This Payments on Fire® podcast is a joint production of Citibank and Glenbrook. Tony McLaughlin of Citibank interviewed our partner Erin McCune about the U.S. payments market and business transactions in particular.
The U.S. payments landscape is in the midst of unprecedented change — triggered by the COVID-19 pandemic, new faster payment infrastructure, open banking and an overall acceleration of digitization. Business payments are particularly ripe for change.
The pandemic has exposed businesses’ reliance on manual processes and motivating digitization and cloud migration. Although businesses have talked about pursuing electronic payments and treasury modernization efforts for some time the pandemic reveals the risk associated with manual processes dependent upon being in an office and reliant on the mail for delivery of invoices, checks, and other business documents. All of a sudden back office digitization is a c-suite concern.
The emergence of faster payments has also catalyzed change in the business payments space. Real time infrastructures were purpose built for business transactions. Not because they are fast — suppliers grant their buyers payment terms, it’s not about speed. The new infrastructures have robust data capabilities that are very important to business-to-business payments.
Small businesses write and receive the majority of B2B checks and faster payment has tremendous potential to erode their reliance on manual invoicing and payment processes. Request-to-pay (R2P) capabilities associated with new real time rails are effectively electronic invoices, with the added value of a round trip payment logically associated with the invoice. For many smaller businesses, this could be the key to eliminating checks. For larger organizations where a single payment is associated with a number of invoices, and there is a need to provide more complex explanations of what a payment is for ISO 20022 remit messages (separate from the payment transaction itself) prove useful.
Additionally, there’s an enormous potential associated with API integrations between business back office solutions, bank partners, and payment infrastructure. Even relatively small businesses have an array of financial providers: multiple bank accounts, a credit facility, an ERP or accounting system, a CRM, a billing/invoicing solution, and other additional enterprise software tools. Knitting information together across systems and using these different solutions to embed and automate processes associated with sending, receiving, and applying payments provides significant value to businesses.
Speaking of data sharing, it’s useful to note that open banking in the U.S. is market-led, rather than the result of a mandate. But that doesn’t mean it isn’t happening — there’s a great deal of momentum. Security concerns and the advent of new faster payments rails are pushing financial institutions to innovate and collaborate. Nacha’s Phixius and Afinis solutions and FDX are examples of cooperation between industry players. The card networks are also making acquisitions in this space, with Visa acquiring Plaid and Mastercard acquiring Finicity.
To add to everything else that’s happening, there’s a lot of buzz around CBDC at the moment. It’s a global phenomenon. The United States has a strong interest in the concept because of our desire to maintain the dollar’s position as a dominant currency for international trade. However, it’s still too early to know what a CBDC would look like in the U.S. and how consumers and businesses would interact with a new type of government-issued coin.
Tony asked Erin how the global pandemic has impacted Glenbrook. She observes that our focus at Glenbrook hasn’t changed dramatically as a result of the pandemic (although we’re not traveling like we used to!): we were working with clients across the value chain to digitize payments and related business processes before the COVID-19 and continue to do so today. Demand has intensified, but it hasn’t really shifted focus.
But in the midst of societal upheaval as a result of the pandemic, at Glenbrook we are also thinking deeply about how we can employ our expertise to help businesses and consumers at risk. We do a lot of work on financial inclusion in the developing world. How can we apply that thinking here at home, to help businesses and consumers weather uncertainty, bolster the economic recovery, and build an equitable foundation for financial health and sustainable businesses on a longer term basis? We don’t quite know yet, but we are excited to explore new avenues for our consulting practice.