Business payments are considerably more complex than consumer payments, and automating them is slowed by the lack of effective solutions and entrenched attitudes about how AP processes should be run. While the Fortune 1000 has a very high volume of payments and the resources to force change, growing “middle market” companies – about 3 million to 4 million U.S. businesses in the $1 million to $250 million range in annual revenue – tend to be forgotten. However, they can often benefit from automation just as much as larger corporations.
BC Krishna, President and CEO of MineralTree, recently spoke with MPD CEO Karen Webster about how solutions like the one his company puts forth can be particularly valuable to middle market businesses, addressing their specific needs and moving them into the future.
KW: What problems does MineralTree solve for businesses?
BK: MineralTree helps businesses automate AP and Payments, the so-called “Invoice-to-Pay” process.
The U.S. market represents some 26 million businesses – from micro-businesses that make a few payments per month, to mega-corporations that process hundreds of thousands of invoices and payments per month. Our focus is on what people sometimes call the middle market — businesses with $1 million to $250 million in annual revenue.
This is a market that expects solutions that are easy to get up and running, and that are tightly integrated with their financial systems of record – their accounting and ERP systems. Implementations have to be quick – they cannot be even moderately complex IT projects. We are integrated into the most common accounting and ERP systems in the market.
We distinguish ourselves by being easy to implement, easy to use, having a comprehensive set of Invoice-to-Pay automation features, and a very robust set of payment options. We are guaranteed secure, and don’t touch our customers’ money. Payments are made directly from our customers’ accounts to their vendors – we don’t move money through intermediary accounts – and therefore face none of the delays, risks, or compliance issues associated with that mode of processing payments. We provide the widest range of payment choices available to customers – check, ACH, virtual cards, wires – and make payment processing simple and integrated.
Additionally, we’re very proud of the significant level of security and control that we bring to AP and payment automation: integrated two-factor authentication, authorization limits, controls to mitigate the risk of employee fraud, and others.
Ultimately, we put our money where our mouth is and we guarantee against online fraud, up to $100,000 a year per customer.
KW: The middle market you define as $1 million to $250 million annual-revenue businesses — that seems like a pretty big range. Are there particular requirements that change, the larger the business becomes, that you have to take into consideration with your platform?
BK: Certainly. Companies with fewer payments are less sophisticated than larger ones. But they all need the same basic set of features: invoice capture, invoice approval, payment authorization and payment execution. The only difference is the degree to which each of those features are used by companies.
It is a broad range, think about the middle market really as a bell curve – centered on about $50 million or so. If you’re below it, that doesn’t mean you don’t have the need for a solution like ours; if you’re above it, that doesn’t mean your need becomes that much more complex.
For better or worse, the industry tends to look at the market opportunity by revenue. That’s a decent proxy, but it really comes down to the volume of payments that companies make, and the types of AP processes used in order to make those payments.
We have customers who are smaller nonprofits that have a massive volume of payments. On the other hand, we have public companies in our portfolio that have a relatively small number of payments.
The sequence of steps in the Invoice-to-Pay process – from the time the invoice is captured, routed for approval, approved, aged for payment, authorized for payment and the payment is executed – presents different stress points, depending on the nature of the specific business (its size, volume, audit concerns, etc.).
KW: Have you seen the mix of payments shift over the years? How are businesses paying their suppliers these days?
BK: That’s a fascinating question; I hope that in our lifetime, we actually do see that shift. Unfortunately, though, the vast majority of businesses still make the vast majority of their payments by paper check. We have not really seen that change at all.
The Association for Financial Professionals (AFP) does a survey on this issue every few years, and they tend to focus on the billion-dollar-plus corporations where there has been change and a significant downward drag on check payments. But that shift does not exist within the larger middle market. Shockingly, the number of business check payments in the U.S. has actually gone up from 3.5 billion in 2000 to about 8 billion, according to various payment surveys conducted by the Federal Reserve Bank.
KW: How do you explain that?
BK: I think it comes down to two things. The first is that checks are very effective: They’re ubiquitous and don’t require a great deal of knowledge about how your counterparty receives payments. Just an address alone is enough. The second is that checks, by design, include remittance detail – critical to be able reconcile receivables – that includes all the information about why a payment was made to the vendor.
