Innovation in consumer payments is rapidly taking place. For decades, there was little change, and then all of a sudden it went crazy, with disruptive new technologies like Square, Stripe, Apple Pay, Zelle, and now Google Pay. Along with these changes comes the consumerization of B2B payments.
Our experience with technology as consumers is changing our expectations for what's OK in business, and payments will be no exception. As with consumer payments, innovation in B2B payments will also come from technology companies, not from banks.
What I mean by the consumerization of B2B payments is delivering an experience where the person in accounts payable can just push “pay” and know that their payment will be completed by the most efficient means possible, with full visibility and control of each payment and minimal manual labor on their part.
Why, in 2018, should AP spend time writing paper checks or engaged in the repetitive manual processes required to use current electronic payment methods? It’s ridiculous and archaic by comparison to consumer payments, and the gap is widening. If banks could automate this—or wanted to—they would have a long time ago.
Automation is not easy. The consumer payments problem, while not simple to solve, is still much simpler to solve than B2B payments, which are a whole different animal. Yes, there are all the same basic payment issues around moving money efficiently and securely, but there are several added layers of complexity.
First, there’s size and scale. A consumer payment is one-to-one. Even though there are millions of consumers making electronic payments, it’s still a person paying a company. A B2B payment, however, is one-to-many. It’s a company paying a lot of companies, and within each payment, often paying multiple invoices from the same company. So there’s a huge volume of invoices flying back and forth between buyer and suppliers. Even small enterprises are making up to 250,000 payments a year, paying about 750,000 invoices.
On the consumer side, there are only about 10,000 billers served up in the online bill pay sites (sites that let consumers go online and pay things like utility and insurance bills and mortgages) that enable consumers to pay them. On the B2B side, there are millions of suppliers in the world to enable.
Then there’s the complexity of having humans involved on both sides. The reality of payments is people make mistakes all the time.
There has not been much fundamental change in this market since an ACH was introduced in 1978. There are a lot of enterprises that are using it, or credit cards, to make some of their payments electronically, but in terms of automation we've been stuck at an adoption rate well below 50 percent for some time.
That’s because bank solutions deliver a partially automated process that’s only been viable to automate for the very largest companies that have thrown a lot of bodies at it and built their own systems to make it work. Smaller companies have lived with the problem and stayed on paper, which, considering the ineffectiveness of alternative solutions was probably more efficient.
The biggest barrier to full automation so far has been supplier enablement. If you go to a bank and you say, “I want to start paying my suppliers via ACH,” they’ll say, “Fine, we'd be glad to help you. You tell us the account number and the routing information of where it's going. Oh, and be sure to track the suppliers who take ACH payments in your accounting system.”
It’s all up to the buyer to collect the banking information on their suppliers, whether the supplier accepts ACH, or card or neither, who their remittance contact is and in what form they want their information and then keep the all the information up to date. It’s an incredible amount of manual work that doesn't belong in the accounting system. But, it gets pushed onto AP to make current solutions work, because banks won't invest the resources to do this time-consuming task.
Past the supplier enablement barrier, perhaps an even bigger barrier to automation awaits: the end-to-end management of the payment.
Payments are dynamic. Suppliers are changing all the time — they’re changing bank accounts and what kind of payment they accept. Buyers should pay whenever possible with a credit card that offers rebates, but getting there when you’re mired in manually keeping track of supplier information and perfecting batch files for each type of payment for your bank is out of the reach of most companies.
That’s on the front end. On the back end, there’s payment failure. Even though only a small fraction of payments fail, a disproportionate amount of manual effort goes into tracking down errors and getting the payment to go through. In payments, it’s not over until it’s over, landed and reconciled.
Because of the dynamic nature of payments, making B2B payments as easy as pressing pay requires a solution to manage the payment from inception to completion. The solution must manage the supplier information, make the payment by the most beneficial means, detect and resolve potential errors before they occur, and remedy those that do. It must offer control and visibility down to the individual payment level.
Banks are aware of all these issues, but all they provide are the rails for payments to travel on. There is no intelligence in the process, either on the front end or the back end. What they’ve been selling, for the past 40 years, is, “We'll handle the money, but you have to do everything up front to get us the information and then you have to do everything on the other end when things don't work out.” They charge you to use the rails. They charge you when you upload information onto the rails, and they charge you when things go wrong.
And that’s what they’ll continue to sell. They are not good at technology, and they don't want step up and provide the services required to make the customers successful. It’s a far cry from the one-touch consumer payment experience. Fortunately there are companies that are leading innovation in this space, because companies of the future will accept nothing less.
This article was originally published on Spend Matters.