Payments At Scale: Our Conversation on Current and Future Payment Operations

Note: This post summarizes key insights from our recent webinar discussing the State of Payment Operations report. For more complete insights, you can watch the webinar recording or read the full report.

The payments landscape is evolving rapidly, with new rails, technologies, and challenges emerging. In a recent webinar discussing our fourth annual report on The State of Payment Operations, Modern Treasury’s COO, Rachel Pike, and Bain & Company’s Expert Partner, Erin McCune, explored the current state of payment operations and where the industry is headed. Here are the key insights from our discussion.

The Current State of Payment Operations

Despite improved tech and tools, 98% of organizations still rely on manual processes for some part of their payment operations: "So at some point in the process of managing payments and complexity of scale, something is happening manually," Pike clarified.

System complexity compounds this challenge. Organizations typically manage 6-7 different payment systems, a number that has remained "frustratingly consistent for the last 4 years." Even more concerning, Pike shared, is that "13% of respondents use more than 10 systems."

McCune posited that perhaps the reason why some organizations tackle their payment operations piecemeal is because of “the fact that we have solutions that are geared toward individual functions or steps in the process that are best of breed.” And Pike noted that such “cross-team, step-by-step [approaches]...’I do mine, you do yours,’ each in our own tool, has very brittle auditability and visibility…that makes downstream exception handling hard.”

She continued, “Imagine our customers who operate at scale with these 10,000 person companies, multiple banks, multiple rails”—the time implications are tremendous. The system sprawl takes a toll on productivity. One-third of companies lose a full day per week to manual payment operations tasks, which McCune concedes, “is not a lot of value, adding a lot of friction in the process and inhibiting the ability to solve real problems.”

For internal stakeholders, it can be exceedingly frustrating to work between multiple systems. But for those building home-grown systems to attempt to address these issues, the cost can be upwards of $500,000 to build and maintain.

The Rise of Real-Time Payments

The industry shows strong momentum toward instant payment adoption, with over 70% of direct deposit accounts (DDAs) having either RTP or FedNow capabilities. "The number of [companies] that currently use FedNow and RTP is over 50 percent," Pike said, with 37 percent planning on investing in either instant rail in the next 12-18 months. This demonstrates “a lot of willingness to experiment, try things, get on the path to reducing some of that pain."

A significant development that could help propel this growth rate is expanding transaction limits. McCune was quick to note that in February of this year, "TCH RTP is expanding its transaction limit from $1,000,000 to $10,000,000,” which might be particularly interesting for "inter-company settlement type transactions...where the time value of money really matters."

McCune revealed that it’s not just the “speed of the transactions…The other element is data capacity. We have this XML ISO20022 spec that underlies the infrastructure both here in the United States and around the world. And it means the fund movement can be accompanied by data. And we all know data is the holy grail.” Indeed, data is also integral to helping with reconciliation, Pike added, which tends to be where the manual pain points are often felt.

Both spoke to use cases and verticals where they’re seeing early adoption. McCune mentioned disbursements as an important use case for 24x7 availability, as well as “funding or settlement—some if it is me-to-me, meaning from my account to one institution to my account to another institution or my checking to my brokerage, and some of it is acquirer to merchant.” As for where she sees adoption in the future: “B2B and invoiced billing transactions are logical next steps.”

Pike chimed in with practical use cases from Modern Treasury customers that are transforming their industries, such as payroll and real estate. “When you buy a house, you go into this office and you’re waiting for the biggest purchase of your life to be wired…you actually decided to buy it on the weekend but you have to take off work and go pay for it on a Tuesday or Wednesday at 11 a.m. with a wire, and sign a bunch of paper. We have a couple customers that are reimagining that and trying to bring to market real-time, buy-it-on-the-weekend home purchases. And even paying out real estate agents because they’re in the transaction.”

The Role of AI in Payment Operations

AI is emerging as a practical tool for modernizing payment operations. Pike noted, "We are already using AI in our reconciliation engine” to help with matching: “10,000 transactions over here, 10,000 invoices over here—here's the 3 that we think it might be." And there are more uses being piloted on the platform.

Importantly, these uses of AI maintain human oversight: "All [instances have a] human in the loop to audit.... It's just allowing teams to run more efficiently and with better information," Pike confirmed.

McCune added that all the new AI tools we’re seeing are “a complement to the very mature use of AI and ML in payments today…so what we’re doing is using the new capabilities to deal with a bunch of unstructured data that is allowing us to take it, feed it into the models, enrich the models, and work with the output of those models. So it’s very symbiotic. And because payments has been at this for a while, we can have accelerated benefit.”

Looking Ahead

Success in transforming payment operations requires both technological innovation and organizational change. As McCune emphasized, "Process change is hard and it takes leadership and conviction, and [has] real benefit. The people whose jobs are changing, who are probably the most frightened of this, actually need to be involved because they've got all the insight in their minds about how it works today."

When looking ahead to what next year’s report might hold, Pike hoped the conversation would be “more about the data visibility, the monitoring, and the internal observability...what does it mean to have full transparency all the time into everything? And how do we measure it? What's the value of that?"