The future of commercial payments doesn’t rely on a one-size-fits-all approach. Diversity in payment methods offers particular strengths and capabilities in the commercial payments landscape.
In his “Trends & Predictions: Commercial and Enterprise Payments” report, Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, delved into why no single payment type will dominate the commercial payment space and how instant cross-border payments are poised to disrupt the traditional banking system.
No Single Commercial Payment Type Will Dominate
There’s a place for all key commercial payment types, including ACH and the UK’s Bankers’ Automated Clearing System (BACS). Although Bodine contends that checks should not be included in the lineup, they are still being used by businesses.
The chatter among the industry within the past 12 months has been that there will be one payment type that will take over all other payment types. One suggestion floating around was that credit cards would become the primary way of payment, 100% of the time.
Bodine begs to differ.
“I just don’t think that’s a very pragmatic, realistic approach,” Bodine said. “What is happening as payment instruments become more mature or continue to evolve in the commercial payments world, we’re seeing ACH very well positioned for certain types of commercial payments. Wire for other things. Commercial cards or virtual cards for other things.
“I think the intelligent approach is that we have some very good payment types. They offer a lot of variety, and therefore we need to position them accordingly and alongside each other to have a well-thought-out commercial payments program.”
ESG and its Impact on Paper Checks
Companies are increasingly facing scrutiny from investors about their environmental, social, and governance (ESG) initiatives. This ties to a variety of factors, including growing awareness of climate change and its ensuing impact on resources, environmental pollution, and transparent decision-making processes.
For some organizations, deploying such initiatives requires a significant investment of resources that they may not have. However, Bodine said, a simple three- to five-year initiative to “get the ball rolling” in that direction would be to abandon the use of paper checks.
As a demonstration that ESG initiatives are not just another trend, Bodine recounted that a certain organization was recognized by the American Business Awards for its ESG efforts by reducing the use of paper checks. Clearly, the recognition for these initiatives exists and could become table stakes for most organizations.
Instant Cross-Border Payments Will Disrupt Banks
One of the most exciting trends coming down the pike this year is the launch of truly instant cross-border payments. A pilot program is underway between the United States and the EU. These transactions are set to take place in the first quarter of 2024.
“Once that happens, I think you’re going to see the floodgates open, and then we’re going to start to see connectivity between the U.S. and India, between India and Brazil, between the Asia-Pac countries in the EU,” Bodine said.
“The reason this is important is that this will greatly disrupt the traditional correspondent banking infrastructure that has caused individuals in enterprises to be entirely reliant on large banks and a wire system to be making large payments or even not large payments.”