CFOs and innovation? It’s not an oxymoron.

The clock is ticking for our 2024 initiatives. The year starts bright with grand ideas, and, if we’re lucky and focused, many of them get implemented. For CFOs, there’s one that’s a perennial top five: To optimize & reduce costs.

A constant focus, it makes sense, as a key metric is reducing operating costs. And it goes without saying that cutting cost should not negatively reduce revenue. Short of cutting budgets, CFOs don’t control all of the variables involved in cost management, or in this case, how to innovate to drive out cost.

According to Gartner, here are the top five CFO priorities:

• Lead transformation efforts
• Evaluate and improve the finance function’s strategy & design
• Improve finance metrics, insights & storytelling
• Lead change management efforts
• Optimize costs

These may seem daunting for a function that’s not typically known for broad scale change or innovation. And there are reasons for that. The CFO is chartered with overseeing fiscal risk, including treasury management, controls, and policies. So, the potential to introduce risk may turn many CFOs away from change.

But it doesn’t have to. There can be a powerful case for change when the numbers make sense. An 80 percent savings on payments fees is compelling enough. It’s simple: Add alternative payments for your customers to avoid network fees. 

Last year, merchants paid $224 billion in swipe fees to card-issuing banks and card networks like Visa or Mastercard. Averaging between 2-3 percent of every transaction, swipe (or interchange) fees, can be replaced by offering alternative payment methods to consumers — without creating friction. With interchange rates, these savings add up. Reducing this from three percent to one and a half percent can make an immediate — and material — impact on cost. 

Goodbye networks, hello wallets

As a form of alternative payment, digital wallets offer significant cost savings to merchants while offering consumers convenience and broad acceptance. The definition has changed from early days when wallets were limited to Apple, Google, and Samsung, wallets now are branded, ala Starbucks, offering easier payment.

So what’s different? Think of wallets as a branded payment method, where funds are loaded by consumers for their next purchase. These are closed-loop, where consumer funds are essentially pre-paid purchases for the issuing company. The difference is how these consumer wallets are funded. If funded by non-network means, there’s no charge to the merchant.

Under the covers: How wallets work

Wallets function like an account, where consumers add funds via any method, including cards, direct deposit, cash, or check. Those funds are then applied to each purchase, without expiration. 

When the funds are added via cash, direct deposit, or ACH, they carry no network fees. When this happens, the companies issuing the wallets reap the benefits of guaranteed future purchases as well as reduced acquiring cost — up to 80 percent. Companies can provide incentives to encourage non-network funding leveraging the cost savings. 

Loyalty wallets provide cost and retention benefits

Staying top-of-mind with consumers is key to ongoing sales. In this case, staying top-of-wallet provides those same benefits, and reduces the cost of each sale, when using alternative funding. 

Best fit scenarios are regular, lower value transactions, like grocery stores, QSRs, or other more regular purchases. Consumers know they’ll purchase that next lunch, but from whom? It may be as simple as a $5 coupon added to the wallet to drive that decision. And, that $5 is funded by the non-network savings with each transaction. 

For less frequent purchases, like travel and hospitality, wallets are a place to store funds, and make a perfect use case for regular, direct deposit, or ACH transfers. For example, consider a Disney vacation. For a family of four, it costs just under $5,000. With a monthly deposit into a vacation savings wallet, that’s $416 a month for a year. Or, more realistically, $208 a month for 24 months. At an average of 3 percent, that’s $150 in fees when charged to a credit card. In this case, Disney could offer a minimum of $100 in cashback, all covered by non-network savings. 

Innovation is not only the purview of teams outside of finance, it can include cost efficiencies that impact customer experience. Without requiring a dramatic change in consumer behavior, introducing alternative payment methods lower costs while improving key customer metrics.

One path to faster, more seamless payouts is by integrating contractor wallets into existing workflows. Each contractor creates a wallet or account with the marketplace, connecting all parties to one Payments Ecosystem on a single digital ledger. Funds can then flow from the marketplace’s wallet to the contractor’s wallet within that ecosystem, rather than from bank-to-bank.

Wallets bring significant benefits, including:

• Low transaction costs: Payments are sent and received without an intermediary financial institution, reducing or eliminating transaction fees.
• Instant settlements: Funds paid from one wallet to another happens in seconds, as the flow of funds eliminates unnecessary steps, such as traveling through financial intermediaries.
• Improved visibility: With immediate awareness of payments sent and received, organizations have a clear line of sight into cash flow operations with zero latency.

Through embedded finance providers like Alviere, enterprises can enable additional features, like providing global money transfers from the contractor wallet. For example, an Airbnb Host can be paid by Airbnb for a recent stay, instantly have funds settled in their Airbnb wallet, and then send a remittance to a supplier or loved one – all within minutes and via one consistent interface.

The recent Deel announcement outlines how workers get paid the way they prefer. With the integrated capabilities of the Alviere HIVE platform, and in-house compliance expertise, our team builds financial solutions for a range of technology forward businesses. Overcoming the inertia of traditional banking systems requires the adoption of technology that addresses transaction costs, cross-border transactions, fraud, and integration into existing back-office systems. To stay ahead of the competition for talent, Payments leaders must explore how contractor wallets can deliver significant benefits now, and in years to come.