Payment Trends 2024

Digital payments continue to transform the payment functions of mid-size U.S. companies. With the variety of existing and emerging options, it can be hard to know if businesses are maximizing opportunities to streamline and update their accounts payable and accounts receivable functions.

Corporate financial leaders have to try to balance reliance on methods that optimize their working capital — typically cash and checks are the most efficient — with methods that vendors, suppliers, customers and employees demand for their convenience. While it’s not feasible for companies to adopt every new experimental payment type, they risk missing out on potential relationships if they don’t factor in payee preferences.

A new survey of 202 C-suite executives at mid-size companies (those with an annual revenue between $50 million and $1 billion) explores what payment types are gaining ground and how organizations continue to adapt to the shifting payment technology landscape.

Consistent with the 2023 Payment Trends Survey, the companies surveyed in 2024 have several digital payment methods in their mix and don't show a clear preference for one over others.

Most companies use four main payment methods: Automated Clearing House (ACH), credit cards, instant payments (RTP and FedNow) and business-to-consumer (B2C) alternatives like Venmo, Zelle and PayPal.

Year over year, adoption of nearly all digital payment methods mentioned in the survey increased among those surveyed. B2C payment methods have the most significant rise, with 84% of respondents listing it among the options in use, up from 58% a year ago. The only payment method with a decline in use is wire transfers, with just 40% of respondents including it as a payment method, down from 64% a year ago.

B2C alternative payments and ACH involve fast transactions, but they aren't instantaneous. Only two payment methods currently allow transactions to settle in seconds with 24/7 uptime: RTP from The Clearing House and FedNow from the Federal Reserve.

RTP launched in 2017, and FedNow was just released in July 2023. Nevertheless, most of the companies surveyed are already using both, with 92% using RTP and 77% using FedNow. Nine out of 10 respondents said they are open to using both in the future.

It's important to note RTP and FedNow are different, so it's not surprising companies are using both based on convenience and availability. A few factors differentiate these instant payments:

• RTP has been in the market since 2017 and was the first system of truly instant payments for corporate treasury departments.
• RTP's per-transaction limit is $1 million while FedNow's has a default limit of $100,000 (although financial institutions can ask for an increase to $500,000).
• RTP uses tokenization to ensure information is secure while FedNow, via the Federal Reserve, facilitates account-to-account transactions.

Compared to last year, a higher proportion of the companies surveyed are relying on banks for support with services related to payment transactions, such as batch payment processing, short-term funding and streamlining foreign and domestic payments.  Across most of the financial services tied to payments — such as fraud protection and forecasting cash flow — more companies said they were looking to banks for help over fintechs.

One factor that's likely driving trust in banks is concern about fraud. In the survey, 63% of respondents said they relied on a bank for fraud protection, up from 56% a year ago. Although less than one-third of respondents said they were impacted by fraud in 2023, more than 90% of companies said they were concerned about it, and 27% said they were "extremely" concerned.

In the past several years, banks have been building out product suites that reinforce their long-held reputation of consumer trust. Companies need payment-related functions that prioritize security and are finding that financial institutions increasingly have options ready to meet their needs. Banks have been developing and improving receivables automation, integrated payables and other domestic and international payment capabilities that provide reliable performance and protection. These services are helping to reignite and strengthen corporate leaders' relationships with their bankers.

Financial leaders at mid-size companies find distinct advantages in using digital payments. Almost all survey respondents agree digitization has helped with cash flow forecasting and provided better visibility and control of their finances.

Despite these advantages, about 4 in 5 people surveyed think the move to digital payments and away from paper currency and checks will create system integration challenges that will have to be overcome.

Even so, 94% of the executives say their company expects to transition away from checks to become all-digital within the next five years.

Companies may need to adopt digitization much faster for that to be the case. Among the surveyed companies, an average of only 44% of their transactions are currently digital. But the landscape does seem to be shifting as fewer companies say they think cash and checks are necessary. In 2023, 73% of respondents considered cash and checks important or critical; this year, just 56% said cash and 53% said checks were important or critical.

The survey results show the top factor holding companies back from payments digitization is perceived fraud and security risks. Another potential impediment was having employees or vendors who prefer physical payment methods. Mitigating these factors will need to be a focus for businesses that want to switch to all-digital payments.

Mid-size companies appear to be embracing digital payments for their efficiency and security and have a willingness to adapt to consumer preferences. As payment technology continues to evolve, it will be crucial for businesses to stay on top of industry trends and leverage new payment solutions to stay competitive.