The largest corporations and financial institutions make payments and transfer funds at a magnitude that far exceeds consumer transactions. However, even many seasoned financial professionals may not fully grasp all the nuances of commercial payments.

Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, asked the leadership at the foremost banks and corporations about the most pressing topics in the commercial payments industry. Their main request was for a guide detailing the fundamentals of commercial payments which would explain the intricacies of commercial payables and receivables.

Because that training hasn’t been developed, Bodine created A Modern-Day Primer on Commercial and Enterprise Payments to be an introduction to commercial payments for those who are new to the space, whether it be for college grads that have just been hired, seasoned professionals who have moved into commercial banking, or leadership who are looking for ways to pass on knowledge to their staff.

Global Frameworks

In addition to the substantial sums involved, commercial payments also utilize a wider array of instruments.

Corporations use wire transfers, ACH transactions, paper checks, and now even the instant payments systems that have gained traction globally, such as Brazil’s Pix and India’s UPI. Payment methods such as electronic funds transfers (EFTs) and direct digital transfers between banks are also seeing increased use in commercial applications.

Adding another layer of complexity to the commercial payments landscape is the growing demand for cross-border instant payments. In many cases, there is simply no infrastructure to support these transactions. For instance, there is currently no instant payment rail between the United States and India.

“There are several options that could fill that gap and deliver the infrastructure for cross-border payments, but it’s still not clear which one will emerge,” Bodine said. “Visa and Mastercard would be perfect candidates for cross-border payments because they already have an established global highway. It could be a great addition to their business, especially if there’s a reduction in credit card interchange fees.”

Cross-Border Contenders

Beyond credit card companies, Belgium-based Swift is an interbank messaging system that has built a dominant framework for cross-border payments. A constant challenge in global payments is the sheer amount of time it takes to complete a transaction. With Swift’s GPI system, 50% of payments are credited to the beneficiary within 30 minutes.

Another key player in the cross-border payments space is the Bank for International Settlements (BIS), a consortium of the world’s central banks, including the NY Federal Reserve, the Bank of England, and the Bank of Japan. The consortium released Project Agorá, built on a unified ledger model.

The purpose of Project Agorá is to develop a way that tokenized commercial bank deposits can be integrated with tokenized wholesale central bank money on a single platform. In the current system, payments are processed through messages sent to banks, detailing how to credit clients. This means payment communication and fund transfers are two separate actions.

Tokenization technology has the potential to merge these two processes, allowing banks to update their ledgers in real-time. Automated ledger updates not only improve efficiency, but also help institutions remain compliant with Know Your Customer and anti-money laundering regulations.

“As new tech emerges, the further companies move away from the traditional system of correspondent banking that has dominated the industry,” Bodine said. “Global commercial payments used to be the wheelhouse of large commercial banks. With the arrival of fintechs, blockchain, and other innovations, it’s not just the blue bloods who can compete in cross-border payments.”

Eliminating Checks

One of the main issues in the commercial payments space is the continued reliance on legacy payments methods. Globally, roughly 33% of payments are still made using paper checks.

“For over 30 years, I’ve been talking about the elimination of paper checks at every chance I get,” Bodine said. “It’s finally happening, but it might not be for the efficiency reasons you would expect. Believe it or not, it’s more due to environmental, social, and governance (ESG) initiatives.”

“With all the payments alternatives, it’s an easy check box on an ESG initiative to simply get rid of checks,” he said. “You are helping the environment, increasing efficiency in your organization and potentially mitigating fraud.” 

A Training Centerpiece

Due to the lack of educational resources in the commercial payments space, many financial professionals seek more thorough solutions. For this reason, Bodine noted that his latest report is just the tip of the iceberg.

“I want the Modern-Day Primer on Commercial and Enterprise Payments to be positioned as the centerpiece of training for those new to the commercial space,” Bodine said. “It would be an excellent addition to a more comprehensive training program that includes seminars and video instruction. Look for that soon.”

The post The Complexity of Commercial Payments Isn’t Often Understood appeared first on PaymentsJournal.

Bank of America’s CashPro corporate payments app processed $500 billion through the first half of the year, a 40% increase from a year ago.

Business banking apps have increasingly adopted mobile-friendly features similar to those in consumer online banking apps. This ease-of-use has helped mobile business banking apps gain massive popularity, and Bank of America expects CashPro to reach $1 trillion in payments volume by the end of the year.

“This volume of payment approvals via our CashPro App reflects a shift in client behavior and digital banking expectations over the last few years,” said Jennifer Sanctis, head of CashPro App at Bank of America in a prepared statement. “The app’s innovative design offers a convenient and secure client experience through which users can approve and validate payments and monitor account activity from anywhere and at any time of day.”

Increasingly Remote

The demand for business mobile banking services accelerated during the pandemic, and these solutions have since become essential for increasingly remote . Apps like CashPro offer business owners a way to monitor their payments, deposits, loans, and other financial transactions directly from their mobile device.

According to Bank of America, CashPro has become a leading  corporate mobile app worldwide, with 550,000 users across 40,000 companies. The app supports payments initiated online,  through the app itself, and via APIs and file-based transactions.

The bank’s corporate clients routinely process single payments exceeding $500 million through the app, Bank of America reported. The platform also allows businesses to layer additional security measures before authorizing payments.

