Most innovation in payments has been focused on money entering the business through collecting payments from customers. In contrast, ‘payouts’ — money leaving a business — has been relatively overlooked.
Many businesses are still using paper checks to pay their vendors. Some estimates suggest that 80% of B2B payments worldwide are still made with paper checks. And in some markets, like the US and France, checks are also a popular way for businesses to disburse funds to consumers — although their usage is declining year on year.
As an alternative to checks, businesses usually leverage bank transfers as a way to digitize their payout flows. And while this may remove the burden of cutting and sending checks, issues still remain, especially when payments are sent using legacy correspondent banking rails and domestic payment systems. These systems, unlike their modern real-time counterparts, like SEPA Instant, were built before the accelerated shift to fast, transparent, customer-centric payments. Consequently, most payouts remain slow, expensive and fall short of the standards demanded by consumers and businesses alike.
The implications for businesses are significant. The digital age has brought innovative customer experience to the forefront and consumer expectations are high and revolve around easy access, fast delivery and choice. Consumers now demand things on their terms; and have the means to share their disappointment when brands fall short.
Emerging and shifting business models are also driving the change. One such emerging market for payment innovation is the gig economy, where workers will often align themselves to a platform based on the speed at which they will get paid. A survey from Visa found that 66% of gig workers would choose a company that offered real-time payouts over those that don't. Leading players in the gig economy are turning to fast payout options to attract and retain the best talent — or risk getting left behind.
The truth is, every time a business pays money out — from a customer refund to a shareholder dividend, an insurance payout to an international money transfer — they are judged on the speed, ease and cost of the process. Businesses that recognize this and invest in a world-class payout offering to ensure funds reach recipients in full and in real-time will stand out from the crowd.
Just as happened with customer service, digital experience, and then payments, payouts are becoming the new competitive advantage in the battle for brand loyalty and growth. And businesses that have used payments to build a stronger brand and increase revenues can apply the same principles to payouts.
Speed is a critical factor in creating a winning customer experience. The faster someone gets their money, the happier they are and the more loyal they become. The reasons why are clear for consumers and workers: it's their money, they want it in their account.
However, the power of real-time payment is something overlooked by large corporations paying supplier invoices. But using faster payment rails, such as SEPA Instant, rather than cumbersome legacy systems, can allow businesses to maintain tight control over cash flow without impacting their vendors and suppliers. That's because they can hold onto their cash until the last minute and initiate the payment on the day the invoice is due, safe in the knowledge their vendor will receive funds the same day. And for every invoice paid on time, the cost of chasing late payments also disappears, giving the payee another reason to value the partnership.
Key takeaway: Leveraging faster payment rails ensures that recipients receive funds in the fastest possible time while also providing businesses the chance to manage their cash flow more efficiently.
There is no one-size-fits-all payout method. Every payout to every recipient is unique. The best way for a recipient to receive payment depends on various factors, including whether the payout is B2B, B2C or P2P, the dollar value of the payout, region and the nature of the transaction.
For example, a student living abroad might not have easy access to a local bank account to receive money, but they will probably have a card that can hold that balance and give them instant access to funds. The same is true for a contract worker that's away from their home base on assignment. On the other hand, a business receiving a large payment from another business will probably prefer to receive those funds in its bank account.
The ability to select what payout method they use isn't just nice to have for payees. In fact, 81% of payees say having a choice in how they receive payment is very important to them. It's therefore vital for businesses to understand the way their payees want to receive their money and have a solution that enables them to switch on new payout methods when needed.
Key takeaway: Businesses must understand who they're sending money to and offer payees the ability to pick the payout method that works best for them. Doing so will ensure that they're able to deliver funds quickly to the recipient and in a way that best serves their unique needs and circumstances.
Receiving payment from a person or business in your own country is one challenge. But if the payout has to cross international borders, the added complexity can introduce new points of failure and disruption. Different banking systems and regulatory jurisdictions aren't designed to work in harmony, and so money that needs to traverse them has more hurdles to get over. Regional inconsistencies in data formatting and fraud prevention — to name just two challenges — can not simply slow down a payout but stop it entirely.
The right payment partner will mitigate much of the localization complexity. The payee stands a better chance of getting their money when they expect it when the payer uses a payment platform that can dynamically route a payout using automated local channels, global compliance screening and data-enabled enhancements like real-time account validation for every payout.
Key takeaway: Leveraging cross-border payment rails built for the 21st century gives payouts the best chance to reach the recipient successfully. Doing so will reduce the burden and cost associated with exception handling for the payer and ensure the recipient has no reason to look negatively upon the brand.
One surefire way to lose a customer is for the payee to receive less money than they expected. Yet hidden costs — anything from bank charges, local taxes and currency conversion fees — can result in precisely that. Whereas some costs can’t be avoided, transparency ensures expectations can be well managed.
Publishing all costs, including FX rates, is one way to engender trust. Another way is to be transparent and predictable by providing payees with real-time payout status updates. Whether the payout supports a family back home, a deposit on a house, or a life insurance settlement, the ability to track the payout status gives reassurance to payees that they will receive their funds.
Key takeaway: Using a payouts solution that prioritizes transparency, businesses can ensure they have full visibility of the end-to-end payment flow and all associated costs. That way, there are no surprises, for the payer or recipient, that can potentially cause damage to the relationship.
Making payouts must be optimized for efficiency and a great customer experience. Get it right, and the prize is improved brand loyalty and customer lifetime value that translates into more sustainable revenue.
Customers who are given options on how to get paid will choose to stay, businesses that get paid fast will thank you for their improved cash flow and people who trust you to move their all-important money will tell others to use you too. On all key growth metrics, payouts can be a significant lever, and just as importantly, represent a risk for businesses who don't prioritize optimizing them.
Ready to supercharge your payouts and gain your competitive edge? Talk to one of our experts today.