Although a recent uptick in B2B payments innovation has accelerated corporates' migration away from the paper check, old habits die hard, and the legacy payment tool remains a mainstay in the accounts payable (AP) department.
The coronavirus pandemic has undoubtedly thwarted the status quo for businesses of all kinds, and some in the ecosystem are now wondering whether the event will become the catalyst that finally accelerates digital transformation.
While work-from-home mandates have forced businesses to rethink how they send and receive payments, Michael Reed, division president of payments at Deluxe, said that even market disruption of this magnitude can't eliminate the paper check in B2B payments all at once.
"Everyone has been saying that checks are going to go away for a very long time, so I don't think there is a cliff edge that we're running toward," he recently told Karen Webster. "Checks will be around for a while. They're foundational, and there are a lot of people that still like using them."
That understanding means service providers cannot force corporates away from paper. Rather, Reed explained, by virtualizing the paper check and preserving many of the workflows that surround it, businesses can face far less friction in their payments digitization journeys.
Preserving Check Workflows
With many AP and even accounts receivable (AR) departments continuing to prefer paper check payments, service providers risk an unfavorable customer experience — or worse, costly operational disruption — by forcing clients to move to a different payment method. This is unacceptable — especially today with AR and AP teams already managing an immense sense of disruption in remote working environments.
According to Reed, Deluxe's lockbox services process $2 trillion worth of paper check payments every year, and there is no silver bullet to transitioning that volume to electronic payment method all at once. Rather, a more effective strategy can be to actually support corporates' check payment operations while digitizing key components.
"That is definitely the secret sauce, relative to speed and ease of integration, because corporates can disburse payments digitally and reconcile them through their systems as though they sent a check," said Reed. "It really minimizes the disruption."
Virtual checks and application programming interface (API) infrastructures enable seamless integration of electronic disbursement workflows within the rest of the back office to ensure that payment initiation retains the "look and feel" of a paper check payment for the payer.
But addressing payee needs is just as critical to easing the digital migration. Remittance data is one of the strongest factors driving suppliers' continued preference for checks, Reed explained, so any technology that aims to digitize payment cannot afford to ignore its importance.
"For any big business to implement technology, it needs to be something that's not disruptive to their environment and must be understood by both the sender and receiver of the payment," he noted, adding that these technologies must also enable vendors to choose how they accept funds and data, while supporting connectivity within their own ERP and accounting platforms via API — again, in the same way suppliers already do with check payments.
The One-Off Payment Opportunity
With paper check volumes so large, it can be overwhelming to consider how to digitize all of those payments. Reed said Deluxe is approaching this market with an initial focus on one-off B2B payments, which are a greenfield of opportunity because of their associated procedural burden. A one-time digital transaction is often accompanied by complex onboarding and system integration processes, making mailed paper checks an attractive alternative.
By virtualizing the paper check and wielding API integrations in between payer and recipient, those workflows become smoother. Reed highlighted several industries ripe for this shift, including the medical arena. Deluxe recently announced a collaboration with ECHO Health to facilitate electronic, one-off medical claims payments, which may occur between a provider and an out-of-network insurance company, for example.
The coronavirus pandemic has yielded an even greater need to ease one-off B2B payments friction, particularly among insurance industry firms or emergency assistance funds. One such Deluxe client, said Reed, has gone from sending about 2,000 payments per month to as many as 5,000 every day.
Banks' loan disbursement needs are another area that can benefit from check virtualization, particularly in the context of federal Paycheck Protection Program (PPP) relief funds. With many small business applicants opening bank accounts at new financial institutions (FIs) to secure funding, connecting those customers to a virtual checkbook — rather than the traditional starter pack of physical checks — means enabling small- to medium-sized businesses (SMBs) to make quicker use of the federal funds they secure.
And without the ability to enter into physical bank branches, remote deposit capture has also elevated its role in the current climate, enabling businesses that receive a check to digitally send it to the bank and electronically submit reconciliation data to their systems.
The pandemic may accelerate organizations' payments digitization, but it's unlikely to entirely eliminate the paper check from the B2B payments ecosystem. Rather, by arming companies of all sizes with technology to digitize check payments, data and workflows, businesses can embrace the benefits of electronic payments without the costs of disruption.
"If we can use existing processes and bring technology to help companies move to digital in a frictionless way within their environment, I think that has the potential to accelerate the decline of the paper check," said Reed.