Fifth Third in Cincinnati, like many of its rivals around the country, had become increasingly aware of commercial customers’ thirst for high-tech services, especially in payments. And it sensed in that demand an opportunity for fee income.
The $142 billion-asset company partnered with a company that provides electronic billing and payments services to commercial firms and made other moves, Chief Strategy Officer Tim Spence said.
Those efforts contributed to an 86% year-over-year increase in fee income from payments and treasury management solutions, Spence said, and the company has a new partnership in the works with an online portal that simplifies payments between middle-market companies.
With growing consumer adoption of person-to-person payment apps like Venmo and Zelle shaping businesses’ expectations around payments, the Fifth Third experiments are an example of how a variety of banks — including U.S. Bank and TD Bank — are not only responding to the trend but capitalizing on it.
“Users are basically expecting the same level of simplicity and ease of use on the business side that the bank provides on the consumer side,” said Sayantan Chakraborty, head of the Global Treasury Management product development group at U.S. Bank in Minneapolis.
Two recent surveys of business executives bear out his statement.
The chief financial officers of 300 companies from a wide range of industries and with annual revenues of at least $25 million embraced greater utilization of electronic payment in a survey by Citizens Bank in August and September.
Respondents said nearly a quarter of their payables are handled electronically and that they want to see that number climb above 40%; meanwhile, they would like to raise the receivables paid electronically to 54% from 39%, according to the survey.
Small businesses still make 44% of their payments by check, but they are increasingly interested in electronic payments, according to a study in June and July by Aite Group.
Fifty-six percent of the businesses surveyed already use automated clearinghouse payments, though most of them use it for 20% of their payments or less. And another 36% said they would be interested in ACH if their bank offered it.
They are also willing to pay for it, meaning that electronic business payments could provide an additional source of fee income for banks still struggling with relatively low interest rates, said Christine Barry, a senior analyst with the Boston-based Aite Group.
“We find that banks, especially community banks, have a tendency to feel they have to give everything away for free, especially to small businesses,” Barry said. “Yet we see small businesses paying fintechs to offer them the right capabilities. If it saves them time and increases convenience, they are willing to pay for it.”
To draw in those clients, banks should allow multiple users to access the payments platform, as any given business might have several people involved in the payments process, Barry said. They should also offer rules-based engines that tell business clients the best way to pay for a particular transaction, she said.
Business clients are dealing with shifting consumer demands in the same way that banks are, Fifth Third’s Spence said.
Fifth Third partnered with a company called Transactis, which delivers bills electronically and then allows payment by a variety of options, be it credit card, ACH, electronic check or even PayPal. This option is particularly helpful for hospitals, which tend to have poor collection rates, Spence said.
The $309 billion-asset TD Bank said in an email that it had also partnered with Transactis, in addition to offering same-day ACH capabilities in line with Nacha’s implementation dates.
The $459 billion-asset U.S. Bank decides how much it will charge for those services on a case-by-case basis, basing that fee on the entire relationship the business has with the bank, Chakraborty said.
Businesses also face a lot of operational complexity in the payments process, particularly in payments between businesses, and they want to keep down costs, Spence said.
Fifth Third is poised to launch a partnership this year with AvidXchange, which provides an online portal that promises simpler business-to-business payments. In a more traditional transaction, one business invoices the other for a product or service provided. That invoice might have one number, the payment another number, and any relevant tracking information could have yet a third number. Reconciling all of that information can translate into a major hassle for firms with small accounting departments.
AvidXchange will automatically reconcile all of that information for both parties. Spence said the platform is also programmed with logic that can tell the user the most efficient way to pay, whether by ACH, wire or card.
U.S. Bank offers a similar payments portal, called VantagePoint, to its larger corporate clients.
“Businesses of all sizes want to make sure that they receive the payments they’re expecting as fast as they can,” Chakraborty said. “And then once you get it, you want to know who has sent you the money, why they’ve sent you the money and then you can apply that money properly.”
Both U.S. Bank and Fifth Third said that they are also looking at offering smaller businesses payments options that more closely resemble consumer payments options like Venmo and Zelle.
“You can imagine for a landscaper, how nice it would be to be able to provide the services, take a picture of the lawn after it’s mowed and send that with a request for payment to the homeowner,” Spence said. “We’re not there yet, but we think that a lot of the technology we’ve developed for consumers is probably long-term applicable to the small-business owner, too.”
Updated January 3, 2018 at 10:39AM: The last name of U.S. Bank's Sayantan Chakraborty was misspelled in an earlier version of this story.