The breadth and depth of the payments industry means it continues to be one of the hottest sectors for innovation in the financial tech space right now. While consumer pay-tech has driven innovation in the space, B2B is now catching up as businesses and employees demand the same simplicity, speed and agility they’re seeing in the consumer payments space. Meanwhile the US is inching closer towards same-day payments and pressure is growing on incumbents to offer cheaper, faster cross border payments to stop holding businesses back. Amid the noise around this industry right now, here are three things to watch in payments right now.
1. US B2B payments speed up
There are signs that B2B payments are speeding up in the US, with NACHA (the Electronic Payments Association) reporting corporate trade exchange (CTX) volume up 7.2% and cash concentration and disbursement (CCD) up 8.2% year on year in 2015. Drilling down into healthcare payments, the amount is up by 208m transactions or 39% during the period. So what do all those numbers actually mean? Well, at a high level they point to the growing shift toward electronic payments in the US, which is good news for businesses and their customers.
Another factor speeding that up is businesses sending data alongside data across the network, with NACHA saying almost 2bn records with invoice and other payment info was transferred last year, up 9.1% compared to 2014. Overall, ACH transaction volume climbed to more than 24bn electronic payments last year, up 1.3bn payments or 5.6% year on year.
According to recent research from NACHA, top financial institutions in the US are on target to offer same-day ACH payments at the beginning of September. Payroll and B2B payments are expected to be the two strongest use cases.
In an interview NACHA president Jan Estep talked about what same-day payments will mean and the challenges of making it happen: “”What that means is that any ACH transaction -a credit or a debit- can move between parties on the same day…It really is a complementary effort to, then, real-time payments, which is a different architecture, a different solution for different needs.”
2. Next step: corporate payments?
Payments between businesses is just one of the money flows a company has to deal with, of course. Another issue that many will be familiar with is corporate cards and expense systems. Or lack there of. The practise of borrowing a small pool of company credit cards or else asking employees to pay for things like travel, hotels and business lunches is widespread making adding up the accounts at the end of the month problematic even for organised companies. That’s what prompted the former CFO at B2B payments giant Tradeshift, Jeppe Rindom, to set up Pleo - a startup offering corporate cards and expenses software to businesses.
“In the past 10 years most of the things you need to run a business is a few clicks away, from subscriptions to travel, but if you look at card solutions they have not changed to accommodate new ways of buying,” says Rindom.
Currently a space dominated by banks and traditional card issuers, the size of the addressable market and very familiar pain point Pleo aims to solve suggests this is a space to watch as business payments continues to gather momentum.
3. Heat is on for cross-border payments
Cross-border seems to be the phrase on everyone’s lips right now. As the world becomes more connected, consumers expect to buy from anywhere across the globe and companies do more business internationally, payments need to catch up. A recent study from Saxo Payments found that 67% of respondents use traditional bank transfers to handle cross border payments and 63% are not happy with how long the process takes. With just 38% saying they’re happy with the foreign exchange rate they are being offered, the opportunity for incumbents to shape up and new entrants with fair prices and more agile systems to gain market share is evident. Just look at Currency Cloud in the UK for example, which launched four years ago, says it now processes more than USD10bn in payments every year across 40 currencies.
Speaking at the recent Money 20/20 event in Copenhagen, the founder of Klarna, Sebastian Semiatkowski said cross border is one of the biggest trends in e-commerce payments right now.
“It’s partly because the media is dominated by big countries where cross-border has less of an impact, but Icelandic people have been shopping cross border forever. In Sweden we’re seeing a lot of online shopping volumes shifting from local retailers to international and more niche retailers. Same in the US and the UK and meanwhile in Chinese people are buying from outside the country and that will explode in the next few years.
“Five or ten years from now we will say wow: that was a massive shift when ecommerce moved to cross border. It’ll be like when the founders of King or angry birds created this game and suddenly they were selling to people all over the world. Five years from now we’ll see people creating their own jeans and suddenly it’s the new Levis online, selling to people globally with USD1bn sales after one year. Things that were impossible ten years ago will become possible.”