Commercial payments, the transactions between businesses that involve large sums of money and complex processes, have long been overlooked by banks and other payment providers. While consumer payments have seen rapid innovation and improvement in user experience, commercial payments have remained stagnant and cumbersome. This has created a blind spot for banks that could cost them billions of dollars in revenue growth.
The Value Of Commercial Payments For Banks
According to a report by Accenture, the total volume of business-to-business (B2B) payments in 2022 was estimated at $88 trillion, and projected to grow to $111 trillion in 2027. This dwarfs the consumer payments market, which was estimated at $51 trillion in 2022 and projected to grow to $64 trillion in 2027. Commercial payments are not only larger, but also more profitable for banks, as they generate higher fees and interest income than consumer payments.
However, the real value of commercial payments for banks lies in their role in attracting and retaining business deposits. Business deposits are a key source of funding for banks, as they provide low-cost and stable liquidity that can be used for lending and investing. Business deposits also enable banks to cross-sell other products and services to their clients, such as loans, treasury management, and advisory.
The report by Accenture estimates that the global revenue pool from business deposits will grow from $371 billion in 2019 to $742 billion in 2025, a compound annual growth rate (CAGR) of 12.4%. This is much higher than the CAGR of 4.1% for consumer deposits, which will grow from $1.2 trillion in 2019 to $1.5 trillion in 2025. Therefore, banks that can capture and retain more business deposits will have a significant competitive advantage in the market.
The Challenges And Opportunities In Commercial Payments
Despite the huge potential of commercial payments, banks have not invested enough time and resources in improving their offerings and user experience. Commercial payments are often complex and inefficient, involving multiple parties, systems, and regulations. They also require high levels of security, compliance, and transparency, as any error or fraud could result in significant losses or reputational damage.
As a result, many businesses are dissatisfied with their current payment providers and are looking for alternatives. According to a survey by PYMNTS.com, 60% of businesses said they would switch to a new payment provider if it offered faster, cheaper, or more convenient services. Moreover, 40% of businesses said they would switch to a new payment provider if it offered better integration with their accounting, enterprise resource planning (ERP), or other software systems.
This creates an opportunity for new entrants and challengers in the commercial payments space, such as fintechs, big techs, and non-bank payment providers. These players are leveraging advanced technologies, such as artificial intelligence, cloud computing, blockchain, and biometrics, to offer faster, cheaper, and more convenient payment solutions. They are also providing better user experience, integration, and customization, as well as value-added services, such as data analytics, fraud prevention, and cash management.
Some examples of these players are:
- Stripe, a fintech company that offers a suite of payment APIs and tools for online businesses, enabling them to accept and manage payments from customers around the world. Stripe also offers Stripe Treasury, a banking-as-a-service platform that allows businesses to access banking capabilities, such as checking accounts, debit cards, and interest-bearing accounts, through Stripe’s partner banks.
- PayPal, a big tech company that offers a range of payment solutions for businesses, such as PayPal Checkout, PayPal Business Account, PayPal Commerce Platform, and PayPal Pay Later. PayPal also offers PayPal Working Capital, a lending service that provides businesses with access to funds based on their PayPal sales history.
- TransferWise, a non-bank payment provider that offers a cross-border payment platform for businesses, allowing them to send and receive money in different currencies at low and transparent fees. TransferWise also offers TransferWise for Business, a multi-currency account that enables businesses to hold, manage, and convert over 50 currencies, as well as issue debit cards and make batch payments.
How Banks Can Respond To The Changing Commercial Payments Landscape
Banks cannot afford to ignore the changing commercial payments landscape, as they risk losing their market share, revenue, and customer loyalty. Banks need to adopt a proactive and strategic approach to commercial payments, focusing on the following areas:
- Innovation: Banks need to invest in developing and deploying new technologies and capabilities that can enhance their commercial payment offerings and user experience. For example, banks can use artificial intelligence to automate and optimize payment processes, reduce errors and fraud, and provide insights and recommendations. Banks can also use cloud computing to scale and integrate their payment systems, reduce costs and complexity, and improve security and resilience. Banks can also use blockchain to enable faster, cheaper, and more transparent cross-border payments, as well as smart contracts to automate payment terms and conditions.
- Collaboration: Banks need to partner with fintechs, big techs, and non-bank payment providers that can complement and augment their commercial payment offerings and user experience. For example, banks can leverage the APIs and platforms of these players to access new markets, customers, and services, as well as to improve their operational efficiency and customer satisfaction. Banks can also co-create and co-innovate with these players to develop new and differentiated payment solutions that can meet the evolving needs and expectations of their clients.
- Customer-centricity: Banks need to put their customers at the center of their commercial payment strategy and design, focusing on delivering value and convenience to their clients. For example, banks can offer flexible and customized payment solutions that can suit the specific needs and preferences of different segments and industries. Banks can also provide seamless and integrated payment experiences that can connect with their clients’ accounting, ERP, or other software systems. Banks can also provide value-added services that can help their clients manage their cash flow, working capital, and risk.
By addressing these areas, banks can turn their commercial payments blind spot into a growth engine, and secure their position as the trusted and preferred payment provider for businesses.
