Venmo is a phenomenon that has become so synonymous with paying someone back, it’s even become a verb. Venmo gives users the ability to immediately send or request payment from anyone in their contact list or Facebook network, and it transmitted 8 billion dollars in payments in the second quarter of 2017 alone. Don’t think banks haven’t noticed -- they’ve developed their own version Venmo, called Zelle. After a painless, 30-second setup, the Zelle app lets consumers send instant digital payments to their friends or family members. As a result, banks are seeing an increase in transactions and customer satisfaction.
But, Venmo’s viral-like adoption isn’t limited to small transactions like splitting checks at dinner. It’s seeping into all aspects of consumer’s lives, so that many Americans are eliminating paper payments altogether for bigger ticket items and recurring payments, like rent and bill pay. And this shift toward digital payments is not demographic-specific or a trend that only digital-native millennials are embracing; in fact, almost half of consumers now prefer using digital apps to make payments.
Consumer expectations for instant digital payments have an effect on business owners, as well. Businesses want to take advantage of the ability to pay their vendors and employees online without the hassle or expense of paper. However, business owners today don’t have the luxury of fast, immediate, Venmo-like payments, and this is due to the failure of banks to keep up and predict the solution that will work for businesses.
Over the last 10 years, I have had countless conversations with bank executives about what’s next and if it’s time to invest in developing a platform for electronic business payments. Within the last year, I’ve noticed that these conversations have shown stronger alignment and agreement, underlining that the time is now.
What’s the holdup for banks building a Venmo for business?
The rules that apply to business payments versus consumer payments are different. The level of complexity and players involved can’t be compared. The whole process of initiating and making payments is extremely high-touch, with many moving parts, from sending the invoice, honoring your payment terms (hello, Net 30, Net 60 and Net 120), gathering necessary approvals and requiring multiple systems, such as your accounting software and your bank, to talk to each other.
As we move toward becoming a “cashless” society, banks have not caught up with the digital revolution in terms of businesses, because their infrastructure is stuck in the 90s. Some businesses have entire departments dedicated to invoicing and followup. Others have developed their own payment processing systems that rely on dated technology. There are those that are still even handwriting checks. But, it’s not only the legacy systems of these businesses that are to blame. Many banks still don’t have fintech or payments integrations that would allow for quicker payments and a simpler process for businesses owners.
Add to all of this another obstacle: banking regulations. Following the financial crisis in 2008, banks were slapped with so many regulations there was hardly any budget or time leftover for emerging technology. This brought innovation to a standstill.
Banks say goodbye to building Venmo -- themselves.
Emerging fintech players and banking partnerships are filling the void and collaborating to address the market’s need for better business payment solutions.
Companies like Symple are capitalizing on Venmo’s promise of delivering instant payments by letting businesses snap photos of invoices and remit payment into the vendor’s bank account. The payments are still not instant, but they’re getting close.
Meanwhile, many in the fintech sector see the opportunity to do more than simply automate invoicing. We’re looking at the bigger picture and developing technology to help businesses with all aspects of their payment, invoicing and banking requirements. If businesses have instant access to all of their digital payment needs in one place, it is going to save them hours of time and overhead.
We’re seeing fintech companies dedicating themselves to different aspects of business payments and then integrating with banks to create an entire digital payments ecosystem for business. In the near future, digital payments will be scalable for different business needs and applications. The pain of business transactions will be a thing of the past.
Businesses should benefit from the ease of use and excellent customer experience of receiving fast, digital payments, just as individuals do with apps like Venmo. But, a combination of banking regulations, legacy systems, and ancient infrastructure has held up business payment technology from being integrated and adopted by big banks.
The banking community agrees that the market is ready, and technology already exists outside of the bank’s infrastructure so that they don’t have to develop it themselves. Over the last five years, big banks have realized that now is the time for Venmo for business, and fintechs are emerging to partner with them to turn this concept into a reality.
Catch René Lacerte at the upcoming PAYMENTS 2018 conference where he'll be discussing Optimizing Payment Risk Mitigation in Real Time. Check out our other Bill.com speakers and conference activities in San Diego this Spring!