What’s Really Holding B2B Payments Innovation Back
There are many theories about what’s really getting in the way of faster forward progress in the B2B payments innovation arena. But Dean Leavitt, CEO of Boost Payment Solutions, thinks that it’s nothing more complicated than educating suppliers who often have a very different perception about how much it will cost them to climb on board the “innovation bandwagon.” Leavitt shared his thoughts on that with MPD CEO Karen Webster and the role that he thinks data plays in the supplier enablement process.
KW: There’s a lot going on in the B2B payments world, and a lot of it is driven by the friction that’s inherent in this massive ecosystem. As one of the few B2B acquirers in the market, what’s your perspective on the changes you’ve seen over the years and on what hasn’t changed, but needs to?
DL: I think we’re seeing an increased importance on data from both the buyers and suppliers perspective. As both sides of the transaction move to more sophisticated or, for smaller companies, less expensive ERP systems, their reliance on data is becoming important – remittance data, and the ability automatically reconcile transactions. That’s something that wasn’t necessarily paramount 3-5 years ago (Jump to: 1:24).
We’re also seeing an increased focus by AP and AR departments on operational efficiencies and this includes a focus on price, and a more sophisticated awareness on the true cost associated with payments. Most recently, we’re seeing a real focus on the need for solutions that eliminate the risks associated with exposure to sensitive data. This has become very important to suppliers that particularly receive card payments.
KW: Two of the three changes have to do with data. Like you said, years ago there wasn’t a focus on data. Was it not important because it was hard to get, or is it now important because something else has caused it to become a top priority?
DL: As it relates to remittance data, for companies that are migrating to more automated systems, the payments component of it is becoming increasingly important to fold into that automation process. While remittance data has always been available, it’s now available in formats that can be easily ingested by these AR and AP systems, so that their processes by which they reconcile and work with that data is much easier.
KW: What are businesses doing now that they have access to this data? Are there innovations that are emerging because this data is accessible and easy to consume?
DL: Well, there are new programs and processes developed to expedite the delivery of that data, one of which is our own Boost Intercept, which provides suppliers with remittance data in formats that were previously unavailable to them. Large suppliers receive payments, and in each payment there may be thousands of invoices, that a reconciliation process would have previously been cumbersome to do and would require an allocation of people to work on it. Now, by enabling that data in an automated fashion, it can easily be reconciled within their AR system without the human labor or costs of that labor.
We’re also seeing this data being used for companies to better manage their business. Data has been available, but the ability to convert that data into information that can be used to establish metrics, KPIs, and other types of tools that a company can use to run the business (Jump to: 4:43).
KW: Let’s talk about operational efficiencies and the focus now of companies to reduce the cost of payments. One of the things that must weigh heavily on the minds of those thinking about that is ditching paper checks. What are you hearing from your customers and prospects about that, what’s driving it forward now, since it seems that checks aren’t still going away?
DL: One of the things that is driving that migration, especially to commercial card products, is rebates available for those that want to pay suppliers or vendors via card in lieu of paper checks. That’s a revenue stream that’s available to them that they never had in the past.
There’s also the opportunity to extend their day’s payable outstanding, thereby getting working capital benefits. To the extent that they pay via a card product, they then have a grace period to pay back the bank that’s extended the funds to the suppliers. There are other operational efficiencies associated with moving from manual processes to an automated payment method like cards.
I think the primary reason why it’s been slower than most people thought is due to inertia. This is the most powerful force in the marketplace. It could also be a combination of personnel not understanding or caring about pushing those payments to a new method and generating new revenue sources.
There is a lot of erroneous information in the marketplace about what’s involved in using cards on the payer’s side or receiving commercial card payments on the supplier side. There are misperceptions about cost, the systems and converting to card acceptance capability. This all needs to be spelled out through outreach and education, which is where Boost spends a lot of its time with its customers (Jump to: 7:36).
KW: How much of this inertia is driven by the perception that it’s difficult and time-consuming to move off of the inefficient paper model to something that’s digital.
