B2B Payments

Checks, Data Sharing Limits Force B2B FinTechs To Find A Workaround

Analytics technologies like machine learning, artificial intelligence (AI) and robotics process automation (RPA) turned cash flow forecasting into more of a science than it’s ever been. Of course, at the heart of this advancement is increased access to detailed financial data, but it’s not easy for everyone.

Small businesses (SMBs) in particular can have trouble not only gaining access to their financial data, but also making sense of it. For franchise owners, financial data isn’t just stored across systems; it’s stored across various business locations, making financial analysis even more difficult.

Levi Morehouse, CEO and founder of small business accounting company Ceterus, explained to PYMNTS in a recent interview that the franchise owner is a top target of the company’s newest capability, which adds cash flow forecasting into its accounting and bookkeeping solution.

“Franchisees often have multiple business locations, so it’s hard to keep track of the cash in your bank,“ he said. “And, more importantly, where that cash is going to be in the future.”

Between payroll, rent and more, there’s a lot to keep track of. For franchise owners, and small businesses overall, Morehouse said the financial data key to adequate cash flow forecasting generally comes from three main sources: the financial service provider, like a bank; payroll and the point-of-sale (POS) system.

The digitization of business operations has made it easier than ever to gain access to data stored in these areas too.

“Small businesses have tended to lag in the last several years, but the small business market has really moved to the cloud, where consumers and the enterprise have been for a decade,” he said. “The data is in the cloud, and to be fully utilized in small business, you can use machine learning and AI and derive a lot of value.”

Cash flow forecasting solutions have to be able to handle the “garbage in, garbage out” aspect of any analytics solution, however, meaning the quality of data aggregated has to be of high standards in order for any analysis to be similarly valuable. When a small business owner operates a franchise, with multiple payroll systems and multiple POS data flows coming in, ensuring good quality financial information is far from easy.

Today, Morehouse pointed to two trends that have significant impacts on the quality of financial data and on the ability for SMBs to forecast cash flow.

One of these is the rise of open banking, which, while it’s taken off in markets like the EU, is struggling to gain footing in the U.S.

“Open banking has a huge advantage for us,” he said. “Unfortunately, we have not seen the needle move much on it, in terms of our customers and the financial institutions we work with.”

He added that Ceterus is in talks with tech-forward financial institutions that are beginning to have conversations around data sharing, which facilitates the stream of financial data from a business’ bank account into a third-party solution like Ceterus, and which can have a massive impact on the quality of data used in forecasting.

In the U.S., though, Ceterus has been forced to work around the current limitations of data sharing between banks and FinTechs. That yields a lag time, explained the CEO, in any solution’s ability to analyze data, so Morehouse said he’s looking forward to any progress on open banking in the nation to enable real-time analytics and more accurate predictive forecasting.

It’s no guarantee it will happen, however.

“I have a really hard time making bets on policy,” the CEO said. “There are a lot of varying interests here and a lot of very powerful ones that like it the way it is, and some that want it to change. It would be amazing, but we’re trying to build a system that can deal with it the way it is.”

There is some evidence that open banking could spread in the U.S., where regulators aren’t forcing data sharing. In an earlier interview with PYMNTS, Sensibill COO Izabella Gabowicz said banks in the U.S. are beginning to realize that opening up financial data isn’t just a competitive advantage for the FinTechs, but it can be one for the bank itself too.

Most consumers in the U.S. surveyed by Bain & Co. said they would try a financial service from a technology company they already use, suggesting customers aren’t necessarily attached to their traditional banks to provide financial services.

But there’s another factor in the world of access to financial data that forces Ceterus and other FinTechs to work around a challenge: the use of the paper check in B2B payments, which still accounts for about half of B2B transactions today, according to NACHA data.

“Paper checks are the bane of my existence,” said Morehouse. “With that said, we’ve built a human process around that.”

Because paper checks remain commonplace in U.S. B2B payments, it’s created an obstacle for third-party solutions like Ceterus to gain financial data to analyze. That means solutions have to automate, as much as possible, a very manual process like inputting data found on a paper check, categorizing it, linking it to purchase orders and vendors and more.

“We have to pull the image [of the check] up and get that data recorded, which we absolutely need in cash flow forecasting,” the executive explained. “The U.S., for some reason, is absolutely attached to paper checks, though it’s not that much of an issue in Europe and Asia.”

For all the advancements in FinTech, issues like a lack of open banking and paper checks continue to present challenges to the alternative financial services market. In the U.S., that means companies like Ceterus have to make do, at least until market pressures give way.

“I don’t see an end in sight to the paper check anytime soon, unfortunately,” said Morehouse, “but you have to work around it.”

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