Payments are becoming the centrepiece of US corporate treasury, and treasurers and chief financial officers (CFOs) are making a continued shift toward investing in payments modernization, particularly in prioritising digital payments.

According to McKinsey’s 2022 Digital Payments Consumer Survey, nearly nine in ten Americans are now using some form of digital payments, and they are engaging with these rapidly evolving solutions in an increasing variety of ways.

Factors that have accelerated growth in the US digital payments industry

In recent years, several factors have contributed to the significant growth in the US digital payments industry:

• The COVID-19 pandemic, which increased remote and hybrid work.
• Supply chain disruptions, geopolitical conflicts, and escalating cybersecurity attacks.
• Impact of interest rate hikes and exchange rate volatility.
• Growing regulatory complexity.
• Increasing digitization of businesses and focus on optimizing payment costs.
• Emergence of innovative payment methods and integration of payment options into apps and platforms.
• Ongoing standardization of international payments.
• Accelerating mobile payments, digital commerce and cross-border payments and remittances.
• More importantly, the rapid development and adoption of digital payment technologies, which has made transactions faster, much quicker, safer and easier.

Rising competition, partnerships and collaboration among tech giants, traditional banks, corporations, fintechs, and payment service providers have also augmented the shift towards digital payments. This is accelerating and transforming corporate digital payments by increasing operational efficiency, reducing systemic risks, lowering operational costs, and improving customer and supplier relationships.

In 2021, the total volume of corporate non-cash payments worldwide reached 133 billion transactions, totalling 13% of all non-cash payments, with North America accounting for one third (34%) of the total corporate non-cash payments volume, as per the Capgemini World Payments Report 2021.

Source: Capgemini Invent Financial Unit analysis, Capgemini World Payments Report 2021 database

Corporate non-cash payments globally are forecasted to reach 200 billion transactions by 2025. The North American region is projected to have a compound annual growth rate (CAGR) of 6.7% in that timeframe, rising from 45.5 billion transactions in 2021 to an estimated 59.2 billion in 2025, the report further added.

US digital payments: transaction value and CAGR

According to Statista, the total transaction value in the global digital payments market is projected to reach US$9 trillion in 2023. Of this, the US digital payments market is expected to account for a total transaction value of $2,041 billion.

Between 2023 and 2027, the compound annual growth rate (CAGR) for the total transaction value of digital payments worldwide is predicted to be 14.66%, resulting in an estimated total amount of $15 trillion. Within the same period, the total transaction value of US digital payments is projected to experience a CAGR of 11.80%, leading to an estimated total of $3,528 billion, as per Statista.

Key digital payments segments: digital commerce, mobile payments and digital remittances

Statista findings indicate that the US digital payments market is being driven by digital commerce (consumer payments for products and services over the internet), mobile point of sale (POS) payments via smart devices, and digital remittances (including online cross-border payments, but not via traditional service providers like Western Union, MoneyGram, banks and post offices).

Digital payments include popular methods of electronic payments, such as credit cards, debit cards, virtual cards, wire transfers, direct deposit, direct debit and electronic checks. They also include internet browser-based online purchases and mobile  (prominent mobile wallets being Apple Pay, Google Pay, Samsung Pay, and Walmart Pay) and digital wallets (the best-known being PayPal, Zelle, Venmo, Cash App, and Apple Cash) that enable contactless payments.

Based on Statista research, digital commerce is taking the lead in the digital payments market segment, with an estimated total transaction value of $1,362 billion in 2023, followed by mobile POS payments and digital remittances.

Within the realm of digital remittances, the Immediate Cross-Border Payments (IXB) pilot is set to revolutionise cross-border transactions. The IXB system was developed by EBA CLEARING in Europe, The Clearing House (TCH) in the US, and Swift. It aims to “Provide a 24/7 payment transfer system that will ensure a shorter time to market and execute instant cross-currency transactions”, said Simon Wilson, Managing Director of Transaction Automation.

The IXB service is planned for a full commercial roll out this year. It will connect the US and European banking system via synchronised instant settlement between the current real-time payment systems, RTP® network in the US and RT1 in Europe, to facilitate challenging multi-currency transactions.

Wilson further explains that “One of the key features of IXB is that it won’t act as a single currency, bilateral link between just two payment systems. Instead, it’s based on a model that can be replicated across other currency corridors and payment systems – and its developers expect to add further currencies from an early stage to meet customer expectations for instant cross-border payments across the globe.”

Innovations in digital payments: BNPL, cryptocurrency and the digital dollar

Innovations in digital payments, such as buy now pay later (BNPL) and cryptocurrency, have risen in prominence. While Javelin Strategy & Research projects that the US volume of BNPL is expected to surpass the $100 billion mark annually by 2024, up from $55 billion in 2021, research by crypto newsletter Milk Road shows that notable US corporations like Microsoft, Dell, PayPal, Tesla, Starbucks and AT&T accept Bitcoin payments.

