The Future of B2B Payments: Beyond Checks and ACH

FedNow, launched by the Federal Reserve in July 2023, created significant buzz in the payments space in 2023. This instant payment platform is touted to revolutionize how payments are sent and received.

However, the question remains: will B2B businesses, which heavily rely on checks and ACH, embrace this revolution?

FedNow vs ACH vs Wire Transfer vs RTP ??

The most common payment options used by US businesses to clear their payables are checks, ACH, credit cards, and wire transfers.?

Can FedNow grab some of the pie from checks, ACH, and other payment forms? We strongly believe it can!

Instant Payments to Divert $37 trillion??

Deloitte predicts instant payments will divert up to?$37 trillion?away from checks and ACH in the US by 2028.

In the last 15 years (2004 - 2019), the use of checks in B2B payments dropped by?50%. Most transactions moved to the ACH platform.

A similar transition is likely to happen in this decade, with a substantial proportion of the current ACH, credit card, and wire transfer payments moving to FedNow and other instant payment platforms.

The key drivers of a transition to instant B2B payments include:

• Better payment experience:?47%?of US finance executives believe creating a B2B payment experience similar to P2P payments is an important transformation needed.
• Easier payment reconciliation: Many RTP systems including FedNow use?ISO 20022?messaging standards that enable faster account reconciliation.
• Lower costs: FedNow service charges per transaction are much lower than those of ACH and wire transfers.?

Read the full analysis here: Link

Challenges in Using FedNow for B2B Payments ??

While FedNow promises to be a game-changer with its speed, security, and performance, some challenges that can hinder its adoption:

• Transaction limits: FedNow currently does not allow transactions above $500k, hindering use in many B2B scenarios.
• Irreversible transactions: Payments made via FedNow are irreversible, increasing their risk.
• Technical complexities: Connecting your systems with the FedNow infrastructure can be a challenge, especially for SMBs.

FedNow Kickstarts a New Revolution ??

While FedNow may not be an overnight hit with CFOs and finance managers, it will gradually see higher adoption and eat into the share of checks and ACH in the next 2 - 5 years because of its speed of processing, lower costs, innovativeness, and reliability.

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