With the value of business-to-business (B2B) payments expected to rise substantially over the next few years, ramping up commercial payments could provide a substantial revenue source for community banks.

Though financial institutions have long viewed commercial payments largely as an expense, changing market conditions and a major increase in B2B activity position them to be a significant revenue source. According to data from Research and Markets, global B2B payments totaled just over $88T in 2022 and are expected to climb to more than $111T in 2027, a 26% increase fueled largely by inflation and economic growth within developing markets. By 2027, the average business is expected to make more than 1.4K domestic payments each year.

If community banks want to capture this business, now is the time to begin addressing the things business customers are seeking in commercial payment services. Time is of the essence, particularly since fintechs and other nontraditional banks have already begun aggressively courting this business and siphoning off customers.

Leveraging Loyalty and Value-Added Services

According to Accenture, 55% of traditional financial institutions that provide commercial payments say they have lost business to fintechs and major technology providers offering the same services. If community banks don’t take steps to remain competitive on this front, that trend is only likely to continue. Research from Accenture found that four out of 10 customers who use commercial payment services would be willing to switch to a new provider whose offerings include value-added services.

Fortunately for community banks, Accenture also found that 51% of businesses would prefer to access value-added services such as credit checks, closed-loop transactions and data dashboards from traditional banks, with that number rising to just shy of 60% for features such as real-time payments and bill payments. In fact, Accenture predicts value-added services are an untapped value proposition for payment providers that could be worth $371B by 2028. Capturing that business necessitates implementing the changes needed to remain competitive now.

Targeted Technology

Some strategic moves that can help community banks enact meaningful change in their B2B payment offerings include upgrading legacy platforms and core systems, utilizing developing technologies such as artificial intelligence, tailoring offerings to individual business customers and partnering with third parties to expand their services.

As banks begin reimagining their commercial payments, there are a few things they should keep in mind, including the following:

• One-stop banking: More than 80% of business customers would prefer to use a single institution for their payment services to manage costs. As of now, however, many businesses feel they are forced to use multiple providers to find everything they are looking for. Community banks have the opportunity to fill this void by identifying and adding the services business customers value most but are currently lacking within their own commercial payment offerings.
• Enhanced security: Fraud prevention is one of the biggest problems and a top area of concern for business customers.
• Cash management services: Other areas identified by Accenture as particular pain points for businesses include documentary trade finance, structured trade finance and liquidity management. In particular, cross-border payments, B2B transfers and online merchant acceptance are areas that businesses cite as being some of their biggest challenges.
• Accounting help: Some of the top value-added services business customers are seeking in commercial payments include accounting system integration and tools such as automated invoicing and biometric payments.
• Payment progress: Accenture has identified merchant acceptance as the fastest-growing area of commercial payments over the next five years, though only 26% of banks have made this area an investment priority.
• Controlled costs: While business customers desire value-added functions and capabilities, cost is a major factor in determining which organizations they choose for commercial payment services, and banks should keep this in mind when setting pricing.

Given the growth projections of B2B payments over the next few years, community banks would be well-served by changing the way they have historically looked at commercial payments and taking steps to make their own offerings more appealing. Since many businesses feel they need to use multiple providers to meet all their payment needs, there is a major opportunity for organizations that can bolster their offerings to include more of the services business customers want.

To continue this discussion or for more information, please contact Matt Helsing at mhelsing@pcbb.com or visit www.pcbb.com.

Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow Service, international services, lending solutions and risk management advisory services.