When it comes to electronic card payments, driving demand among consumers and businesses can take a great deal of innovation, says Eric Mettemeyer, CEO of Store Financial. And B2B supplier virtual cards are seeing the most velocity and activity, he says, because there continues to be so much friction in the process of paying suppliers. In a recent interview with MPD CEO Karen Webster, Mettemeyer unveils how his company sets out to fix this by reinventing the B2B accounts payable process – all while saving customers money, increasing security and making the value chain a whole lot smarter across 3 different payment sectors.
KW: You describe Store Financial as an innovator of electronic card payments. What problems do you solve, and for whom?
EM: We operate in 3 different payment verticals. The first is consumer to business, and we call those consumer-funded payment cards. Typically those are gift cards, so we’re solving payment problems for issuers of gift cards particularly in environments where a custom-loop card is meaningful. In that case, we’re leveraging ubiquity of open-loop redemption networks to redeem payment cards. But we’re also bringing to the table the benefits of closed-loop cards by directing spend back to the retail brand or the partners of that brand.
Then we have a couple other verticals as well – business to consumer, and those are corporate-funded payment cards or incentive cards. Again, we do the same thing with a custom-loop card in that vertical.
The last one is in B2B, supplier payment cards. Those are often referred to as virtual cards. In that case, we’re optimizing supplier payments for accounts payable organizations.
KW: These are very similar in one sense, but obviously very different sectors. What are some of the things you’ve observed as you look at the gift card, corporate-funded, and B2B supplier payments sector that are really driving demand for these products?
EM: In the gift card space, it depends on what country you’re in. With respect to the U.S., the demand is generally consumer driven. It could be corporate driven as well, as corporations are looking for different ways to reward employees or partners, they might look to gift cards as a way to do that. Consumers are obviously driving gift cards as the ease of gifting as opposed to buying physical goods. Those trends have been around for a long time and continue to move in an upward direction, although not at any great velocity.
In the supplier payment space, we’re seeing a bit more velocity and activity. The reason for that is that there continues to be so much friction in the process of paying suppliers – you can tell that when you see the number of checks still in the system to pay suppliers today. That shows that the value of an ACH or P-card transaction must be fairly low, because otherwise you’d see a lot more transactions moving from checks to those forms of payment. So I think there’s a lot of opportunity, and people see that. They’re going at that payment flow to try and improve process and add value, because clearly, there’s pretty low value in issuing a check to make a payment.
KW: Let’s stick on that point a bit. I agree that in the B2B space, there’s a tremendous amount of friction, and yet there hasn’t been much adoption of these alternative methods of payment. What kinds of things are you doing to try to make alternatives to checks more attractive, specifically with the kinds of products you offer?
EM: As you look at the whole accounts payable process, we don’t see a thoughtful approach by the organizations to optimize the accounts payable function. We’ll see pieces – maybe someone has adopted P-cards as a way to generate card rebates, or maybe an organization has engaged in supplier chain finance to extend out their days payable outstanding. But you don’t see a lot of organizations with a holistic, thoughtful approach to maximizing accounts payable.
We’re approaching it from that perspective, saying that our products are only a component to the overall optimization of accounts payable. You need to have an element of supplier chain finance in there to extend day’s payable outstanding. You need virtual cards in there, as a way to maximize card rebates. But you need some innovation around that because the traditional payment card is not getting the job done. It’s too costly, and it’s too manual.
So we’re looking for ways to improve process around the card piece to increase supplier adoption, decrease the amount of manual process involved, and really maximize the rebate for the supplier but also maximize the rebate to the buyer and provide a lot of benefits to the supplier. A lot of times the supplier will look at a card and say, “Well, all you’re doing is increasing my cost.” But you need to approach it by saying there will be a cost, but the supplier will be paid earlier, and from that perspective, it can be a win-win. We’re trying to look at the entire process of accounts payable and insert our programs where they most benefit.
KW: How do you help suppliers and buyers reconcile the ROI of these programs, just like on the retail side of payments there are consumers and merchants, and those merchants need to be really persuaded that anything new that they adopt drives some sort of increment and value to them. Does the same dynamic exist in your environment?
EM: Yes, it does. The first thing that you have to recognize is that you can’t be greedy as a buyer and expect an enormous percentage rebate. Many of the programs in the past have been your straight standard credit card rate of interchange, and in most cases that’s just too high. You can’t get the math right for the suppliers, so you’ve got to work to get that down to make the case to the supplier. So we’ve designed our products to do just that – to balance the rebate on the buyer side with the extension of an early payment option to the supplier.