Conversely, if you look at the options other than checks – the core rails that exist in the country: ACH, debit card, credit card, and wire – they’re all effective payment options for certain types of transactions, but not necessarily B2B invoice payments. They are not ubiquitous, often expensive, and including remittance detail with these electronic payments is often a significant challenge. ACH credit origination, for example, is not ubiquitous – it is a product sold by the treasury management teams, typically to larger businesses.
Even if we were to solve the ubiquity problem, the problem of getting remittance detail along with the payment remains. The electronic payment rails do not effectively address the remittance issue.
Checks are the most effective way almost by default, simply because they are ubiquitous, easiest for the sender, need very little information about the receiver, and include remittance detail by design.
KW: In terms of faster payments, the problem – at least from the perspective of lots of bankers and corporates – isn’t really moving the money; it’s moving the data with money, as you’ve just addressed with regards to remittance details.
It makes one wonder what problem are we really solving with faster payments – not that we all don’t want payments to be faster, but there are lots of other layers that need to be addressed in order for faster payments to deliver its promise.
BK: No question.
Each entity in the payment value chain – payer, payee, bank, processor, and the Fed – approaches the need for faster payments from a slightly different perspective, and it’s difficult to unify them on the idea that faster is good for everybody, all the time.
From a Fed perspective, fast settlements and irrevocability are good ideas. From a payer standpoint, I don’t think it’s so much about speed, but predictability of settlement – ensuring that a payment settlement occurs within a clearly defined period of time.
KW: I think you’re right about that. I also think there exists the notion that flexibility is important.
BK: I agree. But, anybody who’s saying, “I want slower, paper-based payments,” is absolutely on the wrong side of history.
There are also infrastructure elements that are very important to us in our payments system, such as security and the masking of account numbers. I find it unconscionable that, in this day and age, there’s an expectation for businesses to give their account numbers to each other in order to settle payments.
KW: What will get businesses off of checks?
BK: I wish I could say there’s some magic wand we could wave and make paper-based payments go away. B2B payments have been slow to move to automation in large part because of the ubiquity of paper checks, and the relative complexity of the AP and payments processes.
At MineralTree, we believe we have to provide businesses with a solution that allows them to bring efficiency, automation and security to their entire invoice-to-pay cycle. Outsourcing paper check issuance without actually converting them to electronic payments may be a first step towards broader AP and payment automation.
It’s a double-whammy today: Not only do businesses issue paper checks, they actually issue them themselves. They sit down and write checks, sign checks, stuff envelopes, stamp them…that’s completely unnecessary. If we’re going to make a dent in this market, we have to first start by singling out the pieces that are imminently solvable. We believe that once you get a business to automate the issuance of paper checks, then you can start to wean them off the check and onto other electronic payment rails.
That brings me to another point: We’ve got to make it easier for businesses to access those alternate rails. Middle-market businesses can’t assume that banks are going to make that happen, because banks are much more focused on larger companies. Solution providers like MineralTree have to integrate bank offerings into their solutions, so that the entire end-to-end process – from the ERP system to the bank – is seen as a continuum, rather than disconnected islands that are partially automated with discrete solutions that don’t talk to each other.
KW: As you think about 2016 and the things that you’re going to be focused on in order to accelerate the move to the future, and talking to your customers about weaning them off of a paper-based process, what are the things that you’re going to be addressing and deploying?
BK: First and foremost, there is increasing awareness in the market that this is a problem worth solving and that there are effective solutions like ours to help middle-market companies.
We need to continue to drive this awareness among middle-market businesses and their vendors about the benefits of automation. We are very proud of the progress that we have made, and will continue to reinforce the unique features of our solution – simplicity, security, speed, and payment choice – versus other solution providers.
As an industry, we also need to bring better, more comprehensive payment choices into the marketplace. This is a complex area, but rife with opportunity.
Those are some of things that we will be working on in 2016.
BC Krishna, Founder and CEO, MineralTree
BC Krishna is founder and CEO of MineralTree. He is also a member of the Federal Reserve Bank’s Secure Payments Task Force and Faster Payments Task Force, and is working with the Remittance Coalition to lead the creation of a B2B payments directory.