CFOs have faced a daunting list of challenges in 2022: Managing cash flow and controlling overhead, getting access to capital, supply chain chaos, The Great Resignation, digital transformation, and protecting their organization against fraud. The way a business makes its payments must adapt with these changes and challenges.
The new imperatives of work-from-home drove more change in the long-overlooked areas of B2B payments than we’ve seen in decades. There is still room for improvement, though. This is a huge market–$22 trillion domestically–where banks still have 90% market share. The bank-to-fintech move we’ve seen in consumer payments over the past decade is really just beginning to play out in B2B. Here are some of the things I think we’ll see unfold in the second half of this year:
Check use declines
Just a few years ago, over 50% of US B2B payments were made by check. Now we’re closer to 40%. That’s still a lot of checks, but the percentage will stay in steady decline.
In the US checks have been the only payment method that is somewhat universal in terms of acceptance. This is now shifting to an all-digital universe of payments. With the changes to digital payments we’re seeing, checks are a burden, causing cumbersome AP processing.
In Europe and Latin America, they don’t use checks, period. They must transmit data to the government to report and remit VAT. They must be able to transmit data across borders and banking systems. Imagine trying to do all that using paper, impossible.
Greater focus on efficient processes
Efficiencies are not created overnight, and they’re not synonymous with cost-savings. But efficiency gain – rather than cost savings – is the top reason to move to electronic payments, according to the 2022 AFP Payments Cost Benchmark Survey.
What does payment process efficiency look like? Technology that gives you a single workflow for any type of payment; centralization of digitized information in the cloud; support services such as error resolution, and outsourced vendor enrollment and data management.
Fintechs gain market share
Eliminating checks does not have a ‘one size fits all’ approach nor are all approaches equally effective. Check replacements, like cards and ACH, are offered at banks, but banks do not offer a combination of payment technology and service that allows for payments to be fully digital.
Digitization doesn’t come with a step-by-step book of instructions. There are infinite paths to manage and secure data, which creates the biggest obstacle for banks. This also makes it cost prohibitive to do in-house. Fintechs are able to offer an all-in-one solution by combining robust technology and powerful services, without stuffy, rigid processes.
Cards see wider adoption
Card payments aren’t for consumers only, but the process of making B2B payments with cards is still in its infancy. Cards offer alluring benefits, which helps to make the argument for a shift to cards from checks.
Reducing costs and making expense tracking and reconciliation easier are some major benefits of using an electronic payment method in the B2B space. While perceptions may be different, the facts are that cards free up working capital and generate rebates. Plus, potential fraud is mitigated with the ability to cancel a payment and control card spend.
Receiving card payments as a vendor gives peace of mind, since card payments are received quickly (and they don’t bounce). This, obviously, improves cash flow. Card remittance data is better than with ACH or even a check, too. Overall, card payments can be more straightforward and they can enhance your image as a business who understands the consumer mindset.
Fighting fraud at scale
Gone are the days where banks are being held up and robbed in person. Hackers are the new robbers, and they hide in deep internet pockets that most people don’t even know exist. It’s hard to keep up with the scams they may use to get funds electronically.
Every business works to mitigate fraud by any means possible, but it’s getting increasingly more difficult to keep up with fraud at scale. This is a great reason why some companies are turning to payment service providers — to take on that risk for them.
Blockchain yes, crypto not yet
Cryptocurrencies and NFTs made headlines in 2021, but it’s still too early to fully understand how cryptocurrencies and blockchain/distributed ledgers will impact business payments.
Blockchain has made banks a tad bit uncomfortable with promises of being able to offer close to real-time transactions while reducing operational costs. In fact, FLEETCOR already partners with RippleNet in our global payments business. Their distributed ledger technology lets our clients pay their beneficiaries in hours instead of the days it would take using the SWIFT settlement network. For customers that are on RippleNet, all the KYC (Know Your Customer) and AML (Anti Money Laundering) information is vetted and there are bank accounts–not crypto accounts–on either side.
Cryptocurrencies still don’t have those required regulatory frameworks in place. Their untraceable nature, volatility, and lack of widespread acceptance are big challenges that must be overcome before we see mainstream business adoption.
In a nutshell
Nearing the end of 2022, we’ll continue to see companies replace checks with electronic payments. We’ll also see a growing realization that this isn’t true digital transformation – these electronic payments may never be fully digital.
Even if all payments are made via ACH and credit card, there is still a need for AP personnel to do manual work, which could be done by a full-service payments provider. This reduces costs of overhead, as it frees up people and working capital. It also generates rebates, and creates happier vendors, because more efficient for them as well.
Digitizing B2B payments means more than moving money electronically. It is complex and requires all surrounding processes to be digitized as well. It will likely take longer to digitize B2B payments than it has consumer payments because change happens more slowly in the business world, but that change is coming.
Rick Fletcher, Group President of Corpay Payables, entered the world of payables through leadership roles at Deloitte Consulting, GE Capital, and Comdata. His passion lies in helping customers operate better through making better decisions and gaining payment efficiency. Rick holds a degree in management from Northwestern University.