Why Commercial Banks Need to Zero in on Commercial Payments
Why Commercial Banks Need to Zero in on Commercial Payments
McKinsey reports commercial payments now account for 35% of total payments revenue and are outpacing the growth of consumer payments, thanks to the rise of merchant services and commercial cards. Despite this growth, many commercial banks are failing to seize opportunities in this sector. The lack of innovation and subpar user experiences in commercial payments have left the door open for fintechs and other new entrants to capture market share.
The Growing Demand for Enhanced Commercial Payment Solutions
Commercial clients’ expectations for payment services are rapidly evolving. Unlike consumer payments, where user experience has advanced significantly, commercial payments have lagged behind. This has created pain points for businesses, such as:
- Accuracy of Transactions (63%)
- Security of Transactions (62%)
- Acceptance of Various Payment Methods (56%)
- Speed of Real-Time Payments (59%)
These issues, coupled with high transaction costs and limited value-added services, have made commercial payments a weak link in many banks’ offerings.
Fintech Competition and Changing Dynamics
Historically, large businesses have been reluctant to switch payment providers due to the associated costs. This hesitancy allowed incumbent banks to underinvest in improving their commercial payment services. However, the landscape is changing. Fintechs and innovative newcomers are aggressively targeting this segment, offering advanced solutions that address pain points like transaction speed, fraud prevention, and multi-currency capabilities.
Banks can no longer afford to overlook these challenges if they want to remain competitive. Accenture’s research shows that most clients still prefer to receive value-added services from traditional banks rather than new entrants. This presents a golden opportunity for commercial banks to innovate and reclaim dominance in this critical sector.
Value-Added Services: A Game-Changer for Banks
Clients are increasingly looking for value-added services that go beyond basic payment processing. These include:
- Integration with Tax and Accounting Systems: Streamlining financial operations.
- Real-Time Payments Data for Analytics: Providing actionable insights.
- Automated Invoicing and Bill Payments: Enhancing efficiency.
- Dashboards to Track Sales and Customers: Offering a holistic view of business performance.
On average, businesses are willing to allocate 8.1% of their annual payment costs toward value-added services, representing a potential $371 billion market by 2028. For banks, this could transform commercial payments from a back-office function into a significant revenue driver.
Modernization Investments: The Path Forward
Accenture’s data reveals that 48% of commercial banks are prioritizing investments in payments and transactional banking. While significant strides have been made in payment security, modernization efforts in areas like cloud computing, artificial intelligence, and automation remain insufficient.
To succeed, banks must:
- Elevate Technology Capabilities: Implement AI and cloud-based solutions to enhance payment services.
- Focus on Client Experience: Address key pain points and deliver seamless, intuitive payment solutions.
- Leverage Data: Use advanced analytics to offer predictive insights and improve decision-making.
- Deliver Value-Added Services: Build a comprehensive ecosystem that integrates payments with other business functions.
Conclusion
The commercial payments sector is no longer a sleepy backwater but a dynamic growth area that demands attention. Banks that lead with innovation and client-centric solutions can turn payments into a powerful platform for revenue and service differentiation. With businesses eager for advanced, value-added services, commercial banks have an unparalleled opportunity to modernize their offerings and solidify their market position.
Now is the time for commercial banks to zero in on commercial payments and transform them into a cornerstone of their growth strategy. Building the right team is essential to driving this transformation, and The Anderson Search Group specializes in connecting banks with top talent. Reach out today to learn how we can help you assemble a team poised to lead in this dynamic space.
