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How FIs can reduce friction and drive value in the payments system

Information about money is as valuable as the money itself.

In brief

  • Frictionless finance is more than just a catchy alliterative phrase.
  • It describes a new way of thinking about payments that leverage incremental data to make the payments journey easier and creates additional value for clients.
  • The accelerating digital transformation is bringing new capabilities that simplify data flow to eliminate breakage and allow financial institutions (FIs) to provide clients with more accurate forecasts and insights.

Data has become the critical asset in any payments strategy — something to be used to differentiate client experiences and enable greater efficiency and revenue growth.

In our latest webcast, Alan Koenigsberg, global head of new payment flows for Visa Business Solutions, and George Throckmorton, managing director of strategic initiatives and network development for Nacha, discussed how their organizations are using data today to create new and better experiences for B2B clients, as well as what the future holds.

Most of the conversation around reducing friction in B2B payments involves the “hows” of money movement: how to connect to new settings and payment rails, how to format messages compliant with ISO 20022, and so on. But the most direct path to eliminating breakage in the payments ecosystem — and to create added value for clients and financial institutions (FIs) — is getting the data right.

By leveraging new and emerging capabilities to simplify the flow of data, increase ease of access, and improve its accuracy, FIs can help clients proactively identify and respond to potential problems, and manage potential risks.

Mining the data that accompanies and surrounds a payment to generate deeper strategic and operational insights also can allow FIs to help those clients manage their day-to-day financial lives in ways that add tangible value.

For FIs and payment networks, this represents a significant change, one that requires a different strategic mindset. Today, data is the strategic asset — something to be managed, monetized, and properly protected through new value-added products and services.

Going forward, the most relevant and thriving payments platforms will not be those that merely amass the most data. They will be those that acquire, partner, or invest in automation, open application programming interfaces (APIs), distributed ledgers, and other technologies to enable the trusted exchange of data in useful new ways.

Growth, complexity, and breakage

Not even COVID-19 has slowed the momentum in global payments. Indeed, the pandemic has accelerated businesses’ willingness to explore digital payments.

According to a September survey conducted by Visa, 76% of global small businesses with an online presence view the winter holiday season as a sales opportunity, compared to just 33% of those without an online presence.Twenty-six percent of respondents to the same survey say they are digitizing parts of their business operations. Nearly 59% of corporations in a different survey expect revenues from cross-border payments to increase in the next five years as a result of faster payments.2

Innovation, rooted in faster payment technologies, is providing more seamless payment experiences, helping fuel optimism. But the payments life cycle remains complex, and there is still plenty of opportunity for breakage, most of which is due to missing or delayed information.

The US payments ecosystem remains fragmented compared with many other markets, characterized by a plethora of closed-loop networks; enterprise resource planning systems; and rules around data privacy, risk, and compliance. It’s not unusual for some businesses to utilize up to 20 different electronic networks, each with its own technologies, rules, and standards.

The proliferation of ways data flows between buyers and suppliers is so complex that many firms lack the systems and processes to accept or deliver many payment forms. That reduces the quality of the customer experience so much that an estimated 42% of B2B payments are still completed by check.3

Immediate opportunities to improve B2B commerce

That doesn’t mean businesses and suppliers aren’t interested. The digitization of the consumer payments ecosystem is raising client expectations for faster, more customer-friendly payments data modernization.

CFOs and treasury managers witness the consumerization of digital payments and want to capture the ease and benefits of real-time payments (RTP) and other features for their own businesses. They also want less complexity and friction from the ecosystem, and the ability to access and leverage the data that flows with payments to run their businesses more effectively.

To simplify the process and meet client needs, FIs and networks have begun shifting the focus from payment rails to data servicing by employing standardized APIs and other digital technologies to make exchanging information more efficient.

The lack of rules also is being addressed, with ISO 20022 providing guidance and a common vernacular to create momentum for integration. Combined, these forces are creating opportunities for modernization.

One example is Phixius, a platform recently launched by the National Automated Clearing House Association (Nacha), which leverages standardized APIs, distributed ledger technology, and new operating rules to facilitate the trusted exchange of pre-and post-payment data (such as account validation information, remittance data, and preferences for payment).

Phixius is an interoperable data exchange platform designed to securely connect a buyer and supplier employing a model that utilizes an established network of FIs and providers that removes the need for bilateral agreements. It uses standardized APIs that conform to both Afinis Interoperability Standards and ISO 20022, sharply reducing the opportunity for fraud.

The frictionless future of finance

For FIs and networks, the acceleration of digital is fostering more innovative — and faster — data-driven product strategies and approaches to streamline the ecosystem. Some notable themes include:

  • Data monetization: The information that flows pre- and post-payment is rich in actionable insights that CFOs and treasurers can leverage to make better financial decisions. The data can be used to help project cash flows, manage liquidity, decide which suppliers should get paid first, or even whether to take on debt. Having the capabilities to provide that information to clients that help them make more informed decisions will be a competitive differentiator for FIs.
  • Network interoperability: The interoperability between networks will continue to increase. Many other markets already enable B2B payments to move across all networks with best-in-class speed, security, and price. The US market is evolving in this direction, too.
  • Partnering with FinTechs: To maintain their positions in the B2B space, FIs and networks must either invest in innovation or partner with FinTechs and others to add incremental value. One example is the Business Payments Network, a collaboration between Visa and Billtrust that simplifies the payments process with a connected platform that eases the process for buyers, suppliers, FIs, and software firms.
  • Open wins: In the past, networks have grown by controlling endpoints. The future will be defined more by partnerships, diverse data sources, and smart use of open-source technologies. Open frameworks that enrich the customer experience through sharing will win.

The most direct way to reduce friction in the US B2B payments system is also the most effective way for FIs and networks to aid customers and fuel revenue growth: make better use of the pre-and post-payment data that already flows with each transaction.

Enabling the trusted exchange of data and monetizing its use demands that FIs and networks embrace strategies that are more about servicing data than executing transactions. It also requires investments in new technologies and a willingness to collaborate with rivals.

This article originally appeared in FinTech Futures.


Change is never easy, but the benefits of reducing complexity and providing data-driven insights to clients will pay off with revenue growth and happier customers.

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