The Clearing House‘s RTP network is now several years old, and while the real-time payments capability is gaining traction, adoption in the B2B landscape remains muted.
Indeed, it can be difficult for businesses to change their payment habits. Just ask the estimated 42 percent of small- to medium-sized businesses (SMBs) that continue to use paper checks to make B2B payments.
The pandemic has accelerated that shift away from paper, however, and is helping to drive use of the RTP network, according to Steve Ledford, senior vice president of Products and Strategy at The Clearing House. As he told PYMNTS, the coronavirus crisis created an environment in which businesses migrated from checks to electronic payment methods out of necessity.
But there is more work to be done. Looking ahead, financial services providers and their business clients will have to explore an expanding list of value propositions surrounding the RTP network for corporates and SMBs in order to understand how real-time payments can benefit both senders and receivers.
Ledford explored some of those emerging use cases and offered insight into what’s next for the RTP network that could add even more opportunities for financial institutions (FIs) and businesses to extract value from real-time payments.
Today’s Most Valuable Use Cases
While businesses continue to rely on paper checks or even standard ACH transactions, Ledford said he’s not necessarily surprised that business adoption of the RTP network has not been immediate.
“This is a new payment system,” he noted. “It’s something that’s being offered more and more by companies’ financial institutions, but they don’t necessarily realize that.”
That is par for the course for any new payment technology, he said, and it’s up to financial services providers to expand education and awareness of the technology. The global pandemic has led to an increase in RTP adoption, as businesses find themselves unable to get to the office to print and send paper checks. This has forced a behavior change and adoption of electronic payment methods that might have remained untouched by business users under normal circumstances.
Because the RTP network remains relatively young, Ledford noted that it’s difficult to accurately assess exactly how businesses are using the technology. But certain trends are emerging.
“One of the reasons that the RTP network, and instant payments in general, are a good thing for businesses to use for B2B payments is that it allows the business to have much more control over the payment process,” he explained. “It’s not just about the speed.”
For many organizations, the pandemic has led to a surge in supply chain disruptions that have a domino effect throughout B2B relationships. The ability to move money quickly — and to have both the payer and payee know exactly when that transaction occurred — can be an important value-add for businesses that need to get vendors paid quickly to minimize the risk of any supply chain disruption. And because RTP transactions are cleared and settled in real time, added Ledford, this also takes away the credit risk associated with other methods of B2B payments.
“It’s helping to both speed up payments and create more confidence and certainty in the B2B payment process,” he said.
Use of the ISO 20022 payments messaging standard is a “game-changer,” Ledford added, thanks to its ability to not only move data along with funds, but to also ensure that the information is easily ingestible into back-office systems. This feature is critical in the B2B payments use case to ensure that companies can not only quickly make and receive payments, but can also reconcile and analyze transactions.
What Will Drive Adoption Tomorrow?
Although the pandemic and subsequent acceleration of enterprise digitization have helped to drive adoption of the RTP network in the context of B2B payments, there is more work to be done. Both FIs and their business clients must play their part in growing awareness of the technology and experimenting with emerging use cases of real-time payments.
Payroll is one use case that emerged early, and Ledford said this will continue to grow as businesses approach the holiday season.
“The holidays are around the corner, and there’s an opportunity for small businesses to use the RTP network to help with many of the things that they typically do around the holiday season,” he said. “One of the use cases we’ve seen a lot of interest in lately is this expedited or even instant payroll on demand.”
The use of seasonal workers and the need to quickly pay those employees who were not previously on payroll is one important opportunity for the RTP network. It’s also a possible means for businesses to remain competitive when attracting and retaining vital talent for the busy season.
Real-time payments may also prove to be valuable during the holiday season for expedited delivery, which enables businesses to ensure that orders from suppliers are shipped and paid for as quickly as possible. It could prevent businesses from missing out on inventory and materials they need to meet customers’ surging demand during the holidays.
Looking out even further, Ledford also predicted the emerging use case of wielding the RTP network’s request-to-pay capabilities, another example of the value of real-time payments data for B2B. Next year, he said, The Clearing House will help to facilitate the linkage of a payment to external sources of data like invoices, regardless of where they’re stored.
The opportunities to wield the RTP network’s speed and data capabilities for corporates and SMBs are vast, but some of the most valuable use cases may not have yet emerged. As adoption grows, Ledford said end users and service providers will continue to explore these opportunities — and he’s excited to see what comes to fruition.
“One of the things that always surprises us is people using payments in ways we never thought they might,” he said. “It’s up to the creativity of the users, in many cases, to come up with some really interesting use cases.”
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