In the past, banks have done a pretty good job of jumping on opportunities in the payment space to make payments easier, to make payments more secure, and to make payments faster. Even so, many opportunities have been missed. This is changing. In the next five to ten years, there will be many more great opportunities to jump into the payment space and remove friction in the payments process, thereby making payments more secure and faster.
One of the ways that you identify opportunities in the payment space is you look for friction – lack of security and pain points in the payment process, and then implement a solution. Some of these pain points may include problems in the payment process, payment delays, security problems, getting robbed, and where in the process employee’s might steal funds.
SOLUTIONS
Maybe your process just needs to be rearranged – the way the services are provided or recorded. Sometimes the solution can be simple, or sometimes it can require a lot of development software, but there are many opportunities to solve these issues that are already developed and others that are developing. The following are three payment service revenue opportunities for you to look at.
EMBEDDED SERVICES
One solution is embedded e-commerce payments, e-commerce backends and CRM, and embedded payments. Many vendors will take a payment gateway, a method for accepting payment online, and they’ll embed it into the backend of a website or make it easier to embed the gateway into the backend of any website. This makes it easy for a commerce vendor to adopt merchant services and sell online. STRIDE is a great example of this and do a wonderful job in this area.
Not every bank can jump on the software development bandwagon, but there are things you can do on the backend such as custodial accounts, a settlement process, and providing a place for deposit accounts anytime there’s payment processing.
CRM embedded payments is something that I’ve seen escalate quite a lot. You have existing customer relationship software that has been developed for many different industries, including photographers, event planners, and even for attorneys. This is industry specific and helps institutions manage their customers, their invoicing, their billing, and their records. Let’s take this software to the next step. If you offer a payment gateway, then suddenly, instead of just taking the monthly subscription fee, you can take a small cut of the payments made to your customer. This has become widespread, and there are some opportunities to jump into that space on the backend, or on the front end in developing payment gateways for these CRM providers.
FedNow & REAL-TIME PAYMENTS
The FedNow service just launched on July 20, 2023. This service, developed by the Federal Reserve, allows individuals and businesses to send and receive money in real-time, including near-immediate settlement payments. If someone wants to send money to someone else, and they want to do it right away, they want to settle, they don’t want to wait two days for the A-stage process to settle, you can start providing this service. There is a lot of opportunity there to build payment services on top of FedNow or on top of the real payments network.
Most of the electronic payments right now are processed via ACH on the ACH network and backbone. This works well, but most of the time it comes with some inherent delay, you’re going to see a couple of days’ delay in the payment settlement process which also creates payment risk. Again, risk and friction. There is some opportunity here to move from two days settlements to immediate settlements, and to possibly reduce credit risk for banks and other institutions, while speeding up the process for your customers.
Hopefully, it will also make things more secure. I think the jury is still out on that, and it remains to be seen, but hopefully it will end up being more secure.
WRAP SERVICES
For the last example, let’s talk about wrapping services. I’ll dive into this more next time, but by wrap services, I mean taking an existing service that the bank provides in the payment space, or any other space, and wrapping additional services around it to provide a service package to the customer to make their life easier. The simplest example of this is escrow. Escrow services the title industry space where the title company takes a payment, takes documents, makes sure all the documents for a transaction are put together, ensures all payments are received, and then disperses funds according to instructions. This service removes the need for two separate parties to a transaction to really have to trust each other. Instead, they can look to a title company that’s licensed, point insured, to handle the payments process.
There are a lot of other opportunities in that space. For example, you have a manufacturer and a seller that’s working on commissions from the manufacturer. The seller wants to receive a commission and the manufacturer wants to get paid for the revenue. They both want to know that the delivery was made. If you have a package of services the tracks order fulfillment, delivery, sales and commissions and then disburses the payments to the appropriate parties, this will make their life a lot easier.
Another example is in the agricultural space, where farmers, mass producers of crops and agricultural products are putting goods into a warehouse or into a silo in common with other farmers and producers. One of the issues here is tracking – who’s got how much, when is it delivered, when is it paid, and who gets paid out of revenues? If you were to offer a grab service where the bank is holding the funds coming in, dispersing them, and also tracking what’s headed over to the grain silo or storage, and what’s being delivered, I think there’s some opportunity in those sorts of scenarios.
OTHER OPPORTUNITIES
Now those are just a few examples. There are other opportunities, and we’ll dive into that more next time. But, just to recap, I believe with the payment cycle becoming faster, and with all the new software opportunities coming up, there will be a lot of opportunity to jump into the payment space – either on the front end with development or back on the settlement and payment processing side.
Anytime that you see friction, security problems, delays, or record-keeping problems in the payments process, there is an opportunity for improvement and for more revenue. With FedNow and Real-Time Payments and all the new software development that’s coming out, there’s a lot of opportunity to jump into the payment space, offer new services, offer new ways of making payments, and make payments faster. Make sure you’re taking advantage of these.
Brent Farley is the managing member of Farley Law, PLLC
Farley Law, PLLC helps business owners identify business and legal strategies they can use to protect business and personal assets, increase and keep more income, and increase peace of mind regarding the way their business operates. Have a question or a comment? Send us a note at business@farleylawpllc.com, or set up an introductory call using our bookings service.