Reinventing commercial payments for profitable growth
Value-added services enhance a commercial payments customer’s business. They include advanced fraud management tools, real-time data dashboards for cash and industry-tailored data insights, among others. And they are in demand. We found that commercial payments customers, on average, are willing to pay 8.1% of their annual payments costs to gain these value-added services. This could add up to a revenue injection of $371 billion for the industry. On the other hand, failure to respond could result in their losing clients: 33% would consider working with a different payments provider if it offered value-added services at no additional cost.
Addressing this blind spot would be a powerful way for commercial payments providers to build scale, boost customer satisfaction and retain clients. But offering the right value-added services is not like flipping a switch for an incumbent. Our analysis found that slow development of new payments solutions due to legacy tech is the single biggest commercial payments challenge facing banks. Fintechs, by definition, don't share this burden.
The key to leveling the playing field is a fully modern digital core — a powerful set of technologies that harnesses the full potential of cloud, data and AI to rapidly create new products, among other things.
Few today are investing in those technologies. We found that only 42% of banks are investing to a high degree in the cloud for commercial payments, for example. For data technology and analytics, the figure shrinks to 33%. Reversing this trend is a crucial step for clawing back the share of wallet incumbents have been losing to fintechs.
The right place for banks to start is to envision what commercial payments will look like in five or 10 years’ time, decide the role they intend to play in that future and scope the capabilities they'll need.
Commercial payments is a highly disrupted sector, but the flipside of disruption is opportunity. Banks right now have both the means and the incentive to look beyond their traditional approach. Those that find the right strategy to match the opportunity can expect to not only drive growth and competitive advantage but also make their mark on the commercial payments landscape.
Take a look at our report — and reach out to any of our authors for more information.
Our Reinventing Commercial Payments Study examines investments, challenges and priorities across these commercial payments service areas: bank accounts and cash management (includes transaction accounts, international payments, liquidity management, payables and receivables), card issuing, trade finance and merchant acceptance.
A digital core in payments comprises a powerful set of secure technologies that seamlessly harnesses the full potential of cloud, data and AI to help drive growth, optimize operations, bolster resilience and fuel competitive advantage for a payments business.
Structured trade finance, documentary trade finance and liquidity management are areas where clients are most challenged. Retailers and public sector entities cited domestic B2B transfers and cross-border payments as their greatest challenge, while for telecoms and public service clients it’s online merchant acceptance.
Value-added services are offerings wrapped around basic payments products that enrich the payments experience and ensure customer intimacy for commercial payments clients.
Some 60% of commercial payments clients said they would be highly likely to purchase each of the following value-added services: value-added tax system integration, real-time access to payments data insights, bill payments, data dashboards and real-time payments.