Are Real-time Payments Better than Cards?

Last week, while checking out at the grocery store, my mom entered the wrong PIN for her payment card two or three times and got locked out. It was the only payment method that she had with her. Just as she was resigned to going home without her groceries, the impatient man in line behind her told the clerk that he would pay for her groceries. The total was over $100, but he proceeded to peel off several bills from a wad of cash in his wallet. A happy ending, indeed. What is your first reaction to this story? Most people would say they are amazed by the man’s act of kindness, but my payments background prevailed. I exclaimed to my mom, “He was carrying that much cash?!” I seldom have cash on hand, but the incident highlights its value.

Cash is immediate. Cash works. You’ve heard the phrase that cash is king, but in most situations, especially B2B, we know it is not practical to use actual cash. Instead, the digital equivalent is real-time/instant payments—solutions that put funds into the accounts of payee recipients within minutes.

I have drawn an initial hypothesis about RTPs in relation to card programs. In short, they could widen the divide between suppliers and end-user organizations. Following is why, along with reminders about what your organization should be doing, but first some background is called for.

Background

Real-time payments (RTPs), also known as instant payments, are not new. Around the world, such solutions span decades and there are dozens of domestic/regional iterations. Within the United States, The Clearing House (TCH) began offering their version, called the RTP® network, in 2017. This created the first new payment system in more than 40 years—one that operates 24/7/365. As a second option, the Federal Reserve will launch the FedNow Service next year; they started piloting it about a year ago. RTPs address all sorts of markets: peer-to-peer, consumer-to-business, business-to-consumer, business-to-business. Need more of an introduction? Check out the webinar I will be delivering on March 24, hosted by AP Now. Learn more…

RTPs and Card Programs

Several RTP resources that I have read speak to suppliers and the accounts receivable (AR) side of the house by taking aim at an easy target: card acceptance fees. RTPs practically eliminate transaction fees for suppliers. Low/no cost AND immediate payment? You can see why RTPs will appeal to AR.   

Related to the consumer (mom) story in the introduction, we know Commercial Card programs come with the possibility of user errors and declined transactions. Yet, for end-user organizations, the revenue share/rebates that card programs often generate, along with the extended payment float, are highly valued. Then there is the federal 1099 reporting relief that end-users receive from card usage, as well as convenience. The list goes on... Card programs are not going away.

It is not uncommon for suppliers and end-users to be far apart in their payment preferences. While both parties can benefit from cards, suppliers do not always see it that way. The emergence of RTPs may intensify some suppliers’ dislike of cards.

Action Items

As an end-user that wants to keep using cards, your organization needs to ensure it is doing its part to make card payments easy and fast for suppliers.

  • Avoid making card payments via phone or any way that requires suppliers to do manual data entry.

  • Pay promptly, no matter the card type (Purchasing Card, Virtual Card, etc.).

  • For your strategic suppliers that struggle with the cost or processes related to card acceptance, steer them toward resources that can help. Many suppliers are not aware of options like acquirers/processors that specialize in B2B transactions and can help address their pain points.

Final Thoughts  

Real-time payments are not better than cards; they are different. We are still a long way off from RTPs becoming mainstream for B2B purposes and, like any payment method, they will not be the best fit for every situation. Nevertheless, RTPs expand the payments toolkit and give your organization something to consider. Hopefully, they will expedite the demise of checks. Speaking of which…

My mom told me that she wished she had a blank check with her as a backup when shopping that day. I groaned. Cash at the point of sale is slow enough due to the counting and change-making steps. Please, no checks. I told my mom that I would help her set up her mobile wallet, to which she replied, “I have a mobile wallet?”  

Real-time payments and cards are like apples and oranges in a fruit basket. They provide different options within a payments toolkit. One is not better than the other; it depends on what your organization needs and wants for a particular scenario.

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About the Author

Blog post author Lynn Larson, CPCP, launched Recharged Education in 2014. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…