Five B2B Payments Expectations for 2023

As we step into a new year, it’s important to reflect on the advancements in the B2B payments landscape. From the increasing adoption of digital payment platforms and real-time payments to the growing need for payment automation and real-time visibility, the way companies handle transactions has undergone a significant transformation in recent years. With this in mind, it’s worth looking ahead to what we can expect in the new year.

In this blog we would like to share five key expectations for the B2B payments industry in 2023, and how they may impact businesses and their financial operations.

1.The Federal Reserve launches its FedNowSM real-time payment system.

In August 2022, the U.S. Federal Reserve narrowed the timing for the production launch of its real-time payment system to the May-July 2023 timeframe. This launch will conclude the FedNow Pilot Program, which was primarily focused on getting the system certified for production. Besides the core features that we expect from any real-time payments, FedNow will launch with fraud prevention tools, Request for Payment (RFP) capabilities and tools for handling payment queries.

There is no doubt that in the long run, FedNow will drive ubiquity and help boost real-time payment adoption in the U.S. I am, however, cautiously optimistic in the short to medium term. Like RTP®, access to FedNow rails is only possible via the banks. The adoption will heavily depend on how soon and how fast banks are able to put forth compelling services on FedNow. Another factor is the lack of interoperability on day 1. Corporates would be reluctant to deal with the complexities of sub-par experience and therefore it will be important for FedNow and RTP® to clarify the model they would use for interoperability.

Takeaway: FedNow is being launched almost a year ahead of the initial guidance provided by the Fed. While the challenges outlined above remain, corporations should not underestimate the Fed’s ability to address them and should be ready to make the most of this exciting new development.

2. The ECB’s instant payment mandate will make real-time payments cheaper and ubiquitous.

The ECB introduced a draft law in 2022 that would make it mandatory for banks that offer traditional credit transfers to offer instant payments at a price equal to or less than a conventional credit transfer. There is anecdotal evidence to suggest that the high cost has limited the adoption of instant payments. Treasurers are likely to pick the lower-cost payment option, unless the benefit of making an instant payment outweighs the incremental cost. It is therefore no wonder that after over five years since the launch, nine of 10 credit transfers are still processed via the traditional rails. At this pace it may take decades for instant payments to become a standard.

I am optimistic that the draft law will be enacted in 2023. This will drive ubiquity and incentivize more corporates to use instant payments for qualifying payments of under €100,000.

Takeaway: The benefits of instant payments increase with volume. Corporates should be prepared to take advantage of the mandate to realize those benefits.

3. Instant cross-border USD-EUR payments will become a reality.

Long-term improvements in cross-border payments will come from multiple solutions that will coexist. These solutions will likely include both nontraditional (e.g., blockchain infrastructures/networks), as well as traditional players (e.g., private and public domestic payment networks). Until last year, the story was about the emergence of regional instant payment systems in Asia. This year will be different as the developed countries take center stage with the TCH/SWIFT/EB Clearing plan to commercialize instant cross-border payments (IXB) for the USD-EUR currency pair. This development is on the heels of a successful pilot in 2022. A cross-border payment solution from trusted instituitions makes this development even more significant.

Takeaway: If you are a corporation that makes low-value cross-border payments in USD-EUR currency pairs, then you are in luck. A commercial version of the solution will give you instant cross-border capabilities using the existing bank channels that you trust.

4. Stablecoins will receive regulatory clarity.

The year 2022 was tumultuous for Stablecoins and the cryptocurrency market in general. As a skeptic of blockchain’s applicability in payments, I’ve previously noted that cross-border payments remain one of the most promising use cases for the technology. I am optimistic that the Stablecoin Trust Act in the United States and the MiCA (Markets in Crypto Assets) regulations in Europe will bring much-needed regulatory clarity to the Stablecoin space.

As regulators continue to take a more measured approach, it is becoming increasingly clear that their goal is not to stifle innovation but to create a safe and transparent environment for the use of Stablecoins in payments. The regulatory clarity brought by these impending regulations will be crucial in building trust and increasing adoption of Stablecoins and other nontraditional forms of payments among corporations.

Takeaway: These regulatory developments may mark a turning point in the application of Stablecoins in payments. As noted earlier, these cross-border payment solutions will likely coexist with the likes of the ones that TCH/SWIFT/EB Clearing plan to launch this year.

5. We’ll receive clarity on central banks’ stance on CBDCs.

Last year demonstrated the ongoing cautious approach central banks in the U.S., UK, Europe and Japan have taken regarding Central Bank Digital Currencies (CBDC). The U.S. Fed is engaged in research and experimentation related to distributed ledger technology and CBDCs. The NY Fed’s innovation center in Nov 2022 announced the launch of a 12-week CBDC pilot with major banks to explore feasibility of a theoretical payment system designed to facilitate and settle digital asset transactions. In 2022, the Bank of Japan conducted its CBDC experiment and published its findings from Proof of Concept Phase 1. ECB selected companies for joint prototyping of user interface for a digital Euro with focus on P2P, and C2B payments. The UK continued its ongoing assessment of CBDC opportunities and risks and published a discussion paper.

The Bank of Japan announced its intention to make a decision on CBDCs by 2026. This may influence the timeline for other developed countries. This year, I am eagerly awaiting the outcomes of the NY Fed pilot and the impending design of a digital Euro.

Takeaways: Corporates don’t need to take any immediate actions related to CBDCs but should monitor the space to potentially get some clarity on their intent, as well as timeline for CDBCs becoming a reality across major global economies.

B2B Payments Are Evolving Fast

I hope you found this blog valuable in understanding the key B2B payments expectations for the new year. This space will continue to evolve fast and it will be exciting to see many of these major developments unfold this year. It’s hard to predict the exact timing of when some of these developments (e.g., CBDC) may have a meaningful impact on corporates. However, other developments such as in real-time payments are already delivering tangible impacts. For example, our client, Hunt Companies has transitioned wires under $1 million to RTP®, bringing down their per transaction costs from $6 to under $1.

In the next blog, we will focus on FedNow–what it is and how it is different from the TCH’s RTP®. Stay tuned for more information and subscribe to the Kyriba blog for future updates.