Corporate payments are at an inflection point. A combination of new market entrants and emerging technologies is creating disruption and driving change in the way organizations pay other organizations. Established banks have responded by innovating. Several new solutions, such as the RTP network from The Clearing House, are beginning to experience widespread adoption.

For businesses facing myriad payment pain points, new solutions can help provide quicker, more transparent, and more cost-effective ways to serve clients. That's why many corporate finance executives have shifted their focus from considering what is possible to making concrete plans for what, when, and how to implement emerging payment technologies. This is one of many developments that we identified in the report “The Future of Payments—A Corporate Perspective.”

Here are four key considerations that corporate treasury teams should keep in mind as their organization moves toward payment modernization:

1. Start with education.

The transition to a more modern payment infrastructure can be challenging, especially if legacy systems and processes have been in place for many years. Before a business can begin implementing changes in this fundamental corporate function, corporate treasury needs to understand the latest payment options and their prospective benefits.

In a recent BNY Mellon survey of U.S. domestic and multinational corporations, nearly 90 percent of respondents said they believe moving vendor payments from checks to an electronic format will have a significant impact on their business within the next three years. Nearly 70 percent believe real-time payments (RTP) will substantially impact their organization in four or more years. And 64 percent believe tokenized payment solutions (such as BNY Mellon's implementation of Disbursements with Zelle) will affect their company within four years.

The treasury function's role in the payments process continues to evolve, but treasury is usually responsible for influencing organizational decisions around whether to undertake a particular payment initiative. Treasury teams who are not well-versed in the latest payment technologies can ask their banking providers and peers in their industry about how new solutions are already impacting organizations similar to theirs. In addition, they can seek out educational materials on this topic from organizations such as the Association for Financial Professionals (AFP), The Clearing House, and Aite Group.

Treasury staff may also need to understand payment technologies well enough to support the technologists who will customize those solutions to meet their unique organizational needs. Beyond just adding a new payment type to their accounting and treasury management systems, treasury teams typically need to coordinate the integration of new payment solutions with their banking partners' systems.

The benefits of these efforts can be profound. Application programming interfaces (APIs) enable companies to stay constantly in sync with their banks for all activities on their accounts. This means treasury's cash flow information is always updated in real-time, compared with an environment in which bank reconciliations happen once a day, causing treasury systems to be many hours out-of-date most of the time. Faster payment solutions also enable companies to create new transaction experiences for their customers and business partners. Real-time e-billing, immediate acknowledgements, and control of settlement timing can enhance the partner and customer experience, helping to reduce the friction of conducting business.

2. Develop a corporate payments strategy.

A company's payments roadmap and planning process will depend on its current state and future needs. Paper processing of payments is still predominant among U.S. treasury organizations because bank information is hard to collect, customers and business partners are reluctant to share their financial details, and/or the company is concerned about storing sensitive information. These issues have prevented many businesses from fully adopting electronic payments.

However, treasury teams need to ask themselves whether—and how—an upgrade of their existing payments infrastructure might enable them to better meet future stakeholders' expectations around reliability, security, ease of execution, cost, and the information they exchange with banks. The recent BNY Mellon survey found that more than half (54 percent) of respondents believe reliability is the characteristic of their payment systems that needs the most improvement. Concerns about security, payment information, ease of execution, and cost round out the top five areas for payment improvement cited by survey respondents.

Regardless of its industry segment, a company will fit into one of three categories: bold movers, steady adopters, or paper loyalists.

“Bold movers” are the earliest adopters, the companies that have the most input into how a new service or solution works. They want to be first and are technically capable, but they are not scared to fail fast and move on.
The majority of businesses are second movers, or “steady adopters.” These organizations are more willing to adopt solutions as they mature, rather than helping create new solutions themselves or with their banks and financial technology firms.
“Paper loyalists,” meanwhile, are companies that continue to prefer paper processing of payments. These organizations may have very complex processes or business ecosystems, which create pragmatic challenges to removing or even reducing their volume of paper. As the number of digitized payment options continues to grow, more and more “paper loyalists” are seeing the benefits of transitioning away from checks.

Regardless of which category a company fits into, it needs to have a payment modernization strategy in place. Disbursements by Zelle is one example of a new payment solution that removes some of the barriers preventing some companies from migrating from paper to real-time payments. The solution enables U.S. corporates to instantly disburse funds, 24×7, through an email address or mobile phone number, without requiring a traditional routing number or account number.

Although the benefits of such a solution might seem apparent, companies developing a payment modernization strategy need to understand how their peers that are “bold movers” are taking advantage of the new payments landscape.

3. Make the case.

Once a treasury team has decided they want to adopt a particular type of payment solution, they will need to help drive sponsorship and secure funding to implement that solution. Getting buy-in often requires treasury to educate other functional areas across the organization about the reasons behind the impending change, as well as the benefits they stand to gain from it.

