The rise of digital and real-time payments creates opportunities for businesses.

As consumers continue to swap their cash and paper checks for digital payments, businesses are taking note.

Convenience, speed and security are driving the use of digital payments across all categories: online, inside a mobile app, through a peer-to-peer payment platform, and in-store via a digital wallet. They have become so ubiquitous that more than 90% of consumers said they used some form of digital payment over the course of a year, according to McKinsey's 2023 Digital Payments Consumer Surveyopens in a new window. Experts expect the usage to continue to grow.

The rise of digital payments creates opportunities for businesses, too. By embracing technological advancements in their payment systems, companies can offer consumers more payment options, boost efficiency and reduce costs.

"If you ask some in the younger generation, they might not know how to write a check," said Mike Long, vice president and senior product manager for PreferPay®, a Commerce Bank solution that helps businesses streamline digital payments to consumers. "That trend is just going to push the market further toward digital payments."

How businesses benefit from advanced payment systems

Embracing digital payments and automating payment processes begins with using application programming interfaces (APIs) to integrate a company's financial systems with payment gateways, financial institutions and third-party services. Instead of sending transaction information to their financial institution in a single batch once a day and waiting for another business day to receive information on how it processes, APIs provide a real-time data feed, showing where payments are in their lifecycle.

Businesses also gain mobile visibility to their payments, which means they can process basic payments more quickly and more easily flag atypical payments for faster additional review, according to Joel Reddington, senior manager of commercial card sales at Commerce Bank.

"When you get into larger organizations where departments are a little more siloed," Reddington said, "electronic payment environments have workflows that allow employees to be in different offices on opposite sides of the country - or even different countries - and work together.

Companies that need to issue payments to consumers, such as insurance companies, law firms and health care organizations, see an increasing demand from consumers to make those payments digitally."

"Our data shows that about 85% of payees choose digital payments when given the option," he continues. "It's driving a digital-first experience and making it available to everyone versus forcing paper checks or your process upon them."

Businesses that implement new digital payment technologies typically also see improved productivity in their accounts payable (AP) and accounts receivable (AR) departments. The systems automate low-end tasks, freeing staff time for more complex work that drives the business.

The next frontier: Introducing instant payments

Digital payments are no longer the fastest option for consumers or companies. The newest evolution is the growing use of real-time payments, which move money instantly without the delays or holds that come with digital or traditional payments.

Globally, 266.2 billion transactions used real-time payments in 2023, an increase of 42.2% over 2022, according to a recent reportlink opens in a new windowcovering 51 countries by payments software company, ACI Worldwide. In the U.S., real-time payments accounted for just 1.5% of all payments in 2023. They are expected to see compound annual growth of 31.7% by 2028, thanks in part to the 2023 launch of the U.S. Federal Reserve's FedNow Service, which enables participating banks and credit unions to manage instant payments for customers.

Real-time payments come with a lot of benefits. For businesses, they make the payments process more efficient and reduce transaction costs. Consumers enjoy knowing they can send and receive funds securely and without delay.

"Businesses are sending us payment instruction files on bank holidays, and we're sending out payments to consumers and small businesses, and they're getting their cash in real-time," according to Long. "It's improving their cash flow. They have a better customer experience with that business, and they're more likely to interact and continue doing business with them."

The key for corporate finance teams, he continues, is to work with systems that simplify the process for all payment types: traditional, digital and real-time.

"Payments for the longest time had very few payment rails, and all of a sudden we're shifting into more and more options," Long concludes, "That is great for everyone, but with all new technologies, it's hard to keep up. We help clients by condensing it down, making it easy and understandable with our solution carrying most of the work."