As Business Payments Go Digital, Banks Must Keep Up with Fintechs

From digital wallets to palm payments, glitzy retail payment innovations often grab headlines. But a new study from Capgemini suggests an even bigger revenue opportunity for the banking industry can be found in commercial payments.

The study urges banks to offer enhanced cash management services and put more emphasis on how they can help businesses with all things payments.

Businesses are dealing with inflation and higher interest rates — and many have a much greater need than they did before to know their precise cash position all the time. Stale information is no longer acceptable.

All of this will further accelerate the digitization of business banking and payment services, Capgemini says.

The timing benefits banks that take initiative, as many businesses around the world still handle payments and reconciliations with paper checks and Excel spreadsheets. They’ll need help to make the transition.

Here’s what bankers should be thinking about amid the growing demand for improvements in payments services.

Capgemini surveyed both payment executives and corporate customers for its 2023 World Payments Report. The consulting firm found that commercial transactions make up 56% of total payments globally, when measured by dollar value, and 41% when measured by number — “high value, low volume.”

Retail payments are the reverse, accounting for 44% of the dollar value and 59% of the number of transactions — “low value, high volume.”

“Globally, more than one in two payment executives agreed that commercial payments offer better profit potential than retail payments,” the report said.

In the Americas, the split between commercial and retail is a little more balanced than it is globally, when measured by number of payments transactions. Commercial makes up 54% of the volume, with retail at 46%.

The demand on the commercial side is very diversified, as it runs the gamut from large corporations to small businesses. Though large players in the banking industry handle the majority of commercial payments, the report stresses that size is not a pre-requisite for finding revenue opportunities in this sector.

Capgemini singled out Starling Bank — which many think of solely as a retail banking innovator — as an example of how smaller institutions can capitalize. The U.K. digital bank has put in place a marketplace of third-party services that can be integrated with Starling commercial services to help small and medium-size businesses. These range from payments to insurance to human resources to an app that helps firms find the best deals on energy.

Starling resembles a fintech in many ways, so it also illustrates the growing threat banks face in business payments and cash management from fintech competitors. It is also a strong example of how open banking works in the U.K.