Traditional B2B payments, with end-to-end processes frequently characterized by delays and complexities, remain stubbornly intractable.
But with the Federal Reserve Bank of Atlanta highlighting on Monday (April 15) that the Federal Reserve Banks will adopt the ISO 20022 message format for the Fedwire Funds Service on March 10, modernizing B2B payments is increasingly top of mind for organizations — if it wasn’t already.
While traditional B2B payment mechanisms — including wire transfers, ACH payments, paper checks and even cash — have been the backbone of commercial payments for years, financial institutions are increasingly being pushed to upgrade their B2B infrastructure by businesses exploring alternatives that offer greater speed, security and efficiency.
That’s why, as the Atlanta Fed noted, the upcoming migration to the ISO 20022 standard is table stakes for financial institutions and payment processors alike, especially since its implementation is less than a year away.
Most payment rails and global market infrastructures are moving to ISO 20022 messaging standards, but will Federal Reserve banks be ready to embrace — and leverage — the new B2B payments status quo?
Digitization and standardization have undeniable benefits, but they also carry unquestionable costs. Migrations, like that to ISO 20022, frequently require costly investments in legacy payment systems to resolve ongoing technical debt.
They also raise the question of just which payment mechanisms to continue supporting, and which to sunset — a question whose answer could have large ramifications throughout the B2B payments space.
Read more: ISO 20022 Migration Faces Fragmentation, Deadline Pressures as Rollout Accelerates
While using wire transfers for B2B payments offers speed, security and global reach, B2B wires can be costly and less efficient compared to modern digital B2B payments, which often provide lower costs, simplicity, enhanced data and better integration with today’s business systems.
Separately, ongoing shifts in commercial customer expectations have introduced widening opportunity costs for businesses that exclusively rely on traditional B2B payment methods, and the repetitive administrative processes necessary to send and receive wires also ties up valuable employee time that could — and should — be better spent on more strategic initiatives.
Wire transfers usually provide limited accompanying data, such as payment references or invoice details, which can make reconciliation and tracking of payments more challenging for businesses and typically requires inputting detailed banking information, which can be prone to errors.
That’s partly why the Federal Reserve Bank of Atlanta board emphasized that today’s changing payments landscape necessitates a strategic review of wire transfer systems by businesses.
“Not only are instant payments competing for investment dollars but also they are competing for the business use case typical for wires, allowing a switch to a more cost-efficient and already-ISO-20022-enabled payment rail. In my opinion, the greatest opportunity for instant payment adoption is in current wire use cases,” wrote the Atlanta Fed’s Jessica Washington.
Last Wednesday (April 10), The Clearing House announced that its CHIPS network (Clearing House Interbank Payment System) had migrated to the ISO 20022 messaging format.
Read more: Looking to Capture the Real-Time Opportunity in B2B Payments? You’re Not Alone
As previously reported, PYMNTS Intelligence has found that six in 10 firms use legacy methods to pay for commercial goods and services.
“Treasury operations historically have been bogged down with manual processes, but are often the last to get investment dollars for new software automation,” Krista Sharp, co-head of Treasury Services for Middle Market Banking and Specialized Industries at JPMorgan Chase, told PYMNTS.
To comply with ISO 20022 standards, banks may need to upgrade their cash management systems and treasury operations, as well as their compliance screening programs. The migration will have downstream impacts across accounting and billing, legal and regulatory reporting, as well as research and analytics. The migration will have upstream impacts across enterprise resource-planning (ERP) systems, client-facing systems like online banking and mobile payments, as well as B2B payments fraud monitoring.
As PYMNTS wrote last month, ISO 20222 offers “considerable” benefits to adoptees, such as richer and more structured data within financial messages compared to older standards.
Against the backdrop of this emerging B2B payments reality, where B2B payments are continuing to evolve, the role of wire transfers and the strategies businesses employ to manage them will undoubtedly change – but above all, businesses should remember to consider their specific needs and priorities when choosing between different payment methods.
“Not every buyer is going to pay all of their suppliers the same way … unlike traditional consumer payments, where there’s a standardized way in which consumers pay and merchants get paid — within the B2B arena, no two buyer-supplier profiles are the same,” Dean M. Leavitt, founder and CEO at Boost Payment Solutions, told PYMNTS.
Insights in “The Future Of Payment Innovation Report,” a PYMNTS Intelligence study, unpacked how firms with revenues between $500,000 and $100 million can use payments innovations to future-proof their business.
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