With the cryptocurrency industry being afflicted by declining value, bankruptcies and lawsuits, calls for increased regulation have grown louder. Effective cryptocurrency regulation is expected to provide stability to the virtual currency and help raise appeal among institutional investors for a range of investment, operational and payment transaction purposes.

Last year, US President Joe Biden signed an executive order urging government agencies to assess the risks and benefits of creating a US central bank digital currency (CBDC) – also knowns as the digital dollar.

“130 countries, representing 98 percent of global GDP, are exploring a CBDC. In May 2020, only 35 countries were considering a CBDC. A new high of 64 countries are in an advanced phase of exploration (development, pilot, or launch)”, said the Atlantic Council GeoEconomics Center’s CBDC Tracker.

For now, the US has taken the slow lane for central bank digital currency (CBDC) adoption and is studying important facets and principles involving CBDC development, such as privacy, security, interoperability, trust, financial inclusion, regulatory compliance, technology, benefits (that includes payment efficiency) and trade-offs.

In this direction, The Federal Reserve Bank of New York has conducted proof-of-concept experiments and found that a digital dollar could improve wholesale domestic payments and, in particular, cross-border payments.

In an interview with CTMfile late last year, Jennifer B. Lassiter, Executive Director of the Digital Dollar Project (DDP), observed, “The U.S. has taken a deliberative approach to CBDC development – and with good reason. Given the dollar's role as the world's reserve currency, we do not have to be among the first countries to develop a CBDC, but if we do decide to issue a CBDC, we must get it right.”

While the US may have been outpaced by its global CBDC rivals, that is likely to change when the US steps up its digital dollar initiative. Until that happens, it may be a good idea to keep in mind Lassiter’s advice: “We encourage CFOs and corporate treasurers to consider a digital dollar's potential to act as a catalyst for private sector innovation.”

US payments ecosystem: clearing and settlement networks, and launch of FedNow

The US payments industry ecosystem includes issuers, acquirers, card networks, payment processors, payment gateways, payment networks, merchant service providers, independent sales organizations, and regulatory bodies that collaborate to ensure secure and seamless operations and transactions.

In the US, payments are processed and settled primarily though Clearing House Interbank Payments System (CHIPS), the Automated Clearing House (ACH), and Fedwire Funds Service. Financial institutions, corporations and other entities in the US also use Swift for initiating cross-border payments.

Furthermore, in the realm of real-time payments and instant money movement, the US just made a leap forward with the launch of FedNow, the US Federal Reserve's real-time payment service. The launch (July 20) of FedNow is “A highly significant event in a market where regulators tend to lean toward non-intervention”, said ACI Worldwide in a recent announcement. According to their projections, real-time payment transactions in North America are estimated to grow from 3.9 billion in 2022 to 13 billion by 2027, a CAGR of 27.3%.

FedNow is not the first instant payments service in the US. TCH’s real-time payments system, RTP, has been live since November 2017. In the second quarter of 2023 alone, the RTP network processed 58 million transactions worth $29 billion, up from 41 million transactions worth $18 billion in Q2 2022, TCH commented in a statement in July 2023.

ACI Worldwide expects real-time payments to grow rapidly. “Starting from a small base, we believe the U.S. will see a fourfold increase in real time payments over the next four years and it will include additional use cases such as credit line access, request for pay, buy now pay later and many others”, remarked ACI Worldwide President and CEO Thomas W. Warsop on the company’s second-quarter earnings call earlier this month (August 3).

The entry of FedNow into the real-time payments market will intensify competition with the RTP network. This competition is likely to benefit corporations by making domestic wholesale transactions and cross-border payments faster and more cost-effective than ever before.

Businesses in the US still rely predominantly on credit and debit cards, but the future is expected to lie in the realm of ePayables and real-time payments. This is one of the key findings of the survey report titled Digital Payments: Expanding the Payments Palette, a PYMNTS and Corcentric collaboration.

“ePayables, which function as virtual cards, are an electronic method of settling AP transactions that help companies track payment information and integrate payables activities with cash flow data”, the survey report explains.

Corporate treasurers and finance chiefs that embrace ePayables and real-time payments will help their companies navigate the next wave of changes in the US digital economy, improve corporate cash management and harness real-time cash flow visibility. In doing so, they will also strengthen ties with their suppliers and customers, further improve efficiency, and witness ePayables and real-time payments reshape the payments ecosystem for greater digital success.

Conclusion

The pandemic and the lingering global economic uncertainty may have fuelled the adoption of digital payments in the US, but in the coming years, the implementation of advanced technologies like quantum computing, artificial intelligence, blockchain and biometrics is expected to revolutionise the digital payment industry in the world’s largest economy. Additionally, the growth of wholesale cross-border payments, real-time payments, ePayables (virtual payment cards), and open banking is expected to exert a significant influence on the future of corporate digital payments in the US, potentially becoming a barometer for industry change and progress.