Technology, Trade Drive B2B E-payments in US, AFP Survey Finds
Advances in technology, increased focus on business improvement, and the need to make cross-border payments have driven large US corporations to adopt more electronic payments (e-payments) for business-to-business (B2B) transactions, according to an Association for Financial Professionals’ (AFP) survey. The 2010 AFP Electronic Payments Survey showed that the typical organisation makes only 57% of its B2B payments by paper cheque.
Underwritten by JP Morgan Treasury Services, the report follows earlier AFP surveys that found 74% of organisations made B2B payments by cheque in 2007, down from 81% in 2004.
Where prior surveys showed a clear intention by US corporations to shift volume to e-payments, results this year show they are succeeding, particularly with their major trading partners. Nearly half of the survey respondents expect their organisations to convert B2B payments to major suppliers from cheques to e-payments in the next three years.
And whereas cheque float and system integration difficulties for e-payments used to keep many companies tied to cheque payments in the past, over the past six years, those barriers have begun to give way. In addition, more than six out of seven financial professionals believe that there are no significant regulatory barriers keeping their organisations from increasing their usage of e-payments methods.
Financial professionals say the benefit of moving to e-payments includes cost savings (52%), improved cash forecasting (40%), and fraud control (37%).
This gradual migration to electronic payments brings the US more in line with Europe and Asia where e-payments are the norm for business transactions and where they are the only form of business payment in countries such as Finland, Germany, the Netherlands and Poland.
“We think electronic payments have been a key enabler for the growth in global trade and cross-border payments,” said David Bellinger, AFP’s director of payments, who also sees further decline ahead for cheque payments in the US. “Most cross-border payments are done by wire already, mainly because companies still need the certainty around finality of funds and timing of receipt. Those needs won’t change, but over time alternatives to wires will likely take over some volume and eliminate most of the remaining cross-border cheque payments.”
According to the survey, 69% of cross-border payments transmit through wire transfers, 14% using cheques and 12% from payments sent via treasury operations that the organisation has in local countries. Contractual requirements, transaction size, cost and currency risk influence the choice of payment method.
In terms of transaction volume, 78% of participating organisations send at least some of their payments cross-border.
Looking ahead, US companies are interested in leveraging e-payment technology for other uses. Of those surveyed, 58% indicated that their organisations are likely to use the same-day settlement of automated clearing house (ACH) services to make tax payments when made available. Corporations also cite an interest in using e-payments for cash concentration and other corporate account transfers (43%), payroll (41%), and consumer/e-cheque services (39%).
Despite the acceleration of mobile payments at the consumer level, few organisations currently use mobile payments for business transactions, though this is clearly a trend to watch: a quarter of organisations are evaluating increasing their use of mobile tools for payments within the next three years.