Analyzing More Hot Topics in Payment

With both regulatory and consumer-focused changes on the horizon in the payments industry, BTN sought opinions from four senior executives in the corporate payment space—Grasp head of product and innovation Michael Duffy; UATP president, CEO and chairman Ralph Kaiser; HRS Pay CEO Kurt Knackstedt; and ARC director of payments Jennifer Watkins—to gauge how those issues could shape corporate payment trends in the coming years. An edited transcript of their responses follows. Read Tuesday's first installment here. 

FedNow Instant Payments

The U.S. Federal Reserve expects to launch sometime in the middle of 2023 the FedNow Service platform, which it describes as a "flexible, neutral platform that supports a broad variety of instant payments." Financial institutions participating in the service can enable both individuals and businesses to send instant payments at any time at what the Fed claims will be a more cost-effective manner than the private sector's The Clearing House. The Financial Technology Association, which counts such companies as Block and Stripe among its members, this month also called on the Fed to make FedNow available to a "competitive, diverse set of providers." Real-time payments remain a small part of the overall payments landscape in the U.S., but they have become a much bigger slice of the pie in certain markets, such as India. Could FedNow boost their use in the U.S., and is there potential use for paying for corporate travel?

Jennifer Watkins: We've been following what FedNow is doing and The Clearing House, which does their real-time payment rails now, and we watch closely the Faster Payments Council. We think FedNow is going to have some big implications in the U.S., positive implications. It's partly looking at what happened in Europe. Bank transfers are huge in Europe, and one of the reasons it's not huge in the U.S., beside the reason that most of us are married to our credit cards, is the infrastructure hasn't been that good. FedNow is going to make that infrastructure better and allow for new, innovative payment options to come up. FedNow could enable a corporate cash solution that's better and faster, but the goal of FedNow is to spur innovation. We'll see if it can do that in the corporate travel environment as well. It all comes down to what's the value proposition. I think corporations are still largely married to their credit cards as well, but if the airlines have something they can offer that can pull them away from that credit card, it will happen.

Kurt Knackstedt: It's going to be interesting as to whether it will be in the travel categories of corporate spend. Right now, direct settlement methods, whether FedNow or the equivalent in other markets, tend to be favored in corporates more for less frequent but higher-value transactions. If I buy something once a year, twice a year or once a month, I set up a regular process to drive that method and use that form of payment, because I get out a discount from my supplier. When you get to the travel sector, you have massive volumes of transactions. The real sticking point in driving adoption of those types of solutions is both the buyer and suppler have to agree to use it directly. They have to exchange information on how to route the money. Oftentimes, it's written into a contract. It's just a bit bulkier of a process. That's why I think it will be a challenge to adopt in the travel sector at scale. That doesn’t mean, if I'm a corporate and I'm staying in a particular property at a high level or have a direct relationship with a particular airline I have a lot of volume with, I would expect there will be discussions between buyers and suppliers to see if they can use these types of settlement in certain scenarios. Then, you have all the other overhead that comes with it. How does the TMC support the purchasing process, and how do the travelers deal with it? It's really a scale question, and that's where credit cards are undisputed leaders. With credit cards, there's an implicit understanding. 

Michael Duffy: Looking at the Credit Card Competition Act and FedNow, it's where the government is stepping in to provide more competition, but one is using regulation, in the case of the Credit Card Competition Act, and the other is where the government agency is providing a service. With FedNow real-time payment, it's nice to see more players, so I think there's a large number of banks that can participate, so it's a very broad application. It's interesting.

Knackstedt: Every form of payment has a cost, whether it's cash, card, crypto or direct settlement. It's a lot easier for companies to see the cost of their credit card transaction when they get the bill from their acquirer whereas they don't realize that when someone down in accounting is counting out cash every day and recording it and taking it to the bank and having to deposit it.

Considering Leisure-Style Payment Models

"Buy now, pay later" options for travel, including airfares, have been proliferating in recent years, giving travelers a choice to take a "payment plan" approach to managing travel expenses. Last month, Amadeus announced a partnership with one of the leading suppliers of such solutions, Uplift, to bring its services to the Amadeus Xchange Payment Platform. To date, these companies have targeted leisure travelers almost exclusively, but could there ever be a use case for corporate travel?

Ralph Kaiser: Consumers really like it, and it lets people upgrade their trip in a way they can manage the cost instead of, "Oh, I have this huge thing on my monthly statement." They can spread it out over four, eight or 12 months. For a bucket list trip, they might do it. [In corporates,] I haven't seen it, even anecdotally, but I could imagine a small business doing it for cash flow reasons. PayPal has Pay in 4, where they don't charge any interest, so why wouldn't I do that if I'm a small business managing my cash flow? If I have a business trip and can put an airline ticket and hotel over a four-month payment period with no interest, why wouldn’t I do that? I'm not sure Coca-Cola is going to start doing fly now, pay later transactions because they have big deals with the airlines and TMCs and rely on a lot of perks and rebates.

Duffy: I feel like with a lot of these, it's going to be more of a B-to-C adoption, mostly because the thing about the corporate payment side, there's a lot of systems involved. When I think of alternative payment methods, and when corporates pay, they're using expense systems, ERPs, they're allocating to cost centers, so there are a lot of processes and workflows involved with the payment of travel, and that doesn't exist in the leisure market. I feel like there's more flexibility inherently on the B-to-C stuff, where they can adopt these alternative forms of payment. What would drive it on the corporate side is, what is the pain point that's being solved? Because of the virtual credit card stuff we do, some of the pain points solved there is reconcilability. So, what would an alternative form of payment solve for a corporate? Would it help with cash flow? Maybe, maybe not. I just don't know the wow factor for these to the corporate market.

Watkins: Buy now, pay later in general is huge, and it has been a little bit of a disruptor in our industry, which we haven't seen in years and years in payments, at least not in the U.S. I'm a credit card girl, and I like to use my credit card because I like my miles and all that stuff, but for a cruise, I did a buy now, pay later. In a leisure world, that makes a lot of sense. It's a little hard for us to get our heads around what that looks like in a corporate environment. I never say never. If the value proposition is there for the corporation and the airline, they can make it work, but you're more likely to see like a cash settlement option between a corporation and the airline than a buy now, pay later.

Knackstedt: I'm on the fence. It's more what's really the value. Ultimately, corporates have very specific ways of spending their money, and they're often hard-wired to things like their lender, their treasury policy and their cost of capital. Cash is king, and cash flow is what keeps businesses going. When you think about the way that you allow funds to flow out to pay for certain services, most CFOs tend to want to minimize as much as possible the outflows until absolutely necessary, and the suppliers want to maximize their inflows as early as possible, and it's a giant tug of war of who gets paid when and when is the value of the products or services rendered realized. It comes down to what is a company's philosophy, policy and thinking about how they manage cash flow, and that ties into procurement strategy and supplier strategy. Ultimately, I don’t think the suppliers are going to be able to drive this. Buyers and suppliers will have to work together to see if any of these models work for them. 

Kaiser: Somebody who has never been in payments or has run a business has a great idea to fix things, then you have to do 10 more fixes to make up for the big fix. The models can evolve, and they are evolving. When I started at UATP, airlines were not accepting alternative forms of payment to buy air. Now, it's 300 payment types globally, depending on the airline, it's Apple Pay, Uplift, PayPal, and there are hundreds of others. So, is the next evolution using crypto and blockchain for air transactions in a way that's efficient? If airlines can make money and it can be an efficient process, they won't be against it.