When the pandemic shuttered in-person operations across Fairfield and Westchester counties (and the globe), many entities, from franchises and municipalities to manufacturers and companies large and small, were faced with this question:
“How do I process payments now that I’m working remotely?”
The situation served as a wake-up call to those who hadn’t invested in digital payment solutions. In fact, 76% of small-business leaders say the pandemic prompted them to become more digital, with 82% changing how their business sends and receives payments, according to a Mastercard study.
As a result, banks, including Webster experienced double-digit growth in requests for digital capabilities, such as online and mobile banking, business bill pay, instant payments (ACH or wire) and even digital websites built for payments.
This shift brought challenges. Yet companies are finding the benefits (e.g., consumer demand, greater predictability of cash flow, flexibility to run operations from anywhere and greater access to customer/company data) outweigh the drawbacks (e.g., legacy technology and redesigning workflow).
Even now, a number of trends continue to influence demand and adoption.
The advance of instant payments
During 2020, the need to have cash on hand accelerated the growth of instant payments. Not only did contactless apps and other technologies help limit the spread of the coronavirus, but they also enabled companies to process payments within seconds. At any given moment they can now more accurately predict and manage their cash flow.
Both businesses and consumers are looking to instant payments for more than payroll and paying suppliers. For example, instant payments are now used for legal and insurance settlements, especially during a natural disaster. They’re also used to repay friends and family when a dinner check is split or for other expenditures, like medical copays, POS transactions and traditional bill pay. As consumers get more comfortable with using instant payments for personal uses, demand is likely to drive use by more companies.
The growth of same-day volume
According to National Automated Clearing House Association (NACHA), same-day ACH volume increased 88.2% from Q1 2020 to Q1 2021 from $80.5 billion to $187.6 billion. While more individuals turn to forms of employment that allowed for greater flexibility and control over their schedules, the trend created larger demand for companies to pay salaries daily. During Q1 2021, it also boosted activity for same-day payments for a variety of transactions.
The drive for payable and receivable solutions
Accessing payable and receivable information so that treasury and payment departments could conduct business remotely and still get timely reporting was critical under Covid-19 quarantines. However, it also made it possible to capture cost savings and other efficiencies over processing paper checks. While the volume of checks continues to decline, secure lockbox solutions are still in widespread use. Payments are sent to a central post office box for your bank where they are picked up, processed and deposited into your account — all on the same day, which reduces time and increases cash flow.
The ongoing migration from checks to ACH also continued as B2B ACH climbed more than 17% to $1.2 billion in the first quarter. As more companies continue to convert paper-based billing to digital solutions, not only do customers gain the ability to pay bills online, but companies get the ability to upload payments automatically into their system and employees get the flexibility to handle all of it right from home.
More sophisticated cyberfraud
The pandemic has not only led to an increase in cyberattacks, but also a surge in their sophistication as more people conduct business online. So, it’s critical for business leaders to focus on ways to improve security, increase awareness among staff and mitigate threats. Among the key steps to take now: Make sure activities are protected from a wider range of cybercrimes, like financial account takeovers, email compromises, breaches on virtual meeting platforms and unauthorized Wi-Fi access.
To accept, or not accept, cryptocurrency
Although demand is light, cryptocurrency and tokenization, like Bitcoin, are worth watching. FedNow, a new real-time settlement service expected from the Federal Reserve in 2023/24, will let individuals and companies send instant payments 24/7 through their bank accounts. Since the Fed sets overall monetary policy, if and how it deals with cryptocurrency could impact how businesses view this form of digital “cash.”
Digital payments offer opportunities to streamline operations. Think about how to take advantage of them as your business evolves.
Opinions expressed are those of the author and not Webster Bank N.A. They are not intended as financial or any other professional advice. Consult a professional regarding your individual situation.
Phil Picillo, senior vice president, director of Treasury and Payment Solutions at Webster Bank has witnessed the shift to digital payment solutions firsthand. He is on the board of NACHA, which governs the ACH Network payment system.