The Green Sheet Online Edition

June 10, 2024 • Issue 24:06:01

Faster payments use cases and the impact on SMBs

By Walter Akolo
iCG Pay

The speed of financial transactions makes all the difference for small and midsize businesses (SMBs). As technology continues to evolve, so do the methods by which businesses send and receive payments. One example is the significant traction occurring as SMBs and banks increase their adoption of faster payments.

Faster payments refer to electronic payment solutions facilitating near-instantaneous funds transfers between parties. Unlike traditional transfers, which can take days, faster payments typically process within minutes, providing swift access to funds. These systems adopted by banks, financial institutions and payment service providers leverage technologies and real-time processing capabilities to expedite transactions, offering a seamless, efficient alternative.

Faster payments use cases fundamentally change how SMBs receive and disburse money. A recent study by Visa showed that 73 percent of small business owners relied on new forms of digital payments for growth.

Traditionally, SMBs struggle with slow customer payments and delays in receiving funds from suppliers. Snail mail and delays of ACH deposits hitting accounts affect their cash flow. This cash flow lag creates a significant financial burden. This uncertainty challenges financial planning and budgeting, hindering growth and limiting opportunities. With real-time transactions, faster payments offer a lifeline for SMBs.

With faster access to funds, businesses can improve their cash flow management and payroll processing, streamline operations, reduce administrative overhead and ultimately thrive in the competitive market. Payment processors, who are at the forefront of offering safe, efficient and accessible faster payments, know first-hand the intricacies of faster payments and its various use cases affecting SMBs.

What impact do faster payments have on SMBs?

Faster payments are more than just quicker transactions; they represent a fundamental shift in how SMBs manage their finances and interact with customers. Here's how faster payments affect operations across key business areas:

• Improving cash flow—Businesses depend on cash flow to run operations. Therefore, when they experience hiccups, most companies have to apply for business loans, which generally have a repayment term of up to 25 years. This can significantly impact cash flow.

  Faster payments eliminate the delay of waiting months to receive payments, providing SMBs with immediate access to income. This reduces their dependence on expensive short-term loans or lines of credit that carry high interest rates. With faster payments, businesses receive funds instantly, allowing them to pay employees, purchase materials for the next project, and avoid costly financing options. Additionally, they provide real-time visibility into cash flow, enabling SMBs to make informed financial decisions.

• Enhancing customer satisfaction—Faster payments create a seamless checkout experience, eliminating frustration and speeding up the buying process. For instance, customers can pay much faster from anywhere if a payment process is integrated with faster payment systems like ACH transfers, virtual terminals, credit card payments or hosted payment portals. Happy customers return and recommend the business, fostering brand loyalty and boosting sales.
• Boosting operational efficiency— Businesses that adopt faster payments eliminate manual processes like cashing late payments, tracking paper checks and reconciling invoices. Just imagine the wasted time and resources an SMB spends manually tracking overdue invoices. Faster payment systems automate tasks and free up valuable staff time for more strategic activities like customer outreach or product development. This translates to improved customer service, increased productivity and a more competitive business.

Faster payment use cases for SMBs

Faster payments can streamline SMB supplier transactions. Businesses that use suppliers can access transaction cash within 72 hours thanks to faster payments. Therefore, they don't have to wait weeks for invoices to clear, which fosters stronger business relationships. In addition, they can achieve efficiency and boost security with ACH processing, which takes one to two days or the same day, depending on the specific business.

Faster payments can also enhance payroll processing. Numerous small businesses handle their payroll needs in-house. Therefore, any payroll delays can cause significant frustration and impact employee morale. However, faster payments allow SMBs to disburse salaries instantly, boosting employee satisfaction and potentially reducing turnover.

Using faster payments can enhance emergency expense management. When immediate expenses arise unexpectedly, such as equipment repairs or urgent bills, faster payments provide SMBs with quick access to funds to address these needs without disrupting operations.

Potential security concerns with faster payments

While faster payments offer a multitude of benefits for SMBs, it's essential to acknowledge potential security concerns and considerations, including the following:

• Increased fraud risk—The speed and near-instantaneous nature of faster payments can make them more attractive to fraudsters. Digital payments are at more risk, with recent research data showing that online payment fraud is set to hit $91 billion in 2028. Therefore, SMBs must be vigilant about implementing strong authentication protocols and fraud detection measures to minimize the risk of unauthorized transactions.
• Account takeover—Cybercriminals may target SMBs that employ weak security measures, thereby gaining access to victims' online bank accounts to initiate fraudulent faster payments. SMBs should ensure strong password policies, multifactor authentication and employee cybersecurity training.
• Data security breaches—A data breach at a financial institution or payment provider could expose sensitive customer information used for faster payments. This happens when a business has poor data security protocols to protect it from potential vulnerabilities.

How to get started with faster payments

Here's a road map for helping SMBs leverage the benefits of faster payments.

• Evaluate business needs—Before diving in, it's important for an SMB owner to take a step back and assess their specific business needs. This means considering the types of transactions they handle most frequently and how faster payments can benefit each area. This focused evaluation will help SMBs determine the most suitable features and functionalities various payment processors offer.
• Partner with a reliable payment processor—An essential step for an SMB is to identify a reputable payment processor that supports faster payments. They should begin by reviewing the list of third-party processors that belong to the U.S. Faster Payments Council (fasterpaymentscouncil.org) so they can work with a qualified provider of the technology and infrastructure required to integrate faster payments into an existing financial system.
• Upgrade financial systems—Integrating faster payments might require adjustments to an SMB's existing financial software or accounting system. SMB owners will want to integrate with a payment processor that offers seamless integration tools, thus eliminating the need for additional software. They should be prepared to invest in necessary upgrades, as well, to ensure smooth operation and maximum efficiency.

The future of faster payments

Faster payments allow SMBs to prevent fraud, reduce manual processing costs and stay competitive. Partnering with state-of-the-art payment gateway providers gives them access to a suite of solutions to help automate payments online.

With the introduction of the FedNow service, technologies like real-time payments and mobile payments are turbocharging transactions. As a merchant services provider, you can help SMBs integrate faster payment technology, enabling them to enjoy the resulting benefits in daily operations.

Walter Akolo is lead marketing executive at iCG Pay, formerly iCheck Gateway (https://ach.icheckgateway.com). Contact him via LinkedIn at linkedin.com/in/walter-akolo-9a09461b.

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