Dramatic Effects

Bank of America’s corporate mobile banking solution is part of a broader trend toward modernizing business payments, which can have dramatic impacts on merchants.

As James Richardson, Head of Global Product Solutions at Bottomline, said in a recent PaymentsJournal podcast: “Generally speaking, corporates believe there are smarter ways of solving for business payments than the technology that’s accessible to them provides. They’re rationalizing their vendor relationships and looking for more meaningful strategic partnerships to help them streamline business payments.”

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The payments industry has undergone more change in the past few years than it has in the preceding few decades. The rise of instant payments, the arrival of fintechs, the consumerization of payments, and the onset of open banking have driven significant shifts in the business payments terrain.

In a recent PaymentsJournal podcast, James Richardson, Head of Global Product Solutions at Bottomline, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed how businesses can revolutionize the way they pay and get paid.

Searching for Watering Holes

Two of the most common business payment themes on the minds of chief financial officers are how to solve for fragmented technology and how to integrate fragmented processes.

“Generally speaking, corporates believe there are smarter ways of solving for business payments than the technology that’s accessible to them provides,” Richardson said. “They’re rationalizing their vendor relationships and looking for more meaningful strategic partnerships to help them streamline business payments.”

Many large corporations simply don’t have the staff to pursue new revenue streams. Though they realize fintechs can address those gaps, companies are often unsure how to proceed. Fintechs can also be uncertain how to position themselves to businesses.

Optimizing business payments is that much more difficult because of the sheer amount of information available to companies. It can be tough for businesses to get tangible insights into what is changing in their industry.

“They’re looking for sources,” Richardson said. “They’re searching for the watering holes where they can find the latest on the industry, because it’s critical to find out what the best in class is doing. It used to be businesses could speak to their bank and get all the information they needed. Now corporates have more multibank relationships than ever before.”

Companies recognize that they should be more independent and less reliant on their bank. Financial institutions and fintechs have rushed to offer solutions, fueling competition. The competition has been beneficial for businesses because they now have an array of solutions to choose from.

A New Wave of Change

In European markets, there are more payment types, a situation that creates choices for customers and companies. As more options become available, U.S. CFOs must consider the most effective way to modernize payments. It could mean moving from paper-based payments to electronic payments or making cross-border payments more effectively.

The ability to modernize through connected solutions is greater now than it has ever been, but adoption has been slow. According to a 2022 AFP Payment Survey, over 90% of U.S. businesses accept checks for incoming payments, and 86% use checks for outgoing payments. In most cases, it’s not for lack of better options; it’s because that’s the way things have always been done.

“Cracking the behavior is critical,” Richardson said. “Frankly, it’s a cultural thing. It’s already being done in other countries, but over the next few years, moving away from checks will be significant to overcome for U.S. companies. Once that happens and CFOs’ eyes are opened, they will see a new wave of change within their organizations.”

Though many businesses don’t want to process paper in and paper out, they are concerned about fraud. That means checks might stick around.

“We aren’t likely to see a government mandate in the United States where checks would be completely mandated out of the payment system,” Bodine said. “That means we aren’t likely to see an eradication of checks until there is a concerted effort by the largest corporations in the world to get rid of them.”

Navigating the Fraud Crossroads

The complexities of fraud have brought companies to a tough juncture. Criminals now operate as if they are businesses, and if an organization is targeted, it’s not by chance. Bad actors are looking for weaknesses. If they find one, they will conduct deliberate, purposeful attacks.

“The opportunity for corporates is to actively search out best practices and not become the laggard,” Richardson said. “If you’ve got your head in the sand with fraud, you run the risk of getting hit twice. One, it’ll affect your cash flow because you’re making slower payments. Two, fraudsters will prey on those that are the weakest or the slowest to move. You don’t want to be in that category.”

In addition to outside threats, businesses must be aware of insider fraud, which can hurt an organization just as much. To mitigate that threat, businesses should create a culture where the company’s money belongs to every employee. It’s everyone’s responsibility to make sure those funds are safeguarded.

Employees should know it’s appropriate to challenge suspicious transactions. It will become even more important as tech develops and criminals have better tools. Although new technology can increase fraud risk, it can also mitigate it. For instance, business payment networks can provide absolute verification of the relationship between the account sender and the account receiver.

“Fraud prevention should be a priority, but it’s also an ongoing process,” Richardson said. “That’s when it’s important to have those watering holes, to check your sources to find out the latest on fraud prevention. More knowledge makes corporates more independent. It’s critical if they’re thinking about a broader payments structure that reaches beyond their own shores.”

Rapid Time to Value

If companies embrace the technology that’s available as a service solution, they will find it won’t take long to get up to speed. Partners can quickly connect solutions that will optimize a company’s payments systems.

“Partner, partner, partner with an exclamation point,” Bodine said. “The data shows that if you want to see improvements in efficiency, costs, and long-term sustainability, it’s best not to attempt payments modernization internally.”

Payments partners can now onboard businesses in days or weeks as opposed to months or years, so there is a rapid time to value. Though some U.S. companies may be cautious, the businesses that modernize their payments systems soon will be best positioned to reap the rewards.

“Recognize the payments landscape has changed quite significantly,” Richardson said. “It’s a smaller world now. But if you look at what other countries are doing, you’ll be encouraged about what’s coming your way.”

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