FX International Payments
By Mike Faden
Cashless global payments increased 9 percent in 2014, propelled largely by growth in Asia (principally by China) and Latin America (largely due to Brazil), according to a McKinsey report on global payment trends.1 A confluence of factors is helping to drive cashless payment services growth. First is expanding internet access, which continues to grow rapidly due to adoption of mobile devices, especially in emerging markets. The spread of internet access propels the growth of e-commerce, which in turn drives cashless payment services because consumers need paperless payment methods to participate in online transactions with retailers and remote transactions with other individuals.2 Further, the instant-payment technologies that have emerged to support online transactions, including non-bank peer-to-peer mobile payment apps, digital wallets and virtual currencies, spur further increases in cashless payments by providing payment methods that are widely available even in countries where many consumers lack bank accounts.3
These trends are transforming consumer expectations and driving changes to payments infrastructure and B2B commerce. People increasingly expect to make and receive payments online, quickly and conveniently, at work as well as in their personal lives.
Yet in some cases, the shift to B2B payment services is occurring much more slowly than in consumer transactions. For example, U.S. businesses are transitioning from checks to other payment methods for B2B purchases – but at a relatively slow pace. A Federal Reserve report says that the number of B2B checks declined by only 3.8 percent a year from 2009-2012.4 An often cited survey from the Association for Financial Professionals (AFP) found that U.S. businesses still pay half of their bills by check.5 That’s largely because checks are familiar, easy to use, and universally accepted as payment. However, check payments are both slow and relatively costly; labor, postage and other costs can total between $4 USD to $20 USD per payment.6
Most businesses planned to increase their electronic B2B payments in 2016, according to the AFP survey of business finance professionals. That’s partly because the number of suppliers that accept e-payments continues to increase. But there is also potential to reduce cost. In a research survey and analysis by Ardent Partners, best-in-class accounts payables groups (defined as the 20 percent of respondents with the lowest cost per transaction) enlisted more suppliers to accept electronic payments and processed 63 percent more payments in a touchless fashion, thus achieving cost-per-payment more than 90 percent lower than all other responding organizations ($0.89 USD versus $10.65 USD).7
E-payment methods on the increase include ACH transactions and cards. Notably, also increasing rapidly are payments integrated into collaborative B2B trading networks, which are experiencing growing use by companies in the U.S. and other countries.8
Facilitating these changes are the growing availability of services that enable faster, easier B2B payments. Within the U.S., for example, same-day ACH payments have been approved by NACHA, The Electronic Payments Association. Responding to consumer adoption of immediate-payment technologies from non-traditional suppliers such as PayPal, financial institutions in several countries are developing or have already implemented faster payment systems; and the Federal Reserve is assessing options for faster payment solutions in the U.S.9,10
International payment services are changing too, for two main reasons. One is that cross-border commerce is expected to continue expanding rapidly, driven largely by emerging Asian and East European economies.11 The other is that, traditionally, international B2B payments have been cumbersome, time-consuming and expensive, with exposure to risks such as exchange rate fluctuations and a reliance on securing trade finance such as letters of credit. Cashless payments services can simplify and speed international transactions, and are offered by a variety of online services.
Step by step, B2B payment services technologies are starting to provide the greater speed, ease of use and 24/7 availability that consumers have already come to expect.
Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.
1. Global Payments 2015: A Healthy Industry Confronts Disruption, McKinsey & Company, October 2015. © 2015 McKinsey & Company. http://www.mckinsey.com/industries/financial-services/our-insights/global-payments-2015-a-healthy-industry-confronts-disruption
2. The End of Cold, Hard Cash and The Global Shift Toward Cashless Consumer Payments, Demand Institute, August 2016 © 2016 Demand Institute. http://demandinstitute.org/demandwp/wp-content/uploads/2016/08/TDI-The-End-of-Cold-Hard-Cash.pdf
3. World Payments Report 2015, Royal Bank of Scotland and CapGemini, 2015, © 2015 Capgemini and The Royal Bank of Scotland plc (RBS). https://www.fr.capgemini-consulting.com/resource-file-access/resource/pdf/world_payments_report_2015_vfinal.pdf
4. The 2013 Federal Reserve Payments Study, Federal Reserve System, July 2014 © 2014 Federal Reserve System. https://www.frbservices.org/files/communications/pdf/general/2013_fed_res_paymt_study_detailed_rpt.pdf
5. 2015 AFP Payments Cost Benchmarking Survey, Association for Financial Professionals, © 2015 Association for Financial Professionals, Inc. http://www.afponline.org/publications-data-tools/reports/survey-research-economic-data/Details/payments-cost-2015/
6. “U.S. Companies Cling to Writing Paper Checks,” The Wall Street Journal, March 10, 2014 © 2014 Dow Jones & Company, Inc. http://www.wsj.com/articles/SB10001424052702304732804579425233344430424
7. The State of B2B Payments 2015: Emerging Business Value, Ardent Partners, October 2015 © 2015 Ardent Partners Ltd. https://ardentpartners.com/2015/11/ardent’s-“the-state-of-b2b-payments-2015-emerging-business-value”-is-now-available/
8. “B2B Payments 2015: Which Payment Method Will Grow the Fastest in 2016?” CPO Rising, January 13, 2016 © 2016 Ardent Partners Ltd. http://cporising.com/2016/01/13/b2b-payments-2015-which-payment-method-will-grow-the-fastest-in-2016/
9. “Federal Reserve Engages in Effort to Assess Faster Payments Solutions,” Federal Reserve press release, March 29 2016. https://www.federalreserve.gov/newsevents/press/other/20160329a.htm
10. “Is a Global Real-Time Payment System Possible?” Banking Perspective Q3-2015 © 2015 The Clearing House Payments Company LLC. https://www.theclearinghouse.org/publications/2015/2015-q3-banking-perspectives/global-real-time-payments
11. Global Payments 2015: A Healthy Industry Confronts Disruption, McKinsey & Company, October 2015. © 2015 McKinsey & Company. http://www.mckinsey.com/industries/financial-services/our-insights/global-payments-2015-a-healthy-industry-confronts-disruption