Corporate Instant Payments: Not necessarily an oil painting
Neste Oil is a global oil refining and marketing company which has three distinctive business areas: oil products, renewable products and a marketing & services arm to run Neste’s own retail business. Neste has operations in 15 countries and is the world’s largest producer of renewable diesel refined from waste and residues. Neste placed 2nd on the Global 100 list of the most sustainable companies in the world. The company sells services & products directly to corporate customers worldwide. In addition to this, Neste has a fuel station network in Finland, the Baltics and Russia for consumer cars and heavy traffic. In 2017 Neste’s turnover was €13.2 billion with revenue of €1.1 billion.
In fuel retail Neste wants to support the payment methods Neste’s customers want to use. Neste is following the market trends and customer behaviour in our operating countries to see which payment methods are the most popular amongst our customer categories. We don’t want to be a service provider who dictates how our customer need to pay. For example Neste has been at the forefront in Baltic Sea area bringing mobile app payments and NFC-based contactless payments to fuel stations. However, it is not financially viable to introduce all possible payment methods. This means that any chosen method has to have a good user experience and a reasonable market share and cost structure. As margins in fuel retail are very thin, the service fee is an important factor. Whilst the combination of instant payments and PSD2 provides interesting opportunities for retail and corporate payments, in the fuel retail business there are barriers to adoption. Unfortunately not many new Instant Payment (IP) or other new PISP vendors using PSD2’s Access-to-Account solutions are cheaper than a payment made with debit card, be it chip & PIN, contactless or via Apple Pay or equivalent.
An additional challenge is that pre-authentication is required if one purchases fuel from an automated fuel dispenser (AFD); using a payment method which doesn’t support pre-authorization is troublesome. In this case the issue arises when the customer fuels less than the pre-authorized amount. Pre-authorization would be charged from customer’s account and the surplus amount would need to be repaid to the customer by the fuel retailer. This means two transactions with double costs. Depending on the IP solution, already a normal transaction might be more expensive that a debit card transaction and to double the fees really accentuates the problem. Also potential confusion by the customer and subsequent calls / reclamations to a Neste call center is not desirable for the business or the customer.
At the service stations where the customer can pay indoors after fuelling it is much more convenient to pay with IP as then the final amount is already known and it would be free of payment/refund hassles.
If the pre-authorization arrangement can be solved by IP service providers and the fee structure is on par with debit card payments, then it could be considered for AFD use as well.
In B2B sales Neste is using invoicing with 15 to 45 day payment periods. However, there are customers who have such a bad credit rating that they cannot be given products/services without prepayment. In some cases the need for delivery could be so critical timing-wise that an IP would be beneficial so that the delivery to the customer could be started as quickly as possible. Also other prepaid customers, consumers and business customers alike, who nowadays top up their prepaid accounts with bank transfers could benefit of using IPs instead.
However, IP doesn’t bring visible benefits to large retail companies as they don’t want have the funds settled in real-time. This is because having each payment settled one-by-one would be a nightmare to bookkeeping and financial departments reconciliation-wise. Also the banks tend to charge for all transactions that are paid to the account. So there’s quite a difference if there is one settlement for all transactions done during the day compared to tens of thousands of individual transactions. It would work better for micro-merchants and perhaps for some SMEs but for everyone else it would be a nuisance. Because of this, many IP service providers do compile transactions and settle only once a day to their larger customers.
Whilst the banking industry may be looking at corporate instant payments as advantageous, there are still implementation challenges, at least in the oil business, that need to be considered before it can be taken up in earnest, or present a real alternative to existing payment methods for customers. That said, there are real use cases in the B2B space that need to be investigated further.