PYMNTS MonitorEdge May 2024

B2B Extinction Event: Can Electronic Payments Automate Away Paper Checks?

The year is 2023, almost 2024, and we are decidedly in the digital era. 

After all, things like artificial intelligence (AI), space travel, gene-editing, and more are all commercially available and thriving. 

Asked to imagine the predigital era, and one thinks of typewriters, ham radios, physical stock certificates, cash registers, and paper checks. 

Changes wrought by the digital revolution have sunsetted nearly all of these now-archaic innovations, and changed the fabric of others, yet the paper check alone still reigns supreme — particularly within business-to-business (B2B) payments. 

Of course, reigning supreme in the 21st century means that paper checks are in effect responsible for clogging up key commercial transactions with frustrating workflows and repetitive manual steps, including physically cutting paper checks, hand signing them, placing them into envelopes and mailing them out. This process happens thousands of times a month, if not more, for large enterprises. 

Hardly the image that comes to mind when picturing the daily responsibilities of an employee at a thriving 21st century business. 

Then there is the waiting for the money to arrive and the transaction to settle, and the reconciliation process. 

Meanwhile, outside of the B2B payments ecosystem, the boundaries of science and technology are continually being pushed to new frontiers. Yet almost a quarter century into our current era, 40% of commercial transactions rely on paper checks to get the job done. 

Fortunately — and finally — change is on the way, as innovative, reliable and secure electronic payment methods appear poised to reshape the B2B payments ecosystem. 

Read also: Death by Paper Cut: The Hidden Costs of Checks

On Paper, Ripe for Disruption

On paper, B2B payments are ripe for disruption, only it is the tricky matter of getting them off the paper that is the issue. 

As noted here, PYMNTS Intelligence has found that 6 in 10 firms use legacy methods to pay for commercial goods and services.  

“What makes B2B payments such a great market is the presence of true white space, which is rare in payments today. … And that white space comes in the form of paper checks converting into electronic forms of payment,” Ben Weiner, senior vice president and global head of B2B payments at Nuvei, told PYMNTS.

Driving the attractiveness of that white space is the simple fact that what business buyers and suppliers want, as well as what they expect, in today’s environment isn’t the same as what they used to. 

“More and more organizations are recognizing the need to update and modernize what has historically been a manual, paper-based process — but one that’s also very mission critical to the business function,” Kat Battle, product manager for Complete AP at Bank of America, told PYMNTS. 

“Companies very often have those historical, manual, paper-based processes and relatively small teams to manage them. They would love to digitize those invoices. They would love to turn those costly check payments into virtual cards or ACHs,” Battle added. 

“As 2024 dawns, we’ll likely see an increasing number of providers broaden their payments services for buyers to help hasten the shift away from the paper check,” Chris Wyatt, chief strategy and product officer at Finexio, explained to PYMNTS.

Read also: B2B Payments Are Going Digital and Getting More Personal

Outsized Benefits

Traditional AP programs take a lot of people, a lot of processes and a lot of labor. All of that carries a cost for businesses.

“These are highly manual processes and lead to a lot of cost inefficiency,” Pavan Krishna, vice president of B2B Products and Partnerships at American Express told PYMNTS. 

Echoing that sentiment, Boris Lokschin, co-founder and CEO at composable commerce platform Spryker, told PYMNTS that when it comes to manual and paper-based processes, “It is crucial to get those inefficiencies out of the process, because they really suck a lot of the oxygen out of a business by putting resources to work on areas that are not creating value.” 

As B2B offerings become ever more commoditized, the subjective concerns that business customers bring to the purchase process are increasingly important — and these concerns and expectations are reshaping the B2B payment ecosystem. 

“In a B2B business, the finance function itself is part of the customer experience,” Aanchal Kochhar, head of product at Capital One Trade Credit, told PYMNTS. “You can delight customers and capture more customers when underwriting is seamless, the credit process is seamless, and how money flows is seamless and with less error. There is a lot of growth potential.”

After all, while legacy systems, often dating back decades, may work “just fine,” they were designed for a different business paradigm and can struggle to keep pace with the speed and efficiency required today — and that gap is only going to widen. 

More automation seems to be producing better results for businesses, PYMNTS Intelligence finds, and underscoring those results are more timely payments.