Unpacking the Payments Race at Datos Insights’ Commercial and Small Business Banking Forum 2023

Businesses are seeking diverse payment options, while banks grapple with pricing concerns in their investments.

The acceleration and transformation of how businesses make payments was one of the key topics addressed at this year’s Commercial and Small Business Banking Forum. To help unpack the drivers of change, Erika Baumann, Director of Datos Insight’s Commercial Banking and Payments practice, hosted a panel titled The Payments Race: How to Fight the Forces of Declining Margins and Increasing Demands.

Joined by Pat Alcox, Treasury Management Product Director at Huntington Bank, Rodney Nilson, Vice President Product Management at Bottomline, Booshan Rengachari, CEO of Finzly, and Kurt Shreiner, EVP and President of Corporate Financial Services Division at SouthState Bank, the panel considered the transition away from legacy payment types, bank and business perspectives on payments diversification, and whether choice always leads to good business practices.

Shifting Payment Trends

Few contemporary topics in commercial banking are as exciting as payments transformation. Commercial clients are beginning to rapidly diversify their payments processes, leading to a decreased reliance on legacy payment methods. For example, Datos Insights asked over 700 midsize and large businesses which payment tools they used in the previous 12 months. While in 2022, 65% of businesses had used mobile/digital payments, this increased to 73% in 2023. Meanwhile, paper check usage declined from 80% in 2022 to 67% in 2023, and ACH decreased from 70% to only 51%.

The data reflects that banks and businesses want to invest in payments technology. In fact, Datos Insights research shows that 94% of midsize and large businesses consider it somewhat or very significant to invest in improved payment technology in the next 24 to 26 months.

From a bank perspective, as one panelist noted, it is critical to consider which payment methods to invest in centered around client demands and identify existing relationships where integrating new payment methods can add value. Beyond value, clients also want simplicity and ease of use. Panelists from the banks and vendors could agree that more choices don’t always equate to simpler operations, especially if banks and their clients have difficulty with integration. Vendor partners, in particular, should be tasked with simplifying the integration of new payment tools and reducing payment complexities for business clients.

Pricing Complexities

The pace of transformation in payments is causing everyone to step back and assess their overall pricing strategies. Businesses are using more diverse payment methods, but some are not using emerging payment types because of the assumption that change equals unnecessary costs. Part of that assumption is based in reality since some financial institutions are overpricing to avoid losing wire and ACH fees.

Datos Insights research has shown that in 2022, the primary reasons businesses weren’t using RTP were concerns over manual processes and integrating RTP into existing workflows. In 2023, these reasons shifted to 30% of businesses voicing concern that RTP was too expensive, and 25% were concerned over too much manual processing. Clearly, many businesses want to invest in better payment technology and want the benefits of newer payment methods but are concerned about the price of both. Banking panelists agreed that it’s difficult to find the appropriate price for RTP but that working with larger clients has helped to guide that decision-making process.

Panelists from vendors suggested that overall value needs to be elaborated when it comes to pricing. If switching to new payment methods can show demonstrable value and reduce overall complexity, then businesses are willing to pay. This also includes pricing for value-added services more generally, which can require shifting mindset from viewing payments as a commodity to a value-add—especially in areas like customer experience and use of data, which can add new revenue opportunities and strengthen client relationships.

Final Thoughts

Businesses want more payment options and the benefits that stem from improved payments technology. However, concerns over price limit how many businesses are using some payment types, and banks are understandably concerned over which payment types to invest in, and whether there is a race to the bottom in pricing.

Every panelist agreed that payments need to be viewed beyond commodification and understood more broadly as a function of adding value for clients. Businesses want simpler payments along with greater choice, yet banks know that offering different payment tools requires tough investment choices and complicated integrations. Vendor partners can assist with payment modernization by simplifying integration to numerous payment types, which can accelerate a bank’s ability to bring new payment tools to market.

However, it is still the bank’s responsibility to position new payment tools toward solving practical business problems and to connect payments to wider value propositions, especially when priced alongside other value-added services that improve customer experience or make use of data connected to new payment types. For more information on payments strategies and technologies, reach out to Erika Baumann at [email protected].