Instant payments – How can banks maximize their opportunity in Business Banking

Sarah Lauridsen, Head of Products and Solutions at Payments bank, Banking Circle, joined Brian Anderson, Director of Foreign Exchange and Suja Ramakrishnan, Director of Marketing at Finzly in conversation to look at what the triggers will be for banks to bring instant payments to the business banking market.

The conversation kicked off with a discussion about how business payments are changing in response to the benchmarks set by Peer to Peer (P2P) payments and why there is currently a disparity between the consumer and business markets for instant payments.

Sarah believes that the current pace of change in the B2B space is actually a reflection of the normal, natural order of innovation. Any new innovation often starts in the P2P space and then, through adoption, drives developments in the B2C and then B2B space. And she gave the example of the MobilePay app launched by Danske Bank in 2013 which shows how something that starts in the P2P space can trigger a wholesale change.

Available for anyone – not just Danske Bank customers – when it was launched, MobilePay was based on debit cards. Person A wants to make a payment to Person B – the money is withdrawn from Person A’s debit card through technology behind the scenes and pushed onto Person B’s debit card. However, it was so easy to use that it very quickly became the go-to solution for peer to peer solutions right across Denmark and created such strong traction that it eventually evolved into an account to account solution – no longer relying on debit cards. In the last couple of years it has become an ecommerce solution, applicable for all transactions, consumer and business.

The panel agreed that this chain of evolution – from consumer to business – is one route that is likely to prompt greater adoption of instant payments for business. But another factor identified in the discussion is the role of instant payments in supporting business cashflow. Reflecting the critical role of instant payments on cashflow, Suja cited research that 80% of SMEs blame failure on poor cashflow.

Sarah acknowledged that cashflow is a particularly important issue for Banking Circle customers in the ecommerce space. The speed with which a payment can be made from a buyer to a merchant is critical. And as the shift from card based payments to account to account payments continues in the B2B space – with account to account payments offering speed and cost advantages – she believes this is further going to drive demand for instant payments.

Customer experience is another driver the panel agreed is likely to accelerate the move to instant payments in the B2B space. Businesses will see that actually being able to enhance their own proposition, based on the ability to access instant payments, will drive demand.

One use case is in the insurance sector, where being able to offer instant gratification through claims being processed with payments made within the same day is an important brand differentiator. The panel agreed that any market where the instant gratification experience is integral will benefit from instant payments and this is likely to be the driver for wider adoption for business banking.

However, one of the key take-aways from the discussion was that the pace of change differs across the world. Europe was cited as being well ahead of the USA in adoption of digital payments by sole traders and small businesses. And ‘request to pay’ is seen by many in Europe as the next step for invoicing and payments, yet in the USA cheques are still widely used.

But the crux of the issue is how financial institutions are responding to this demand. Brian raised the question of how banks are tackling the complex back-office processes required to deliver instant payments – and how they can monetize the investment that is required. Clearly those institutions that are digital first will have the advantage, rather than those based on legacy systems. But as Sarah highlighted, the investment will have long-term commercial benefit.

The full webinar can be downloaded here.