The surge in popularity of real-time payments in SMB and corporate markets

The shift towards real-time payments is becoming increasingly prominent, especially for small and medium-sized businesses (SMBs) and corporates. Recent data presented by Erika Baumann, Director of Datos Insights’ Commercial Banking & Payments practice, to Alacriti captures a significant trend: a staggering 94% of businesses are poised to make substantial investments in payment systems within the next two to three years. This shift, unprecedented in the industry, coincides with a critical phase where financial institutions are deliberating over strategic vendor selections and business case development. Concurrently, fintech companies are stepping in to fill the voids left by these institutions.

Baumann’s research indicates that the drive for diverse and numerous payment methods has been a major catalyst for this change. In just a short span, the adoption of faster payment methods has jumped from about 9% to nearly 50%, with real-time payments (RTP) and push-to-card transactions leading the charge.

Where businesses need help

A notable discrepancy exists between the implementation of real-time payments by financial institutions and their actual usage by businesses. Many companies are either seeking financial institutions equipped with the necessary capabilities or are directly collaborating with fintechs for more intelligent and automated payable solutions. SMBs, particularly the smaller ones, are somewhat behind in adopting these advancements due to various factors, including oversight by financial institutions and misconceptions about SMBs’ needs and capabilities. However, real-time payments are quite critical for SMBs as liquidity issues can be a major hurdle. The ability to receive real-time payments is vital for this segment.

The diversity in payment methods reflects the evolving requirements of businesses, with a growing demand for flexibility and choice in payment solutions. In 2021, 36% of businesses were using different payment methods for different use cases. Now it’s 75% of businesses.

The U.S. market opportunity

In the United States, there is a significant market opportunity for financial institutions adept at deploying effective real-time payment solutions, as seen by the increasing real-time payment usage among SMBs. Only 8% of SMBs have no plans to consider using real-time payments in the coming year, whereas 40% are currently contemplating it, and 18% are already using it.

Disintermediation

The banking industry has experienced a shift favoring regional and super-regional banks. During the pandemic, many businesses moved towards the Big Four banks due to their automation capabilities. However, the recent regional banking crisis led to a diversification of business deposits among various financial institutions, including previously unused ones. Baumann noted that 5% of businesses have completely disintermediated their bank, relying solely on fintechs for cash management and payment needs, a trend even affecting the Big Four.

Fintech partnerships

An increasing number of businesses are partnering with fintechs for core cash management or payment needs. This trend indicates that payment functionality is a substantial market opportunity for fintechs to outperform traditional financial institutions. Financial institutions are recognizing the loss of payment volumes to fintechs, driven by factors like ease of submitting payment files, better reporting, and access to faster payments.

Opportunities for credit unions

Despite the trend towards fintechs, many SMBs express a preference for their traditional FIs, provided they offer comparable services. This preference underscores a significant market opportunity for credit unions to reclaim business lost to fintechs. Credit unions lagging in robust payment functionality should focus on partnerships and integration to meet market demands.

Is evaluating or implementing a payments hub on your roadmap in 2024? Download this checklist of important factors to consider to help you navigate the process smoothly.

Alacriti’s centralized payment platform, Orbipay Payments Hub, provides innovation opportunities and the ability to make smart routing decisions at the financial institution to meet their individual needs. Financial institutions can take full ownership of their payments and control their evolution with ACH, Wire, TCH’s RTP® network, Visa Direct, and the FedNow® Service, all on one cloud-based platform. To speak with an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com.