Over the last few years, credit unions have gained marketshare, especially in serving local business.
One important example of this is PYMNTS.com data, which shows that nearly three-quarters (74 percent) credit unions have seen increased demand for business lines of credit. As credit unions continue to grow their business membership, they must consider the ways that faster payments can help their business members. After all, adoption of real-time payments is on the rise and it shows no sign of slowing down.
According to the FasterPayments Council, adoption of faster payments grew by 10 percent over the last year and 85 percent of organizations surveyed were on track to implement at least one additional faster payments system to existing infrastructure.
With the Federal Reserve’s long-awaited real-time payments service, FedNow slated to debut this summer, credit unions will have yet another way to help members transact and manage their money. Specifically, this presents a massive opportunity for credit unions to deepen their relationships with business members and address their unique financial needs with real-time payments.
This blog will explore a few real-time payment use cases that credit unions should consider for their business members.
The ability to settle and clear payments in real time provides businesses with immediate access to funds, which means organizations benefit from greater flexibility when managing cash flows and making timely payments becomes much easier. This is a massive benefit that credit unions can offer for business members.
For example, manufacturing companies that rely on a steady supply of inventory can use instant payments to immediately pay a supplier upon receiving an invoice. Making a payment as soon as they receive an invoice can help minimize delays in receiving supplies, allowing the manufacturing business to begin production as soon as possible.
Instant payments can also help give businesses a competitive advantage when working with their other partners, a valuable benefit given the ongoing supply chain challenges across industries. If a business is able to receive funds faster and as a result, commit to paying a supplier or vendor earlier, they may be unlock a better rate or a discount for early payment.
Another advantage of instant payments is that it enables a manufacturer or other company to wait until the last possible moment to make a payment and still receive any discount for 2 net 30 (2 percent discount if paid in 10 days with net payment due in 30) and similar contracts. Likewise, the business has the flexibility of delaying the net payment until the last minute to avoid late payment penalties, keeping the supplier happy. Paying quickly and keeping suppliers happy are particularly important during times of supply chain interruptions.
One of the biggest benefits of real-time payments is the ability to connect information about the payment to the transaction itself. This helps keep all parties updated on the terms of the payment, ensuring everyone is informed about when a payment has been received and what the payment is for.
Request for payment (RFP) is one of the key features of instant payments that incorporates underlying transaction data with the actual payment, and will be supported through the FedNow Service. RFP features allow credit unions to offer an array of instant bill pay services, many of which will make it easier for their business members to send e-invoices, receive instant bill payments and streamline the reconciliation process. Additionally, with details readily available about a payment, businesses can optimize their working capital and better manage cash flow.
Another way faster payments will make cash management easier for businesses is through immediate payroll disbursement. Businesses can initiate payroll immediately rather than having to schedule and fund it in advance.
This also enables gig workers to instantly cash out their earnings. Faster payouts help companies retain gig and contract workers in an extremely tight labor market. According to a 2021 Harris Poll survey, 80 percent of U.S. workers would prefer to have their pay automatically streamed into their bank accounts as they earn it and 78 percent agree that access to on-demand pay, provided to them at no cost, would increase their loyalty to an employer. Faster payments will ultimately redefine the future of payroll, making it ‘on demand’ - automatically deposited as wages are earned. By offering faster payment services, credit unions can empower their business members to attract and retain quality talent, even in highly competitive labor markets.
Oftentimes, the discussions about faster payments and the benefits they offer are centered around consumers and person-to-person (P2P) use cases. However, a growing number of businesses are ready to explore the benefits of faster payments.
For credit unions looking to nurture deep, lasting relationships with the business members in their communities, consider faster payments. By making the shift to real-time payments and offering targeted payment services for business members, credit unions can gain a competitive advantage that’s hard to beat.