In our prior post we talked about the inherent complexity of choosing how to best optimize your business payment processes given the ever changing technology landscape. In this post we’ll help you better understand some of these emerging payment trends and how they can enhance your payment processes, information that will be helpful in determining potential opportunities for your business.
This payment type is probably the most widely discussed because businesses have been using virtual cards for various payment applications for many years. So why include them in a discussion on “emerging” payment types? Because virtual cards are constantly evolving and are being used by businesses in new ways not thought of a short time ago. Also, their popularity has remained steady as businesses are focused on leveraging virtual cards as much as possible because they allows them to optimize their working capital, earn revenue share and have an efficient payment tool.
Virtual cards are quite simply a randomly generated credit or prepaid card number that is tied to your overall business card account, offering robust capabilities to manage how, when and for how much a card is used. These capabilities have expanded businesses comfort of the use of card for payment types and sizes they did not think made good business sense. Virtual cards are now being used for large dollar payments of invoiced spend from suppliers, being integrated with eProcurement tools to present digital card to trading partners at the time of order and they are also being leveraged in travel booking tools to consolidate and better manage business travel spend. Virtual cards are also playing a role in building out a new mobile ecosystem that supports employees who need to have access to credit card accounts anywhere at any time via mobile applications and wallets.
When thinking about payments, business are rightly focused on ensuring that their payment processes do not expose them to fraud or require them to house information that could get accessed in a security breach. Your payees, both business and consumers, are thinking about the similar issues when they’re receiving payments from you.
Alias-based payments are new technologies that give the recipient the ability to register with a payment technology provider to use an alias such as a mobile phone number, e-mail address or other proprietary alias that’s associated with their receiving bank account. In this model your business simply needs that alias when initiating a payment and the processing technology will route to the correct account. These models perform well in various types of payment relationships: person to person, business to consumer and business to business. A lot of the alias-based models today are designed to work well with mobile banking and mobile wallet solutions. For businesses whose payment streams are focused on payments to consumers or small business, these solutions can work well because they allow you to leverage the infrastructure banks and the technology providers have built.
The cryptocurrency Bitcoin is probably one of the most widely talked about and (quite frankly) least understood innovation in the financial space in some time. More interesting than the currency aspect is the underlying technology concept called Blockchain. In its simplest form, Blockchain is a digital ledger that’s distributed in a manner that allows a very transparent log of transactions to travel and be verified by those with access either in a public or private network model. It is being tested in much broader applications than payments — for example contracts, stock exchanges and identify management.
When it comes to payments, a lot of focus is on the use of the technology to streamline and speed up traditional complex financial transactions that involve multiple parties, such as larger dollar cross–border transactions. The existing models rely on a complex web of intermediaries to move money globally, but that does not always provide the transparency and audit trail all parties involved need. Blockchain sheds some of the constraints of legacy payment methods and provides all parties in the network full visibility into the lifecycle of each transaction, while also increasing speed and potentially reducing cost.
Blockchain is very early on in its technology lifecycle and there are certainly a lot of hurdles to overcome before we see widespread adoption for payment processing. However for organizations with complex global payment needs, this is a technology that you will continue to hear more about and one that could eventually function alongside other global payment models you use today.
When it comes to payment processing there are certain situations when the efficiency and speed of a payment is critical. While some global markets have moved to a “Real-Time” model for payments, the U.S. has lagged behind.
Historically, the fastest form of payment has been wire transactions, but wires are costly and can be difficult to initiate. In 2016 the U.S. markets took a step into the faster payments model with “Same-Day” ACH which allowed for more opportunity to settle low-value payments intraday.
What we are seeing now is new networks being rolled out that can send and settle payments in a matter of seconds, while also opening up new abilities to provide data with the transaction and create more visibility. An example of this is The Clearing House’s recently launched payment network for real-time payments. This model provides the ability to send transactions in the U.S. in a matter of seconds with confidence of receipt of funds and a new infrastructure for passing instructions and data. Adoption is still early on, with companies focusing on use cases like emergency payroll and bill payments. However, over time I expect more and more companies to expand and probably demand these methods once they have determined how to manage the changes required in their business processes.
Faster Payments will impact a business’s cash management and forecasting, reconciliation processes and require some level of new technology, but those changes would likely come with significant benefit for your business.
Crafting a payment strategy that supports business objectives is key for organizations of today to be competitive. Every single function of the business needs to operate as efficiently as possible. Thankfully there are no shortage of payment options to make that possible, with more inevitably on the way. It’s simply a matter of understanding where you need to go and how you want to get there.
Bill Wardwell is an experienced payments veteran with 15 years behind the scenes in the financial services industry focusing on payments technology. He is VP of Strategy and Business Development for Bottomline Technologies.