B2B Payments

What Drives Corporates To Ditch Some Payment Tech, And Flock To Others

A CFO's job doesn't become more complex as a company grows simply because the business is spending more money. Increasingly, financial executives who start out tracking accounts payable (AP) volumes and chasing down coworkers' expense reports will quickly find that the position demands a watchful eye on all aspects and categories of corporate spend from travel and expenses (T&E) to procurement.

The diversity of spend categories ushers in a kaleidoscope of payment rails a business chooses to deploy, depending on context. While the conversation may be dominated by corporates' ongoing use of paper checks, one would be hard-pressed to find a company that uses only paper checks for everything payroll, AP and so on.

Sterling Snow, vice president of marketing at corporate spend management company Divvy, recently told PYMNTS that businesses (at least, the ones he works with) are hardly using checks at all. But it's not the only thing businesses are trying to get rid of when it comes to company spend.

"We notice people are never really wanting to reimburse someone ever again," he said. Instead, companies are embracing virtual card capabilities and, according to Snow, are widely linking their employees to a virtual card  even if it has a $0 balance  so they can proactively arm that worker with a way to spend company cash should they need it.

He added, "They want a proactive system, as opposed to someone swiping personal cards and expensing it. That's what I hear day in and day out, is, 'I used to hate the end of the month. I used to have to hassle 30 sales people for receipts and expense reports.'"

According to Snow, it's likely that businesses have been wanting to shake the expense reports for years, but have lacked the controls and technology necessary to hold employees accountable for company spend and retain visibility into it. While he's also noticed that corporates are eager to put any spend they can on commercial cards (allowing them to take advantage of capital float, and the benefits and rewards that card programs offer), virtual cards have proven popular for their anti-fraud capabilities.

When it comes to T&E, expense fraud is a huge deal worth an estimated $1.9 billion a year, according to Chrome River Technologies. In May, the firm published the results of a survey of 1,000 executives across the U.S., U.K. and Australia, and found that adding extra padding in each expense item is among the most popular ways employees commit fraud.

The Association of Certified Fraud Examiners (ACFE) said that expense reimbursement fraud accounts for 17 percent of all business fraud in the U.S. A significantly larger concern, particularly for small businesses, lands in the billing department, with billing fraud accounting for more than a quarter of fraud cases (check and payment tampering, along with payroll, are also significant areas plagued by fraud, the ACFE found in its latest report).

Virtual cards aren't the payment rail of choice for all aspects of company spend, but they can be applied to situations beyond employee travel and expenses. Snow pointed to recurring payments, for instance.

"Companies are rolling over all of their recurring expenses to virtual cards," he said, noting that it accounts for up to 60 percent of spend on the Divvy platform. "It allows a one-to-one ratio for the virtual cards and the vendor. Your whole credit line isn't exposed, it's less appealing for fraudsters to even try to steal it, and it's easier to delete the card if you suspect something going on."

Fraud in the AP department, which traditionally uses credit cards for hundreds of suppliers, continues to be an issue, he said.

As companies put down the check book, virtual and physical cards may be the right choice for many of their spend needs, but certainly not all. ACH is slated to surpass checks as the most popular payment rail for supplier payments, for example, and Snow said he sees businesses relying on ACH for many reasons, particularly when it comes to larger expenses.

"A lot of companies ... will use ACH for more traditional things like rent, and for larger transactions from time to time, when people don't want to put it on their credit line," he said.

While faster payment initiatives, like Same Day ACH, aren't yet dominating the conversation between Divvy and its corporate customers, Snow said he suspects it will creep into focus eventually. With that in mind, he said, Divvy is looking to introduce ACH into its platform of spend management services, and recently scored funding to help accelerate that effort. A $35 million Series B funding round, announced this week for Divvy, will help the firm diversify its spend management capabilities beyond T&E and procurement, Snow said.

Efforts to provide greater insight into all areas of company spend means Divvy will have to focus on enhancing its integration capabilities, which Snow said will be a focus for the company moving forward. Such a mission won't be easy, though. The Economist Intelligence Unit released a report earlier this year, commissioned by Coupa Software, that found CFOs are struggling with a lack of visibility into their spend, with more than 60 percent reporting that they are unable to gain a complete view of all transactions within their firms.

With research showing fraud as a key issue, from payroll to billing, it's imperative that financial managers are able to gain that insight. And with cost reduction as an imperative focus for financial professionals today, visibility into spend across categories and payment rails  and cross-system integrations could be the right track for spend management solutions like Divvy.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.