With the cost of capital being so low right now, that’s pretty easy math. If a buyer has to dip into their credit line to pay earlier, the cost of that will be far less than the rebate they can generate from a supplier taking a card. Often times suppliers are smaller organizations and they don’t have the cheap cost of capital, so for them, maximizing early payment is important. There’s definitely a balance in there, and you have to hit that balance. You have to take the supplier base and recognize that not every supplier is the same. There are some that will be very insensitive to a high rate of interchange, and there are some that will be very sensitive to that.
KW: Let’s talk about the incentive business – I know that’s another piece of your business and an interesting segment that has its own ROI idiosyncrasies. How do you use that same sort of dynamic to think about creating incentive programs within organizations using these products?
EM: I don’t know that we typically do an incredible amount of convincing them – they’ve generally already made their decisions that a card may be a good way to deliver the incentive. Our approach is to add more value to that program and potentially expand it as a form of reward or incentive, or at a minimum, improve the value of the current program.
I’m really surprised to see the number of programs out there that use open-loop branded gift cards as a vehicle because it allows the value you’re passing on to go out into the ether. If you can drive that spend back to your own brand or channel partners, you can benefit from increasing the value of the reward or incentive. As you bring that value back to yourself, you’re making margin on the second time around and can pass that on to the consumers. We really try to have discussions around improving the program by taking advantage of a custom-loop program as opposed to an open-loop one.
KW: So are there examples you can share of something you would consider very successful and/or best practice?
EM: When it comes to the rewards space, a lot of times the improved value typically is one of four things: saving the customer money, saving the customer time, increasing the amount of security in the process, or making the customer smarter.
In the case of Harley Davidson, for example, they just had corporate credit card rewards program. As you spend money on the card, you earned points. When it came time to monetize those points, they had a very traditional gift card process. You went online or called a number and a physical gift card was sent to you. We simply took that program and did a couple of things – one, we made it virtual so the program could be used both online and in stores. Two, we did it in an online email delivery program so you can get immediate access to rewards.
Again, with our innovation, we’re looking at a process and seeing how we can improve it by saving time or money, increasing security and making the value chain smarter as a result of the new program.
KW: Along those lines, what kinds of innovations are you exploring that we’ll be seeing more of in 2015?
EM: In the gift card space, we’re focusing more on the mobile app side so that you can have more ability to track spending and drive that information back to the brand to understand customers’ behavior. With an app, you can deliver real-time rewards and accomplish real-time redemption, and so there’s certainly more information flow. That makes the brand smarter and the reward more relevant to the consumer.
In supplier payments, we’re focused on having a very consultative approach to accounts payable and making sure that we have the right tools in our toolkit to fully maximize supplier acceptance of cards. One is certainly having different levels of cost to accept cards for suppliers, and two is having the tools available to properly educate the supplier and having a very good, well-rounded supplier enablement team and process.
Between taking advantage of the smartphone and the app on the consumer side, and innovating around the structure of the way payments work through the networks on the B2B side is where we’re focusing our innovations.
KW: The emphasis on education in the B2B supplier side seems to be a consistent theme throughout the entire B2B payments ecosystem. There’s a huge emphasis on conveying the value to suppliers, specifically of alternatives to the more traditional payments. Education is often very time-consuming, but hopefully with more products like yours, the process goes faster. Is it accelerating the momentum?
EM: Definitely. As we approach suppliers, they’re familiar with other buyers having talked to them about these programs and so it’s not completely new to them. In the past, the large issuing banks have gone out to their treasury management clients and delivered a p-card, but there wasn’t any education and it didn’t work very well. Adoption was very low. So a lot of buyer organizations don’t even want to talk about virtual card programs because they think it’s going to fail – they’ve been through the p-card process before. So there’s been a lot of education, change, and innovation in attacking the problem with more thought this time around. You’re seeing more adoption and companies are certainly making end roads.
KW: Finally, how was 2014 for Store Financial?
EM: It was good. I’m new to the organization as of May. We spent our first 180 days solidifying our team, and our balance sheet, brought in a new investor group, sold off our European division to further that, and repositioned strategically with e-merchants out of Australia. We partnered with them in Europe where we felt like combined we could have more success than on our own. That allows us to sit back and focus more on the U.S. and Canada, our primary markets.
We’re really excited for 2015 – we expect it to be a strong growth year for us.
CEO, Store Financial
Eric is the CEO of Store Financial, bringing eleven years of experience in the payments industry. His initial experience in the industry was the management of more than ten acquisitions of prepaid, card processing and money transfer companies in Europe and the Americas for Euronet Worldwide. He then subsequently served as Managing Director of epay Americas and Asia, a division of Euronet Worldwide. His previous job experience also includes International Tax, Financial Planning and Treasurer roles for companies including Arthur Andersen, Sprint and Euronet. He received his undergraduate degree in Accounting from the University of Iowa and his MBA from Thunderbird School of Global Management.
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