The question is seemingly an eternal one in the business realm: build vs. buy. And as FinTechs continue to challenge banks, but also offer new opportunities within the B2B space, they’re advancing a corollary to the build vs. buy question: How about partnerships?
Greg Sassone, senior vice president of business and partner growth at WEX Corporate Payment Solutions, said in a recent PYMNTS Spotlight that no “one size fits all” approach can answer the question for financial institutions (FIs) seeking to modernize their corporate client services and transition B2B payments away from the paper check. But careful examination of what tech is needed — and where — can result in positive ripple effects that improve operations well beyond the corporate treasury department.
Cost is only one consideration.
Banks have been creating their own IT scripts and technology stacks for decades. They have expertise within the financial services realm that tech-focused, digital-first firms may not. Yet within the traditional FIs, it’s been important to push through the inertia that has tempered innovation.
“Within the banks, within the corporate treasury departments, across the financial services industry, there’s been a scramble to catch up with the current environment, and bridge the differences across types of corporate culture,” noted Sassone.
Drilling down a bit into those innovation efforts, he said, FinTechs and software companies, in general, are trying to become payment companies. They’re embedding payments within a specific workflow and have the opportunity to create seamless user experiences around payments.
Where The Banks Are Focused
The banks are typically focused on what might be deemed more “traditional” workflows within the accounts payable (AP) department — marked by payment files coming out of enterprise resource planning (ERP) systems, where manual processes and legacy technologies have been hallmarks.
“There are still a lot of checks that happen within that workflow,” Sassone said — and thus there’s an opportunity for banks to think about innovation, to modernize current workflows and to leverage some of the innovation that is happening within the FinTech community.
And in approaching that innovation with new tech projects and a modernized workflow, cost should not be the determining factor.
“The first place to look is at the need or pain point that the bank is trying to solve,” Sassone said. “Once you identify the solution, it’s about looking at current capabilities and identifying where the gaps are and determining how to fill them.”
Filling the gap requires an examination of the build vs. buy vs. partnership models — where options range from buying software to buying, well, software companies. And in the seemingly inexorable drive toward filling those gaps and moving toward automation, manual processes in cashflow management give way to human intervention that is more strategic in nature. Sassone pointed to the fact that half of all U.S. B2B payments are done via paper check, and that manual processes tied to reconciliation (not to mention phone calls) can be automated to put more focus on the actual customer experience (or operational efficiencies).
“Digitization creates a lot more space for companies and banks to be more strategic and less focused on the operations, because the payment just ‘happens,’ ” noted Sassone.
Within the payments functionality, he said there’s been a sustained and significant move toward more card payments.
“Within B2B, it’s virtual card payments,” he said, adding that “the great thing about a card transaction is that there are interchange economics associated with those transactions. Those interchange economics, which are earned by the issuing bank, flow in terms of a rebate back to a buying organization or a FinTech or the bank themselves.”
New revenue opportunity creates room for innovation and investment in new products and services, said Sassone — in a virtuous cycle that benefits the entire ecosystem.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
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