DL: I think it plays a big role, to the extent that there’s this perception that payers in the AP department or receivers of payments in the AR department have to do a lot. They’re less inclined to prioritize that to the top of the list. But when both sides learn that it’s actually a simple process to be able to pay with a card or receive a payment from a card, and benefits associated with it, they may start to get into the process. But there are often those misperceptions on both sides.
KW: Is there inertia on both sides, or is one more interested than the other in adopting something that is an electronic alternative?
DL: There is inertia on both sides, but generally, we find that purchasers tend to be more motivated to migrate over to a commercial card product, whereas suppliers need to be educated and reached out to more to truly understand the benefits and the real costs associated with card acceptance. The enemy is often the misperception involved with card acceptance.
KW: The physical act of acceptance, on the retail side, can be a hassle. If I’m a retailer presented with a new way to be paid, there are often integration issues and other things to go through to accept a new form of payment. I’d love to get your view on the differences or similarities on the enterprise or commercial payments side. Is it the same for suppliers?
DL: It’s not the same thing in that in most cases there is no physical card. We’re dealing primarily with virtual accounts, so there is no physical card being presented. As far as what a supplier needs to do to get set up – there’s actually very little. There are a lot of ways that we can expedite their boarding on a system, and in fact, it can now be done entirely online. The amount of information that we need to collect from a supplier is limited, and we often receive a lot of information from their customer, the payer, that’s engaged us to reach out to the supplier. The process itself doesn’t require them to have hardware or software, they just need to give us the designated depository account into which they want the funds deposited.
Our goal is to eliminate any work on the part of the supplier, so there’s no real call to action, it’s merely a notification that the transaction has taken place and funds will be deposited into their account. There’s a big difference between a commercial relationship between a vendor and vendee, and a relationship between a consumer and retailer. The vendor-vendee relationship is pre-existing and contractually based, and in that respect it’s different between that chance encounter between a consumer cardholder and a store (Jump to: 13:28).
KW: So the risk profile is very different, and therefore the boarding and underwriting process is also very different.
DL: Very different. And like most businesses in the financial arena, pricing is impacted by risk. When you’re dealing with transactions that involve companies that have been able to continue to do business together, especially when dealing with the method that the payments are made, security and access to sensitive card data is important. The manner in which we handle transactions is that our suppliers never even see card data – ultimately, that’s reflected in the pricing. The commercial credit card community has recently and will continue to adjust pricing for suppliers for B2B transactions that really better reflect that relationship, that profile of risk. We’re seeing meaningful changes on that front so that the cost of that transaction better reflects that relationship.
KW: You described the pricing of payments as one of the changes that’s pretty significant and will evolve over the next year or so. What are other things we should look out for in the way of innovation in the B2B payment environment?
DL: I think we’ll see a continued groundswell movement away from checks and other manual types of payment processes. I think we’ll also see more of a focus on data rich solutions from a buyer and supplier perspective, and continued focus on rate structures in the commercial card arena. In addition, I think we’ll see customized rate structures, or bilateral service agreements (BSAs). We do a lot in that area, where proprietary rate structures are established between a buyer and a supplier. This lets the cost reflect the relationship and contractual terms of the two entities.
I think there will also be willingness on the part of payers and suppliers to work within those adjusted cost constructs. Percentage wise, we may see rebate revenues reduced, and issuers spending more time focused on lower-cost products, with the view of the absolute dollar value of the revenue increasing dramatically.
A lot of changes will be cost-related, data-related, and related to operational efficiencies gained by moving to automated payments (Jump to: 17:36).
KW: Are cost innovations being driven because suppliers are pushing back on some of these high-value transactions that just wouldn’t flow across the card rails, or is this nervousness over regulatory pressures on those fees?
DL: I think what we’re generally seeing is a market adjustment to create a pricing construct that better serves a transaction that wasn’t in the mix before. A company using commercial cards to pay for larger line of business spend is something that’s relatively new. The pricing constructs you’re seeing are designed to better reflect that transaction and relationship.
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