Finance
How Treasury Teams Can Approach Payments Modernization Right Now
Global Banking & Finance Review®
Company
Joe Susienka is a Senior PM at GTreasury
The recently-released treasury survey report, Pressure Points, Payments & Plans for Automation: The Road Ahead for CFOs and Treasurers, offers fresh insights into some of the biggest treasury trends that are expected to prevail in 2023. Conducted by Topline Strategy, the global report surveyed a cross-section of corporate treasurers and CFOs from more than 20 industries. The survey results show that corporate treasurers and financial leadership are understandably concerned over ongoing economic uncertainty. However, they nevertheless remain optimistic about their own enterprise growth and their ability to weather fiscal headwinds by introducing more efficient practices and technologies.
The report showed that payments will be a particularly big focal point for achieving more cost and operational efficiency. Organizations report payments technology and platforms as being a significant area of investment, but one that is expected to pay quick dividends as treasury and finance teams undergo increasingly-urgent technology and process modernization. In fact, payments were the single-most-important automation target for treasury teams heading into 2023, with 82% reporting that payments automation was ‘very’ or ‘extremely’ important.
Here’s how treasurers should consider approaching payments automation and modernization efforts this year.
As the survey showed, treasury teams are actively exploring new payment technologies as a way to reduce costs. Real-time payments, via the RTP network, will continue to gain traction among treasurers, enabling instant payments at a fraction of the cost of wire transfers. The FedNow Service debuting this year will also increase the prevalence and accessibility of real-time payments.
The math is pretty simple. Look at your wire volume and the average wire transfer cost of about $8. Then, calculate the savings of converting most of those wires to instant and automated RTP transfers. They cost about a quarter, if that. Most treasurers and financial leaders can look at those numbers and easily see the cost savings they need to justify implementation.
At the same time, rapidly advancing RTP capabilities are also spurring an uptick in adoption. Just a year ago, the limit for RTP payments was $100,000, making the technology inapplicable for many corporate payments. That limit is now $1 million. Also, over 260 banks have opted into the RTP network. Further expansion of RTP capabilities will continue going forward, and treasurers’ options will only grow as FedNow launches and gains volume.
Successfully implementing real-time payments generally requires modern treasury systems and expertise to harness banking APIs. Treasury teams also need to have tight controls in place: as with wire payments, real-time payments are irrevocable. Ensuring that payments have the correct details is crucial, as any mistake can cost time and money. That said, the API call request response for a real-time payment will instantly confirm that the payment went through, eliminating lengthy waits and offering operational efficiency in addition to hard cost offsets.
While many in the survey report said that their organizations have lagged in progress toward real-time automated payments, the pressure of economic uncertainty now has treasury departments systematically exploring every payment alternative.
Beyond real-time payments, treasurers should consider a matrix of variables for each of their payment responsibilities, from the speed at which a payment needs to settle to the available payment types and cost per transaction. For example, in some circumstances getting a file a day earlier could mean completing payments via local settlement rather than more expensive options. This emerging best practice has treasury teams adopting strategies that leverage the most beneficial avenues available to them, completing payments at the best cost and pace for each use case.
As mentioned, real-time payments are irrevocable. That means there’s no room for error when it comes to tight access controls and strong fraud protection. The simplicity and peace of mind that treasurers gain from those security measures are a welcome complement to real-time payment automation. Whereas wires can take hours to go through and ACH payments days, the ability to submit a payment and receive instant confirmation means no waiting and no context switching. Real-time payments are also unique in including extra fields for sending information associated with a payment. For example, a treasurer can directly include file attachments, rather than working out how to email a needed document to the right location. That’s not just a positive for security, it also makes treasurers’ days easier.
Organizations that make frequent B2C payments are now embracing services such as Zelle and Venmo to expedite transactions and deliver a fast and seamless customer experience. For example, an insurance company can now have a customer submit a claim by taking pictures by phone and then receive a claim payment over Zelle in hours. These companies are differentiating their solution in the market with newer payment technology. While B2B payments require a stricter set of controls, in time that same shift in the ease of completing a payment is making its way into the hands of treasurers as well. It’s definitely a trend that treasurers will want to keep an eye on.
Even in (and perhaps especially in) what may be a very challenging year for budgets, modernizing payment systems and processes for better integration and automation makes fiscal and operational sense. Faster settlements, improved cash flow, more convenience, fewer errors, lower costs—the benefits are there for the taking.
Payments automation refers to the use of technology to streamline and automate the process of making and receiving payments, reducing manual effort and increasing efficiency.
Real-time payments are transactions that are processed instantly, allowing funds to be transferred and available immediately, enhancing cash flow and operational efficiency.
Treasury management involves the management of an organization's cash flow, investments, and financial risks to optimize liquidity and ensure financial stability.
Fraud protection encompasses measures and technologies implemented to prevent unauthorized access and fraudulent activities in financial transactions.
B2C payments refer to transactions where businesses sell goods or services directly to consumers, often involving various payment methods like credit cards or digital wallets.
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