Fueled by greater connectivity and faster transactions, the digital transformation of the payables and receivables landscape continues to reshape the outlook for treasury management.
In what seems like a short period of time, we have come face to face with the realities of an automated, real-time post-paper world. The tools are within reach and businesses, especially in light of the COVID-19 crisis, are moving quickly to adjust their tactics and approach to technology.
For many, the status quo has simply been about keeping up with the rapid pace of change and the increasingly complex mix of products and services. However, as we start to move forward, for those ready to invest in configuring the right technology and understanding what will drive strategic value there is considerable opportunity for growth and productivity.
One insight that has materialized, particularly as part of the pandemic response, is that customer needs are more important than ever. This has been invaluable when trying to evaluate new technologies and determine how to integrate them with existing systems and infrastructures.
We’ve seen many companies embrace faster and easier payments systems. Traditional options such as checks, ACH and wire are regularly being uprooted by high-speed digital alternatives including real-time payments, virtual card and even Same Day ACH. The modern options are simply more efficient, more transparent and incredibly precise — and the growth has been impressive. Same Day ACH, for example, jumped in volume from $17 million in 2016 to $461 million in 2020, according to Mercator Advisory Group.
The corporate shift has in part been motivated by the consumerization of the payment experience that has popularized on-demand and real-time innovations, such as contactless payments, digital wallets and on-demand payment tools.
The COVID-19 pandemic worked to further accelerate this move toward digitization and expose the expendability of paper transactions. Businesses realized that they no longer needed to handle physical items in physical locations and quickly pivoted as they discovered accessible and easy to use digital options.
Those who have made the shift to digital transactions, especially the early adopters, now expect the companies they do business with to be up to speed with on-demand and real-time services. It’s become very important to meet trading partners or customers on the right platform with the right tools.
Looking forward, faster and more accurate transactions and payments schemes will continue to gain traction and see widespread adoption. With change happening quickly and plenty of product fragmentation, it will be difficult to know what’s important and where best to invest attention and resources. Corporate treasurers will need to focus on prioritizing operational and strategic value, as well as on determining what will best align with their internal competencies and IT capacity.
Advanced connectivity is increasing the speed, availability and transparency of payments, making it easier and more cost-effective to manage everything from accounts payable (AP) and accounts receivable (AR) to cash flow and reporting.
One territory that has already taken off and made an impact is API technology, which enables companies to integrate banking and payment services directly into their own enterprise resource planning and treasury management systems. There’s a lot of potential for innovation and just a few of the benefits for treasurers include cutting-edge insights and analytics, more efficient payments and better working capital management.
Despite slow initial uptake, more corporates are also set to embrace the powerful connectivity and 24/7/365 flexibility of real-time payment networks like RTP. There is work to be done, but it will be a game-changer in streamlining billing and payment procedures, improving transaction communication, decreasing reconciliation times and further reducing reliance on paper. While the RTP now reaches more than half of transaction accounts in the U.S., the Federal Reserve is developing a similar end-to-end instant payments platform, the FedNow Service. This is set to launch by 2023 and will extend access to real-time payments to more financial institutions and customers nation-wide.
By 2024, Deloitte expects real-time payments to make up a 20.9% share of volume in the payments market with projected transaction volume of $4.2 billion.
Another key trend in connectivity will likely be point-to-point encryption solutions (P2PE), a new standard for encrypting account and transaction information. It’s an important layer of added security that will make it faster and simpler to conduct transactions and further open doors toward tokenization, a process where card or account numbers can be encrypted and passed through the internet without revealing actual bank details.
Finally, there’s also a push towards the corporate application of the Internet of Things (IoT), which promises to disrupt and better connect business-to-business trade, especially in areas like manufacturing.
