Accounts Payable

FIs and FinTechs Ally To Drive Urgency Around AP Automation

Accounts payable (AP) and accounts receivable (AR) are two sides of the cash flow management coin, you might say.

In striving to marry workflows across the two and in driving to bring the respective strengths of financial institutions (FIs) and FinTechs together, sometimes one plus one equals three.

And in an interview with Karen Webster, observers from payments networks, as well as from FinTech and traditional FI realms, said the best partnerships leverage the strengths of all parties involved to the ultimate benefit of their corporate clients who must urgently modernize processes that have been in place for decades.

The panel included Corporate Spending Innovations (CSI) President David Disque; Mastercard Executive Vice President of Commercial and B2B Solutions James Anderson; Huntington National Bank Product Group Manager Dave Mussio; and Bank of the West Head of Commercial Card and Managing Director Dominique Fracchia.

At a high level, panelists said that AP automation is getting attention precisely because it’s the glaring weak link in a chain of processes pressured by the pandemic.

The greenfield opportunity is significant, as estimates peg the AP automation market at $1.6 billion as measured in 2019, and it is slated to grow to roughly $3.1 billion by 2024. A rough doubling in size is nothing to sneeze at, but there are indications that the timeline may shrink.

Certainly, there’s recognition of a need to move toward automation, one that has existed for a while. Surveys find that more than 54 percent of larger companies and 65 percent of smaller ones see manual payments as time-consuming and error prone. The friction points have become only more friction-filled, with back-office functions becoming more distributed as so many employees are working from home.

Fracchia of Bank of the West noted that many of his firm’s corporate customers are looking for technology in the service of greater efficiency, especially in cross-border transactions — and they’re looking for help to get there.

Collaboration And Cross-Pollination

The collaboration that is taking shape between FIs and FinTechs — which is leading to real innovation on the business payments side — is underpinned, according to Huntington’s Mussio, by the inherent strengths each brings to the table.

As to just what those strengths are: Banks, he said, have strong existing customer bases in place. Many of those FI-corporate relationships span decades, built from longstanding, deep roots in lending, products and services that had already been helping treasurers automate their processes.

The FinTechs, of course, bring technology expertise and can prove a bit nimbler in deploying that tech (especially as applied to a specific use case and customer requirement) than larger financial services incumbents.

Added CSI’s Disque: Banks have core competencies in lending, working capital and accessibility to payments rails, and the expertise in compliance and regulations have been helpful for FinTechs.

Those FinTechs, he said, “are great at connectivity, building technology, being agile and building out really sexy user experiences to drive adoption and optimization, and then adding vertical expertise. Then you partner with the payment networks like Mastercard, and there's a lot of innovation that occurs that drives a lot of value for the customer.”

Mastercard’s Anderson said that collaboration between FinTechs and banks is on display in the B2B arena, as all stakeholders realize that no single party can solve all customers’ needs solely with the offerings developed in-house.

Thus, cross-pollination evolves, noted the panelists, as FinTechs bring business (and even new corporate clients) to bank partners — and vice versa.

The Drive Toward Automation

With collaborative mindsets in place, and with pressures on corporate top and bottom lines, the stage is set to accelerate the automation of payables processes and to digitize payments.

As Disque noted, the pandemic has shown the B2B industry that when we’re no longer able to change the situation at hand, we’re forced to make changes.

“This past year has refocused a lot of businesses to evaluate legacy processes that they've had in place and to establish digitized processes,” he said.

We still process millions of paper checks in the U.S. alone, and that’s got to change. Mussio said there has been more demand for automated payables, a functionality that has topped the list for many treasurers and chief financial officers.

But as Anderson noted, in the bid to automate AP processes, bank-FinTech collaborations need someone in the middle; the network is the ingredient that gets the “one plus one” to equal three.

“We've obviously built a network around cards, but we're also building a network around AP and AR” through efforts such as Mastercard Track, he told the group, directly enabling collaborative commerce between accounts at scale across common rails.

We live in a world, after all, where B2B payments can be complex, and depending on the vendors and verticals, they can range from small-dollar, high-volume transactions (like pens) to millions of dollars paid for steel measured in tons.

Connectivity and transparency also enable payments choice, which can cement the relationship between buyers and receivers, with flexibility on terms. CSI’s Disque said firms such as his own serve to integrate payables, connect enterprise resource planning (ERP) systems with banks and deploy automation tools that optimize, auto-decision and route payments.

“When you can put a platform in place that guarantees the rules are going to be adhered to, then you've got a lot of trust and confidence in that system,” Disque told Webster.

Rules and logic, along with integrated flows, mean corporates don’t have to manage checks with one process, ACH payments with a second process (and reconciliation effort), and virtual cards with yet a third set of functions. Different industries have different ERPs, said Disque, and have far-flung vendor databases with a range of accounts and profit and loss (P&L) statements.

Partnerships between FIs and FinTechs can provide one technology interface to load payments, load invoices and get payments out the door, and to then ensure that suppliers are receiving payments in the way they choose. Decentralized processes, in other words, converge toward centralization and efficiency.

The Demographic Shift

The pivot toward automation will also get a tailwind from changing demographics, said the panelists, as we move away from the $20 trillion in checks that flow between firms on an annual basis. Younger generations are more tech-savvy, and as they become a larger portion of the workforce, they will displace the checks.

It may take a while, as baby boomers are extending their careers.

But as Anderson noted, consumer behavior (where so much is done online and even contactless) winds up informing corporate behavior — and switching toward digital payments (and automation) is an inexorable trend. That’s especially true as we simply cannot get to the (literal) office to get those checks processed and out the door or to the bank.

The tech deployments are getting easier, too, said Anderson, as the cloud is a “huge game-changer” that will make corporates (especially smaller ones) realize just how friction-filled collecting data and printing out checks really is.

As noted during the discussion: Efficiency is one thing, but efficiency in the service of better managing working capital is what truly gets executives’ and accounts payable teams’ attention.

“Why not leverage the cloud to connect to the bank, to send the information and the money to the other party?” Anderson asked.

Looking ahead, we may look to the age of COVID-19 as the age of collaboration in B2B, with the greatest benefits accruing to enterprise clients.

“They know there are solutions provided by FinTech, but they want to do business with their trusted partners — and these are the banks,” said Fracchia. “So, the ideal marriage, in a way, is to have their trusted partners, the banks, partner with FinTechs.”

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NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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