The Latest Data on U.S. Payments
The latest available data from the Federal Reserve indicates that there were approximately $1.6 quadrillion in payments within the United States alone. However, this figure encompasses a broad range of transactions including financial economy activities such as company acquisitions and stock sales, making it challenging to accurately quantify the total addressable market for B2B payments or observe shifts among different payment instruments.
This is precisely what
Hugh Thomas, Lead Commercial & Enterprise Payments Analyst at Javelin Strategy & Research, aimed to investigate in his report from the
Commercial Payments Factbook
. His work delves into the commercial payments market by examining growth rates on a product-by-product basis and providing insights for financial institutions to influence their business customer relationships.
Defining the Addressable Market
Among the reported total volume of transactions (the data used was from 2021), roughly $1.4 quadrillion were attributed to wire transfers. While these transactions form a basic capability for financial institutions, they often do not act as drivers for growth in payments.
“Wires are predominantly used at the end of processes that aren’t necessarily payment-focused,” Thomas noted. “For example, when stocks are traded and funds are moved using wire transfers, it’s just a means to execute specific transactions rather than driving treasury-related activities.”
“Wire transfers are primarily utilized for high-value, low-frequency transactions, which is why we don’t consider them as part of the addressable market in wholesale payments,” he continued.
After excluding wire transfers, there was a remaining payment value exceeding $200 trillion. Once consumer payments were excluded, about $175 trillion remained as the total addressable market for commercial payments.
A substantial portion of these transactions involved ACH credit transfers, where the initiator sends funds to a payee. The second most prevalent type was ACH debit, which involves the payer having an established agreement with the payee for automated bill payments or loan repayments.
“Check payments still represent a notable portion of B2B transactions,” Thomas observed. “The average check size nearly doubled and the volume halved between 2015 and 2024, indicating that checks have become more of an exception solution rather than a widespread payment method.”
Water Finding Its Level
The decline in paper checks has sparked debate over whether real-time payments through FedNow or the RTP network will gain prominence. Despite this, existing financial infrastructure remains robust enough for commercial use.
Same Day ACH transactions have seen some growth since the transaction limit was increased several years ago, but they account for only around 3% of total ACH activity.
Card-based transactions are far less prevalent in B2B compared to consumer payments. Card payments make up less than 2% of total value, a stark contrast given that B2B spending typically dwarfs consumer spending by about tenfold. This presents significant opportunities for card companies.
There has been notable growth in small-business debit and various commercial cards such as fleet, prepaid, and small-business credit options.
Virtual cards also show promise in B2B transactions with demonstrated growth, offering potential benefits like automation, security, reliability, fungibility, and working-capital acceleration.
The 5 Sectors
The study categorized B2B spending into five dominant sectors: wholesaling, manufacturing, retail, healthcare, and social assistance. Manufacturing alone accounts for about a third of all spending, but healthcare contributes significantly due to its multiplier effect.
For instance, payments in the insurance industry can cascade through various entities before reaching their final destinations, creating complex transactions with wide-reaching economic impacts.
A Resource at Your Fingertips
Understanding these dynamics is essential for financial institutions to develop strategies that reach business customers effectively. Identifying slower-paying industries can help organizations improve cash management by offering solutions like supply chain finance.
For instance, the study highlights businesses with high days payable outstanding (DPO) who might benefit from faster supplier payments if they need to retain more cash. This information assists providers in tailoring their strategies and messages based on specific industry needs.
In light of recent supply chain disruptions and uncertainties, many organizations are reconsidering their strategies, presenting a prime opportunity for financial service providers to engage with businesses informed by sector-specific market insights.