As the financial sector continues to embrace digital transformation and emerging technologies, B2B payments are experiencing a significant shift to meet modern demands.
For businesses seeking more efficient, cost-effective, and secure ways to transfer funds, two payment methods have emerged as game-changers: pay by bank (also known as account-to-account or A2A payments) and instant payments — a real-time version of A2A payments.
These innovative solutions are not just trends; they’re reshaping the future of B2B transactions.
The Rise of Pay by Bank and Instant Payments
Pay by bank payments, facilitated by open banking technology, allow for direct transfers between bank accounts without intermediaries. This method is rapidly gaining traction and is expected to grow at a compound annual growth rate (CAGR) of 14% from 2023 to 2027, according to one study published this year.
Instant payments, which are a subset of A2A payments, enable real-time fund transfers, settling transactions within seconds. The adoption of instant payment systems is growing, and research predicts they will account for one-third of all global consumer transactions by 2029.
Already popular with consumers in Europe and Asia, these payment methods are also gaining favorability in the U.S. In fact, 86% of businesses in the U.S. reported using one or more faster services in 2023. This included instant payments, same-day ACH, and push-to-card services.
Capable of addressing long-standing pain points in B2B transactions, pay by bank and instant payments provide businesses with a wide range of benefits that traditional payment systems struggle to match.
Transforming B2B Payments: The Benefits
Bogged down by outdated technology, legacy systems, and manual payment processes, the B2B space is primed to reap the benefits of pay by bank and instant payments. Such benefits include improving operational efficiencies, streamlining payments, and enhancing relationships with customers, vendors, and suppliers. A few key reasons for businesses to adopt pay by bank and instant payment systems include the following:
1. Enhanced Transaction Efficiency and Speed: Pay by bank and instant payments are revolutionizing transaction speeds. While traditional ACH transfers can take up to 3-5 business days, instant payments settle in near real-time. This speed is crucial for B2B operations, especially in industries with time-sensitive transactions such as supply chain management and procurement.
2. Improved Cash Flow Management: A survey conducted by the Federal Reserve Financial Services found that managing cash flow remains a top strategic priority for 55% of businesses, and many appreciate more immediate account visibility and instant access to funds. The real-time nature of instant payments also helps increase transparency, reduces the risk of payment reversals, and ensures immediate availability of funds.
3. Cost Reduction: With average credit card processing fees accounting for 1.5% to 3.5% of the total transaction cost, credit card transaction fees can quickly add up. By eliminating intermediaries and reducing processing times, pay by bank and instant payments can significantly lower these transaction costs, allowing companies to reallocate funds to other areas of the business.
4. Enhanced Security and Fraud Prevention: Direct bank-to-bank transfers help reduce the risk of fraud traditionally associated with card payments or paper checks. With the increase of sophisticated fraudster attacks on businesses, outdated traditional payment methods like paper checks leave businesses vulnerable to fraud. Additionally, open banking protocols ensure secure authentication and eliminate the need for businesses to store and transmit sensitive financial data.
Additionally, open banking protocols ensure secure authentication and eliminate the need for businesses to store and transmit sensitive financial data. Open banking relies heavily on APIs — which require specific security measures — and purpose-built API security solutions using AI and ML can help identify abnormal behaviors and spot vulnerabilities before they can be exploited. This emerging technology will play a key role in securing these sensitive transactions.
5. Improved Customer Experiences and Business Relationships: In B2B contexts, where large transactions and complex payment terms are common, the simplicity and speed of pay by bank and instant payments significantly enhance the customer experience. This improvement can lead to stronger business relationships, more streamlined payment experiences, and increased customer loyalty.
These same benefits can be applied to vendor and supplier relationships, where quick, seamless, and transparent payments increase reliability and forge stronger ties within the industry.
The Payment Transformation Advantage
The business-to-consumer (B2C) sector has been quick to adopt new payment technologies, but the B2B sector stands to gain even more from these advancements. In fact, the complexity and scale of B2B transactions make the benefits of pay by bank and instant payments particularly impactful.
For instance, in the B2B space:
- Transaction volumes are typically higher, making cost savings more significant.
- The need for detailed transaction data for reconciliation is greater.
- The impact of improved cash flow on operations is more pronounced.
- The potential for fraud in high-value transactions makes enhanced security crucial.
Although the benefits of pay by bank and instant payments are universal, certain industries are particularly well-positioned to leverage these technologies. For example, healthcare companies can implement pay by bank or instant payments to streamline patient billing processes, reducing the administrative burden on both providers and patients.
Similarly, insurance companies can deliver faster reimbursements and reduce administrative costs in claims processing. In an industry where policyholder experience is a key differentiator, the ability to process claims and payouts instantly can significantly enhance policyholder loyalty and retention.
The real estate industry often deals with time-sensitive, high-value transactions, so pay by bank and instant payments can simplify escrow processes, facilitate faster closing times, and provide a more secure alternative to wire transfers, which are often targeted by fraudsters.
Moreover, B2B payments often involve complex approval processes and multiple stakeholders across industries. Pay by bank and instant payment technologies can streamline these processes, reducing the time and resources needed to manage payments. This efficiency gain can be particularly transformative for businesses with high transaction volumes or those operating in multiple jurisdictions and under complicated sets of regulatory requirements.
Another key advantage in the B2B context is the potential for improved international payments. Cross-border transactions have traditionally been slow, expensive, and opaque. New payment technologies are breaking down these barriers, enabling businesses to expand their global reach and operate more efficiently in international markets. This can be a game-changer for businesses looking to tap into new markets or optimize their global supply chains.
Embracing the Future of B2B Payment Innovation
As we move forward, the adoption of pay by bank and instant payments in the B2B sector is set to move faster. Businesses that embrace these technologies early stand to gain a significant competitive advantage. But the future of B2B payments is not just about moving money; it’s about creating seamless, efficient and secure financial ecosystems that drive business growth and innovation.
Pay by bank and instant payments represent fundamental shifts in how businesses transact. As these technologies continue to evolve and integrate with other financial innovations, they will play a pivotal role in shaping the future of B2B commerce.
Forward-thinking businesses should consider how these payment methods can be incorporated into their financial strategies to stay ahead in an increasingly digital, flexible, and global business environment.