Think about the ways in which the new payment solution will enable the business to offer clients enhanced billing and payment options. For example, will consumers now be able to initiate payments from smartphones, tablets, and electronic wallets? Will business customers be able to pay via a direct API connection to your treasury or ERP system, or through automated file transfers via the Internet? What benefits will these new payment options bring to your customers?

In parallel, how does your organization stand to benefit from the new solution? Will you receive payments faster? Will reduced paper usage save money? Will more streamlined processes free up staff time in accounts payable (A/P) and other functions for more value-added activities? What about risk? The new payment platforms typically help companies minimize the risk they must assume, because the payment solutions improve security around bank account information compared with older electronic payment systems. And almost every digital payment platform reduces the risk of fraud associated with check payments.

Organizing these and other projected benefits into a business case is a crucial step in securing executive support for the project. And the move from a traditional payment-processing environment to new payment mechanisms, such as RTP or Zelle, requires the full support of the company's senior leadership.

4. Prepare for implementation.

Businesses with legacy software systems that are intricately woven into existing back-office operations may have reservations about implementing new payments capabilities. One concern often revolves around whether the company's technology applications, operational processes, and service components will able to accommodate the changes.

It's important to choose both bank partners and software vendors that can provide continuous assistance and support throughout the company's payment evolution. Banks, in particular, should be educating their corporate clients about the latest innovations and how businesses can future-proof their payments infrastructure. At the same time, corporate treasury teams need to take responsibility for performing the necessary due diligence of speaking with banks, technology providers, and industry peers about how new payment options might impact their processes and infrastructure.

Treasury teams planning a payments transition should keep in mind several key factors that may affect the initiative's success:

Think through all the ramifications of 24x7x365 transaction settlement. Most existing payment systems and banking services function five days a week during business hours. They are closed on nights, weekends, and holidays. With new services like RTP providing payment settlement on a continuous basis, companies need to consider how activity during traditional off hours will impact accounting, liquidity management, and cash forecasting on both sides of the transaction.
Corporate treasury professionals should think about changes not just from a back-office processing perspective, but also from a marketing and sales perspective. How will the company leverage new payment options in interactions with their customers and business partners? How will it communicate about the new ability to more quickly process refunds, claims payments, urgent vendor payments, or instant collection of payments from first-time customers?
RTP leverages the ISO 20022 standard. Companies moving to real-time payments should consider the initiative a catalyst to move to ISO 20022, if they haven't already taken that leap. In addition, if a treasury team will use the ISO 20022 protocol for message exchange with their banking partners for their real-time payments, they should also leverage it for traditional payment channels such as wire transfers, ACH, and check services. Consistency across the payment types will reduce internal friction and may streamline future implementation of additional payment options.
Payment process transformations require strong project management. Although banking partners can help guide the initiative, and can provide resources to assist in the transition, organizations must also allocate sufficient resources to build effective connectivity with their banks and technology providers.

Throughout all steps of this process, the corporate treasury team should maintain an ongoing and consistent dialogue with internal stakeholders. Before the new payment method goes live, treasury should explore the change's potential impact—in terms of both benefits and challenges—to all the company's customers and business partners. This foundational knowledge will enable treasury to support corporate leadership and the project team as they develop an action plan and identify which initiatives to move on early, which to wait for, and what path to take moving forward.

As the company proceeds on its digital journey, the treasury team can work with its banks to continue to gauge how payment nuances are impacting their business, as well as the external organizations they work with. Treasury can also help coordinate pilot projects that, if successful, can be scaled up to involve a larger proportion of the company's A/P or accounts receivable (A/R) portfolio.

At the end of the day, digitization of payments is a change that has to take place. The most important question for corporate treasury groups is no longer what needs to change, but how much and how quickly that change can happen.

Jeffrey Horowitz is managing director, market head for relationship management in the corporate, government, and not-for-profit segments at BNY Mellon Treasury Services. He and his team help organizations find consultative solutions for their cash management, trade, payment, and liquidity needs, both in the United States and globally.

Carl Slabicki is a director and product line manager for immediate payments at BNY Mellon Treasury Services. In his current role, Slabicki is responsible for strategy and development of new faster payment solutions, such as The Clearing House's RTP and Tokenized Payments^® now available with Zelle^®.

BNY Mellon has been a leader in the move toward RTP payments and continues to help drive bank payment industry innovation while supporting clients in this transition. For further information on the topics in this article and on the current state of payments for corporates, please consult BNY Mellon's report “The Future of Payments—A Corporate Perspective.” The report focuses on the needs, pain points, and priorities of corporates; their attitudes toward the wave of new technologies that have impacted payments so far; and their thinking around adoption of those technologies in the future.

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