Though innovation across the commercial payments landscape is alive and well, there are key issues facing businesses as money moves between buyers and suppliers.
From small to large corporates and even governments, the need for liquidity, data, better control and better and more efficient processes in commercial payments remains the same.
This is what Sachin Mehra, group executive of global commercial products at Mastercard, said must be addressed as solutions providers develop commercial payments products to serve the needs of both buyers and suppliers.
“There’s a lot of jargon and words thrown out as it relates to commercial payments, but it really isn’t rocket science,” Mehra noted. “The way we think about it is that what we are solving for in the commercial payments area is either one of or some combination of the following four pain points: working capital, data, more control and/or a more efficient process.”
In his conversation with Karen Webster, Mehra laid out what he sees as the current state of the commercial payments landscape, the biggest innovations shaping it and what the future may hold for the space.
Here’s an excerpt of their discussion.
Playing The Virtual Card
Mehra said one of the most significant innovations that has helped to make the processes behind commercial payments more efficient is the usage of virtual cards. Not only have they added efficiency, but they’ve done it in a way that doesn’t require giving up the control of when and how a payment gets done and who is actually making the payment itself.
By their very nature, virtual cards are controlled, he explained, because they are single-use accounts and have the ability for payments thresholds to be set, as well as very defined criteria as to who the payments can be made to. This type of control also helps from both a reconciliation and fraud prevention standpoint.
“This is where I think that the triangulation of these elements comes together in the commercial card arena,” Mehra said.
He noted that the implementation of virtual cards can vary based on the market segment — small to mid-sized companies may want to utilize both the user interface and the virtual card capability of Mastercard’s commercial payments platform, while larger businesses who may already have the technology resources and infrastructure in place simply ask for the API connectivity into the virtual cards system. From there, they can integrate it directly into their ERP system in order to generate the virtual cards as part of their own accounts payable process.
Mehra pointed out that, while Mastercard has helped to push the evolution around virtual card products, there is room for more education and innovation.
“We’ve created the capability, with our virtual card platform, to actually deliver a push payment into the supplier’s account. But the adoption rate of straight-through processing with virtual cards is still in its very early stages, and there’s still a lot of education to be done, both in buying companies, as well as in the supplier organizations,” he said.
The Last B2B Payment Mile
The other trend Mehra has observed in the commercial payments market is a desire from businesses for solutions and products that take a more holistic approach.
For years now, corporate treasurers have worked with business process outsourcers to outsource their accounts payable (AP) function, but in the last mile, which is where the actual payment takes place, the revenue stream is still not fully optimized.
Mehra said businesses are looking to Mastercard and other solutions providers in the commercial payments field to actually take care of that last mile — to streamline the revenue stream back to them as the maker of the payment.
For those suppliers who accept virtual cards today, they still go through card payment, which goes through the AP department, while everyone else will opt for an ACH payment or a paper check.
A holistic AP solution, Mehra explained, will allow an interaction model with the supplier to better understand what its needs are and deliver the payment method that actually suits those needs the best.
If the supplier need is working capital, then the business can be shown the virtual card product, but if the supplier need is data, it may be better to go with an ACH payment.
This type of capability allows the receiver of the payment to receive a payment in whatever method they’re set up for, whether that is ACH, virtual card or just a check. Mastercard is then able to accommodate that through a variety of solutions and partnerships that are made available to its customers.
But even those suppliers that opt for the paper check, because that is the payment method they are most comfortable with, are still seen as having potential in Mehra’s eyes.
“Those become the prospects of the future who you get to actually migrate over a period of time to either the ACH or a virtual card solution,” he noted.
When “No” Means “Not Yet”
In some ways, it can be hard to imagine that, when given the option to receive payments faster and more efficiently through ACH or virtual cards, many suppliers still choose to stick with the tried-and-true method of paper check.
But Mehra said the corporate treasurers that say “no” to these types of commercial payments solutions typically fall into two camps.
“There are those that are enlightened and are willing to make the investment on switching today to the more efficient method of payment, and then, there are those who probably see the light, but they have other priorities and are not getting into the uprooting of their entire back-office process at this point in time,” he explained.
But those “nos” today can still bring about a “yes” tomorrow.
“I do believe that there has got to be a logical move away from checks and at a faster pace than it has historically taken — to the extent that you can provide a holistic solution, which meets the needs of the supplier as it does of the buyer,” Mehra added.
Commercial payments solutions have, for a long time, only met a portion of the needs of a portion of the suppliers and buyers in the market, but Mehra said that the more a provider can take off their hands when it comes to switching, the better solution adoption will be.
“In the interest of scale and the standardization of the process, what’s started to happen is even the merits of the product, which do exist, have been somewhat diminished, and it’s resulted in this broad thought that the cost of acceptance is too high,” he pointed out.
“Well, the cost of acceptance is high if you sell it to the wrong person.”
Mobile’s Commercial Side
There’s no question that the use of mobile has quickly and deeply bled into many aspects of the live of consumers, particularly when it comes to payments.
But what does that look like on the B2B side?
Mehra said he can see the relevance of mobile for SMEs, especially those spending at what he could call “traditional merchant point of sales.” But in the mid- to large-market segment, he predicted that mobile will have a role more from a workflow approval standpoint, providing the convenience of being able to approve pending invoices and payments while people are on the move.
“I see a role, I see it evolving, but I don’t see that happening necessarily in the here and now,” he explained. “I definitely see it as a logical transition that, as people get more accustomed to mobile in their personal lives, then wanting to see that same experience come through in the B2B environment.”
According to Mehra, the travel and entertainment (T&E) and hospitality industries are exciting areas for the commercial payments, as well as spaces where mobile can become a very interesting tool.
The biggest advantage in the T&E sector, he explained, is that much of the commercial payments spend is at pre-established merchant point-of-sale (POS) acceptance points. While those industries have long adopted the technologies and reporting capabilities for commercial payments, they still don’t have nearly 40 percent of their spend captured on it.
Mehra described it as low-hanging fruit.
Another area he said will continue to evolve in these sectors is the ability to deliver one seamless, global experience to multinational companies from a technology platform standpoint. This would include the data and analytics, reporting and workflow approval needed in order to streamline commercial payments for all of a company’s commercial payments around the world.
Though Mehra noted that many corporations have been slow to get into the mobile enablement of their T&E commercial payments programs thus far because they are waiting to see how the acceptance of POS for mobile devices in the consumer world evolves, it’s still an innovation coming down the pipeline.
“Technology will be the enabler. The question in my mind is: Does the corporation have the will to actually enforce? If the corporation has the will to enforce, then technology can enable.”