Nearly two years after its launch, Same Day ACH (SDA) credits are being used by nearly half of businesses and government agencies (that's not bad for the only ubiquitous faster payments network in the U.S. today), but not necessarily to pay their suppliers. The most popular use case — at least, so far — is payroll and emergency disbursements.
What will it take for the payment method to find its way into mainstream B2B payments use cases, particularly for middle market companies that are heavy users of ACH today for paying suppliers? And what does this all say about the balance of power in the buyer/supplier payments two-step?
Those were among the topics discussed — and, at times, debated — during the latest edition of the PYMNTS “Data Drivers” podcast with Karen Webster and Chris Elmore, co-founder of AvidXchange, which provides accounts payable (AP) solutions, bill pay services and accounting software.
Since Data Drivers is, in theory, intended to tell the story of a trend in payments (in this case, B2B payments and SDA), the discussion started with a few of them.
Same Day ACH Users
Forty-seven percent of businesses — large and small — use Same Day ACH credit, according to a PYMNTS survey of corporate treasurers.
“We thought this thing was going to take over the world,” said Elmore. “Frankly, it’s hasn’t.”
Part of the reason is the limited application of those SDA use cases. That, however, might say more about the payables process itself than SDA as a way to pay businesses, Webster said. Another reason, Elmore countered, is the persistence and ubiquity of paper checks, the lowest common denominator of payments — a relic of 17th century trade that persists in a country where approximately 13,000 financial institutions (FIs) still cash and process them.
The per-transaction limit of $25,000 for Same Day ACH, which — in part, and given its newness — was implemented from a fraud and security standpoint. Elmore said that that limit stands as a roadblock for middle market adoption.
“There are certain segments that will hit that every time,” Elmore said. For example, when it comes to commercial utility payments, “there is no way those will go under that dollar amount.”
That said, even industries that could operate within that transaction limit aren’t adopting SDA at a high rate. Elmore used real estate as an example, saying that for AvidXchange clients, the average real estate transaction stands at $1,300.
“We are still not getting high adoption” there, he said.
User Increase Plans
Fifty-nine percent of survey respondents said they would increase the use of SDA credit in 2018, as payables processes are modernized and automated to support this new payments’ flow, among other things.
This led to the question: Who has the incentive to drive more B2Bs to Same Day ACH? Put another way: Who has more power in changing how B2B payments are made — those making the payments or those receiving them?
That’s where the conversation got a little spicy. Elmore promoted the idea that “suppliers hold the keys.” That’s because many have different requirements for how and when they are paid, with “all the different conditions swirling around a specific payment that a supplier can invoke at any minute.”
Webster countered that — perhaps for large, strategic suppliers with market power — it’s the buyers who hold the keys, since they are making the payment. If a buyer tells a supplier “this is how you are going to get paid,” a supplier that wants their business will accept that form of payment. Buyers have the incentives to adapt their payables process to something that is a net add to them or, conversely, doesn’t take a lot of effort to fix if it still works well, particularly when buyers pay a lot of ad hoc suppliers for “onboarding,” which can be a time-intensive and costly process with little long-term benefit.
That, Elmore said, is often the crux of the issue: the “perception of risk” in undertaking SDA or any new way to pay suppliers.
“That’s one of the biggest obstacles to change,” he said.
That risk is not necessarily about transactional security, but about changing what “has worked before,” Elmore explained, or the fear of losing one’s job, or disruption associated with the integration of new payments technology.
Inertia, Webster remarked, is the biggest competitor to change. It’s why checks persist, Elmore noted, as does the good old-fashioned paper ledger — something he observed recently when onboarding a new client. After all, he said, “the whole notion of an electronic accounting system is still a fairly new idea.”
Digital payments, including Same Day ACH, continue to grow. And with that growth, there will surely come more movement and clarity in that balance of power — and, perhaps one day, the discarding of the paper ledger.