Banks need modern infrastructure, but instead of overhauling their pipelines internally, financial institutions have begun striking strategic partnerships with FinTech and payments innovators.
This is especially true when it comes to cloud-based services. Bill.com may be one of the largest nonbank corporate payments tools on the market today, and it’s just become one of the latest to work with banks, allowing them to provide upgraded services to business clients without having to build those modern tools from the ground up.
Bill.com launched the Bill.com Network earlier this month, with claims it was “the first business payments network to help companies pay and get paid in a fast, simple and secure way.”
It’s not the first solution of its kind, but what it really meant, the company told PYMNTS, is that it’s the size of the cloud-based corporate payments network, which connects banks and businesses to streamline transactions, that makes it unprecedented.
According to the company’s SVP of marketing and product management, Sanjeev Kriplani, the Bill.com Network connects more than a million companies, leading to $25 billion in transaction volume yearly.
Whether these stats truly make Bill.com’s solution the largest of its kind or not, one thing is for sure: More solutions using cloud technology to upgrade traditional, bank-fueled corporate payment processes will be rolling out.
But it’s only recently that FIs have been interested in the technology, Kriplani explained.
“The cloud has transformed virtually every industry, yet it’s had a lesser impact on the financial system to date, leaving banks and the businesses they serve without an efficient means to move money,” he said.
This is largely why corporations continue to rely on paper checks to send payment. Not only is this expensive for the companies that have to manually process checks in their accounts payable and receivable departments, but the Bill.com executive also said this is a burden on FIs.
“Banks find it expensive to serve the bill payment needs of small businesses because so many of the payments have to be sent via check,” Kriplani said.
ACH-fueled payments seems to be the next natural progression for corporate payments technologies.
A recent study by Receivable Savvy found that suppliers actually prefer to be paid via ACH, with 63 percent citing electronic payments as their top choice; just one-quarter said they like to be paid via paper check.
On the buyer side, 71 percent of companies said they pay their suppliers this way. Still, researchers found, paper checks remain the most common form of payment, with 83 percent of suppliers reporting that they have been paid this way.
Kriplani told PYMNTS that he does not see a disconnect “at all” between how suppliers want to get paid and how corporate buyers want to pay.
“We find that both buyers and vendors prefer ACH,” he said.
“That said, we occasionally see some buyers wanting to pay by credit card to receive points or reward from their card,” Kriplani added. “But neither the supplier nor the buyer wants to pay for the high cost of that type of transaction.”
He highlighted the high-value transaction of B2B payments as a major reason why commercial cards fail to gain traction in this space; a $1,500 transaction — the average size of a payment that occurs through the Bill.com Network — could be 100 times more expensive than an ACH payment, he said.
According to Kriplani, ACH payments “seem to be the middle point” on which both buyer and supplier can agree.
That doesn’t mean, however, that direct bank transfers are a catch-all solution for corporate payments to go digital.
“One shortfall of the typical ACH transaction is the limited remittance information that can be communicated via the ACH network,” said Kriplani. That’s where FinTech and nonbank payments players come in. Kriplani noted that Bill.com tacks on remittance information for suppliers so they can track the status of outstanding invoices.
FinTech companies, like Bill.com, have been using their solutions to take advantage of information they capture when an electronic payment is conducted; the bank is the critical part that makes an ACH payment occur, but a FinTech player provides data analytics, automation and a way to integrate this information into existing, cloud-based accounting platforms, like QuickBooks and Xero. Bill.com, Kriplani said, is no different.
But just as traditional financial institutions and their legacy systems are necessary for many corporate payments to occur, paper checks cannot be entirely avoided by FinTech companies.
Bill.com sends paper checks to suppliers that need to get paid when they opt not to join the Bill.com Network (though Kriplani said that the opt-in rate for vendors is about 70 percent).
The name of the game in the FinTech world today, at least when it comes to corporate payments, seems to be compromise.
Bill.com may operate what it says is the market’s largest cloud-based payments network that connects banks and businesses, but that doesn’t mean it can cut out the paper check entirely.
Similarly, Kriplani said that while commercial cards are expensive for both buyer and supplier, Bill.com is working on adding on card capabilities to its solution. (At present, the Bill.com Network only supports ACH payments within the U.S., too, but the executive also noted that the company is eyeing international payment capabilities. For now, cross-border payments are sent via check.)
And while Kriplani described traditional FIs’ infrastructure as “archaic and complex,” their payments rails are a critical part of the cloud-based Bill.com Network, and businesses are largely flocking to the direct bank deposit for their preferred payment method.
Kriplani described the Bill.com Network as overhauling the way banks and businesses deal with each other “in the same way Facebook’s social network changed the way we interact with those around us.” That may prove true — eventually — but corporate FinTech innovation is slow to evolve, and with paper checks and legacy systems still at play, compromise may be the best way forward.