In an often-cited report released by NACHA last month, accounts receivables executives said they are gearing up for ACH payments to over take paper checks when it comes to how their business customers pay.
The report found that while paper check remains the most common B2B payment rail, according to AR professionals, by the end of the decade it’s slated to take up 45 percent of payments received in the AR department, with paper checks sliding to take up 34 percent.
But included in this report are stats that earned a bit less attention: Credit and debit cards currently account for 11 percent and are headed to increase only slightly by 2020 to make up 12.5 percent.
There’s no doubt that B2B payments are slowly but surely turning away from checks, but there remains doubt over the role that cards play in supplier payments. And that includes virtual cards, which, while more secure than many other payment rails, continue to struggle to gain traction in contexts outside of business travel payments.
“It confuses us, because we believe companies are leaving money on the table,” said Michelle Young, vice president of marketing and sales support at EML Payments, a company that provides virtual payment capabilities to accounts payable service providers. “We understand that virtual cards are not suitable for every payment or every supplier. However, the fact that each year we see more and more merchants accepting credit cards on the whole, makes us wonder, ‘Why aren’t companies looking into virtual cards as an option?’”
It’s difficult to say, but there is the obvious answer: Suppliers don’t want to accept cards, because it’s expensive to do so.
“What a lot of companies don’t know is that many suppliers have already built in the cost [of accepting cards] into their business,” Young told PYMNTS in a recent interview. She added that, it’s worth it for companies to at least look into suppliers’ acceptance practices before writing off cards altogether. “A lot of companies haven’t considered making virtual card payments. We believe they are leaving money on the table, as there will always be a subset of suppliers that have built in the cost of accepting a card payment.”
Having a partner can reduce many of the barriers to virtual card adoption. Young explained that EML Payments handles supplier on-boarding for corporate clients, sending out emails and calls to convince vendors to accept the tool.
“When we’re talking with a person who’s on the accounts receivable end, they usually know whether the company takes a card, but they don’t always know why,” the VP noted. “Suppliers often say, ‘Of course I want to receive a faster, more secure payment with detailed remittance, but they aren’t always aware that these are the benefits of taking a virtual card payment.’”
But even if a supplier is convinced to accept virtual cards, the payment rail still has to contend with the top two rails in the game: checks and ACH.
Checks continue to frustrate the B2B FinTech world, and Young admitted that there may not be one simple answer as to why businesses continue to rely on paper checks.
“It’s easy, it’s something that’s already in place,” she said. “Maybe there is the fear of resources, that once they eliminate checks they have to eliminate two or three people in their accounting department, which isn’t always the case. It could be that they’re stuck on the old ways of doing things. It might be that their bank doesn’t have a better solution to offer them.”
Of course, there’s the roadblock of challenging the status quo with which EML Payments must contend too.
“Really, it’s probably due to being slow to adopt new processes and ways of doing things,” Young added. “That’s really what we come up against.”
But as businesses begin to see the value in paying suppliers electronically, virtual card solution providers must also take note of the rising use of ACH payments (which, by the way, is also offered by EML Payments). According to Young, contrary to popular belief, some virtual card offers are actually cheaper for corporate buyers to deploy than the cost of making an ACH payment. Plus, the VP added, ACH payments don’t always come with remittance data.
“A lot of time suppliers call the buyer and say, ‘I just received a payment, what was it for?’” Young noted of one of the possible points of friction of suppliers receiving payment via ACH.
So how can EML Payments and other virtual card players gain their footing? According to the company, partnerships are critical in this regard. This month EML Payments launched a partnership with Mize Houser, a company that provides AP solutions to franchisee owners. That deal sees EML Payments lending its virtual supplier payment capabilities to that AP firm, a tactic Young said the company will continue to deploy. These companies could realize more efficiency by adding a virtual card payment as an option, Young said.
“They’re in discovery mode,” she continued of the AP industry beginning to explore virtual cards. “It’s a value-add solution for accounting outsourcing firms. And we’re seeing that you partner with one, and it helps many.”