The faster payments revolution has arrived for person-to-person payments, but it’s also disrupting business-to-business payments in a way that might render certain payment options obsolete.
As real-time ACH payments evolve, increasingly they’re accompanied by more detailed remittance data than was available previously, which is good news for corporations trying to eliminate cash and checks.
BNY Mellon recently used Early Warning’s clearXchange network to launch Tokenized Payments for the bank’s treasury customers, enabling real-time and next-day payments for corporate disbursements including insurance claims, government and court payouts, rebates and refunds. The system uses a consumer’s email address or mobile phone number to direct the payment.
Wells Fargo & Co. said it will leverage the clearXchange network for Payment Manager B2P, a similar service it’s launching next year.
The smoother path to enrolling payees through clearXchange without exposing account numbers is a big improvement over traditional ACH payments that require recipients’ full bank account numbers, experts say.
For B-to-B payments, another one of the big leaps in the faster payments movement—beyond moving ACH payments closer to real time—is the ability to attach up to 200 characters of information to the payment to make it easier for corporations to match transactions with invoices and log them into accounting systems.
These innovations raise the question of whether speedier and more-detailed ACH payments could affect existing payment approaches like virtual card numbers, which for years have filled a crucial gap in the corporate supply chain by providing immediate payments via card networks using a streamlined process rich with remittance details.
Visa said it’s not worried.
“We’re seeing increased demand,” said David Henstock, vice president of global business solutions at Visa, adding that use cases for its virtual card numbers, called Visa Payables Automation, are expanding as corporations seek more robust data, analytics and security around B-to-B payments.
MasterCard also sees little reason to be concerned, noting that while ACH payments may be getting faster, they still don’t come close to providing the advantages to supply-chain finance that cards do, especially with buyer-initiated payments.
“As real-time ACH evolves, it will play a bigger role in corporate payments, but it won't solve all the problems and needs of buyers and suppliers," said Sachin Mehra, group executive, global commercial products at MasterCard.
For suppliers, one of the problems with ACH payments is they tend to arrive on or near the date a payment is due, which essentially forces suppliers to extend credit to buyers when they are not certain when funds will arrive, Mehra explained.
But when a buyer pays with a virtual card number, the supplier can receive payment as much as 60 days ahead of the official due date, he noted, adding that payment terms vary greatly from supplier to supplier and industry to industry.
Suppliers pay a fee for this service, and buyers may earn rebates, as part of incentive structures that can vary widely.
"Suppliers are often willing to pay a card fee because improved control over liquidity can be vital for companies when funds are tight, or during erratic business cycles when supply and demand suddenly ebb or flow," Mehra said.
Another big advantage virtual card numbers offer over ACH is reducing risk for suppliers and sparing them the headache of having to collect payments if they come in late or not at all, Mehra noted.
"Virtual card numbers enable suppliers to get paid early and secure better data for reconciliation, driving greater process efficiency, and for many suppliers, those advantages more than offset the card fees," Mehra said.
As many routine or recurring B-to-B payments shift to faster, more-detailed ACH formats, corporations may need to adjust some other processes.
For example, the enterprise resource planning (ERP) systems corporations use are not always optimized to receive new payments remittance data and that could require some extensive re-engineering, Mehra said.
“ACH payments have been around for a long time, and while standards for remittance data are gradually evolving, existing ERP systems aren’t likely to immediately accommodate all the new streams of data accompanying faster or real-time payments,” Mehra said.
Large corporations are better-positioned than small or midsize companies to adapt their ERP systems to handle changes in ACH payment formats, Mehra added, noting there are hundreds of combinations of ERP systems that would likely need to coordinate their software with their users’ systems to accommodate new ACH remittance data fields.
Improved remittance data for ACH is a plus for B-to-B payments, said Nancy Atkinson, a senior analyst with Aite Group, but she doesn’t foresee much immediate displacement within existing supply-chain payment channels.
“I think the impact of ACH improvements on virtual card numbers [for corporate supply-chain payments] will be minimal,” Atkinson said.
Faster payments also are likely to improve many other types of corporate payments, but it's worth noting their capabilities have not yet been fully realized, according to Margaret M. Weichert, a partner with Ernst & Young LLC.
"At this time, none of the solutions available in the US, other than wire transfers, are truly real-time," Weichert said, noting that the promise of most of the new ACH solutions simply is to help customers move money more quickly.
So far, none of the new and proposed faster payments solutions really are a "silver bullet" for corporate payments, Weichert said, adding: "But they are a step in the right direction.”