Role of complementary new channels in your payments strategy

Computers and smartphones have created the expectation in our personal financial lives that transactions should be digital and immediate. Corporate payments are evolving to keep pace.

Imagine playing a round of golf with only one club or prepping a gourmet meal with only one knife. Sure, you could get the job done, but it wouldn’t lead to the best results.  

For years, businesses only needed paper checks, ACH and wire transfers to manage payments. In the absence of other solutions, these traditional methods didn’t even seem inefficient. But the development of digital payment options has opened the door for businesses to replace these options in many cases and combine complementary payment channels in a cohesive and efficient strategy. 

Like a set of golf clubs or cooking knives, different payment solutions are catered to specific situations, so mixing and matching them effectively to build a toolkit is essential. The key is understanding which tools to bring on board and when to use each one.

Developing this strategy is a step that unlocks a host of benefits for a business and its customers—benefits that extend beyond improvements within the payment process to add speed, efficiency, visibility and cost savings across the business. 

Building a bridge to business benefits

Companies are seeing the wisdom of moving toward an advantageous mix of traditional and new payment channels. Indeed, the smart strategy is to adopt new payment channels for targeted use cases, ones where a new channel can add major benefits to a specific category of disbursements without overly taxing company resources.

“Adopting the right mix of digital payment solutions has the capacity to help businesses solve some of the key issues they’re facing,” says Joe Flaherty, a U.S. Bank working capital consultant based in Portland, Maine. “While not every company is at the same point in their move toward digital, leaders should prioritize this progression.”

While every business is different, Flaherty says there are some universal benefits that digital payment solutions enable. Businesses often use them to:

• Enhance visibility
• Increase payment controls
• Optimize operational efficiencies
• Manage risk
• Enhance stakeholder satisfaction
• Maximize working capital
• Capture revenue opportunities

Emerging new channels and use cases

Here's a look at some of the new payment channels that U.S. companies are adding to the mix and the use cases making it worthwhile:

Virtual card: An increasingly common strategy is replacing checks with single-use virtual card payments, where possible. Migrating payments to virtual card can reduce check payment costs and, in many cases, provide payers with revenue share. The virtual card channel is easy to set up and doesn’t require any IT resources. Banks can take the payment instructions file the payer was sending them for check issuance and try to migrate to virtual card those vendors in the file known to accept card payments.

Zelle: The Zelle^® digital payment network allows individuals and businesses to send and receive money in near real time using a mobile phone number or email address. Making business-to-consumer (B2C) payments with Zelle allows companies to eliminate the costs of printing and mailing checks, as well as avoid the risks associated with collecting and storing payee bank account information when making ACH payments. Zelle B2C uses include refunds, such as utility refunds to homeowners; rebates; insurance claim payments; incentive payouts; employee payouts; and gig worker payments.

Zelle is gaining traction as a payment alternative in higher education, Flaherty notes. “Zelle is a great option for issuing students convenient refunds when they drop classes, for instance,” he says. “In addition, Zelle serves as a great way to support payments to students after they graduate, when checks often can’t be delivered and cashed due to outdated addresses.”

Push to card (aka “push to debit”): This is another new option for making payments to consumers without requiring them to provide bank account information. The push-to-card channel takes advantage of the fact that most consumers carry a debit card. Companies can use the debit card payment rails to initiate real-time B2C payments — essentially reverse debit card payments — that can support a variety of use cases.

For instance, Flaherty says push to card is ideal for insurers paying consumer claims following a natural disaster. Push to card can provide the immediate funds insureds need to recover and overcomes the obstacle of delivering those funds to people who may have left their homes. “Where it may be impossible to deliver a check or prepaid card by mail to an insured, push to card affords digital, near real-time delivery,” Flaherty says.

Instant payments via the RTP^® network and FedNow^® Service: Perhaps the most exciting development in the payment space, the RTP^® network and recently-launched FedNow^® Service are 24/7 payment rails that provides instant settlement of funds, enabling companies to send, receive and request payments for many use cases, including e-invoicing and e-billing. That provides payment certainty — every payment is final, irrevocable and confirmed in near real-time — and rich flexible messaging. RTP can be used for business-to-business payments such as merchant funding and settlement, loan/lease funding and payment on delivery; B2C transactions such as payroll, title and escrow payments, and insurance claim payments; and a wide range of consumer-to-business (C2B) payments.

One emerging B2C use for RTP is making payroll corrections. In the event there is an issue with an employee’s pay, RTP allows a business to make a real-time correction. “Today, with such an acute focus on employee satisfaction, that’s a huge win,” Flaherty says.

On the C2B front, RTP allows a biller to send a request for payment (RfP) message to a recipient, who can evaluate the request along with related invoice details to approve or deny payment. RfPs provide consumers flexibility and convenience in paying their bills and certainty that the payment has cleared instantly. RfP use cases include online bill pay transactions, loan/lease payoffs and traditional debt payments.

Choosing the right channels

As new payment channels like the ones above continue to emerge and evolve, treasury professionals will be faced with determining which payment channel will make the most sense for each type of disbursement within their organization. Treasury management banks can help in a couple important ways:

• By offering intelligent payment routing. With intelligent payment routing, a company can send a bank a payment file and have its bank use business rules the company establishes to decide in each case the most appropriate and cost-effective channel for sending that payment out. 
• By helping companies cut through the payments confusion through consulting. The ideal treasury management bank is adept at helping clients identify niche payment applications where a new payment channel would offer greater efficiency or other benefits.

“Digital transformation is requiring corporate treasurers to revise their payment strategies,” Flaherty says. “Companies should look for a bank that can support them in using both traditional and new payment rails to their best advantage.”

RTP is just one part of a comprehensive payment strategy. If you need help building that strategy, we have the resources to get you started. 

As the payments landscape continues to evolve, U.S. Bank has the expertise and resources to help you build a comprehensive payments strategy both for today and the future. Contact us for more information.