuance and cards that can be digitally controlled. The virtual cards, credit and faster processing are designed to allow businesses to manage fluctuations in supply chains, accounts receivable and accounts payable, according to SAP.

"Buyers want to pay later and suppliers want to collect earlier. The pandemic has exacerbated this natural friction and has created opportunities for continued innovation in supply chain payment strategies," Etosha Thurman, chief marketing and solutions officer for the intelligence spend and business network at SAP, said in an email.