Recently I was honored to speak for the first time at the seventh annual Goldman Sachs Fintech Conference, a sure sign that my area of expertise, B2B payments, is finally getting some attention. For the past several years, the lion’s share of attention has been on innovations in consumer payments, of which there have been many. B2B payments are a much larger opportunity—it’s a $34 trillion market, versus about $3 trillion for consumer payments—but they’re a much tougher nut to crack so the pace of change has been slower.
That all started to change about a year ago, when we started to see investment flowing into B2B payment Fintechs. Now, B2B payments are suddenly hot, and a lot of companies are trying to grab a little bit of that limelight by calling themselves a payments automation company. Most of them also say that they have a simple, cloud-based solution.
I say, not so fast. There’s a lot more to B2B payments than just moving money from place to place electronically. There are workflow and services aspects that need to be addressed to truly automate payments. Automated, cloud and simple are all good qualities in a payment solution, but you have to dig deep to find out if those are just marketing words.
What is real payment automation? A person in accounts payable has a list of approved invoices to pay. They click a button that says pay, and the payments are then routed by the most advantageous means possible—card first, to capture rebates; then ACH, then print check. 100 percent of payments are automated, and reconciled on the back end. Any errors are resolved by the payment automation company.
You can’t be a payment automation solution if you only offer one type of payment. Banks have offered separate card, ACH and print check products for years.
It’s nice to see the major card companies investing more in their virtual card programs. They’re understanding that walking plastic is not a good tool for A/P, and that to do the job right, virtual card products work best.
But, a virtual card product is not the same thing as payments automation. Only about 20-25 percent of suppliers will accept payment by card, and that’s with an aggressive, ongoing vendor enablement program. I have yet to see a card program that offers one.
That means A/P still needs to figure out who they can pay with a card and get that all set up. If a product forces the A/P department to do work that they didn't have to do before, that's not automation. And, if it only covers a quarter of your payments, that’s not payment automation.
What about simplicity? These days the word simple is applied to almost everything. What makes a solution simple is when it turns a complex process into a simple one. B2B payments are incredibly complex.
There’s the vendor enablement piece. It’s a lot of heavy lifting to stay on top of payment preferences and bank information for thousands or hundreds of vendors, and accounting systems were not designed for it. Most A/P departments are only able to do this for their biggest vendors, and that’s been a huge obstacle to making more payments electronically.
Another part of the complexity is the patchwork of payment types A/P has to contend with. One of the great ironies of trying to wean businesses off checks is that by adding ACH and card products, they’ve added two more workflows, each requiring a separate payment file on the front end. If 100 percent of your payments, including cross-border payments, cannot be made through the same process and the same provider, that’s not simple.
Finally, there’s complexity on the back end, reconciling the payment and resolving payment errors. If you don’t have visibility and traceability, it's a lot of work to figure out where a given payment is and answer those vendor questions. Also not simple.
Finally, if the company and product have been around for ten or more years, it's not likely that they're truly cloud-based. Why is cloud important in B2B payments? Ease of use and visibility. If you’re looking at a born in the cloud product, typically what you see is an easy to use interface. The solution usually can be learned in an hour or less, and it typically takes 30 to 90 days to implement. You have all your payments at your fingertips, with total visibility into the progress of every payment from start to finish.
If the solution doesn’t have those attributes, it’s probably a product that's hosted in a data center with a lot of old technology wrapped around it. It may not even be software. Banks don't really have payment software--they have a reporting tool. If you don't have real time visibility, traceability and control of all your payments in one spot, it’s probably not cloud.
We’re at a point in the market where everyone is using the same terms-to refer to very different things. So, how do you get at the truth?
First and foremost, see a demo. Look at the implementation cycle. Is it fast and easy? Who does the work of getting vendors on board?
What kind of results are they touting? Are they offering to automate 100 percent of your payments, or 40 percent? Anyone that’s offering to automate 25 percent of your payments, or 40 percent of your payments, is offering partial automation at best.
Ask who’s responsible for setting up vendors. There could be a lot of manual work for you to get to the promised percentage.
Ask if there are any vendor fees for accepting an ACH. While only about a quarter of your vendors will take a credit card payment because of the fee, 60 or 70 percent will accept an ACH payment because it’s convenient and it’s free. Well, if you slap a charge on that, a lot more vendors are going to say no, thanks; keep sending us checks.
Ask who bears ultimate responsibility for the payment. Are they going to push it through their pipe and leave it to you to deal with any errors, or are they going to guarantee the correct amount will land in the customer’s hands?
Finally, ask for proof on the numbers. Talk to other customers that use the solution and find out if they have gotten results similar to what’s promised. B2B payments are a big market desperately in need of simple, cloud-based automated solutions, and the benefits are enormous. Don’t accept anything less.