The pain of using checks in B2B transactions is now starkly apparent.
Sezzle CEO Charlie Youakim told Karen Webster that buyers and suppliers are actively looking to replace the paper check with digital conduits that get payments done more quickly — and in a cost-effective manner.
Real-time payments — cementing the ability to pay merchants on the same day that an invoice is tendered — can have positive ripple effects up and down supply chains. Receivers get cash in hand more quickly; senders may be able to negotiate on terms and get a discount.
The result, he said, is that “there’s an efficiency in payments — in the velocity of money — and it helps the economy.”
But only if the uptake of faster payments and a pivot from checks happens on both sides of the equation — between buyers and suppliers.
Youakim noted that the Sezzle platform is using automated clearing house (ACH) as a rail. For speeding up payments, “same-day ACH has helped a lot,” he added. Because the platform moves funds from consumers to merchants, there remains an opportunity for fraud — which brings an opportunity to beef up security.
“On the merchant side, you could actually have a ‘big event’ where someone succeeds in an account takeover of a merchant — or even the merchant could be entirely fraudulent,” he said.
According to Youakim, onboarding is a challenge for every company, including Sezzle, when tasked with collecting know your customer (KYC) and know your business (KYB) data.
“This is a part of B2B payments that won’t change in the near term,” he said.
There will be opportunities to further improve security with the FedNow® Service and digital payments amid the scale and automation, he said.
Youakim’s observations have been shaped by Sezzle’s own experience in India, where UPI helps speed payments between bank accounts. That market has embraced digital and real-time payments from a top-down government.
Although the United States is more market-driven, the pain points of “the way it’s always been done” are illuminated in all corners of commercial payments. Take, for example, the farmer who draws down a line of credit, is issued a check, deposits that check — and waits several days till settlement — so that the funds deposited can be used to pay down the credit line. Maybe the waiting period never used to be a consideration.
But now, with soaring interest rates and a cost of capital not seen in decades, there’s a motivation across all verticals to move away from payment methods that have been in place for decades. The faster a payment is received, the more transparent cash flow can become (and a business can earn more money on its deposits too).
“It all comes down to dollars,” said Youakim, who added that “higher interest rates create a sense of urgency around ‘where can we save a bit?’”
It may be the case that, at least for now, ACH payments are “good enough” for most business transactions. Push-to-debit fulfills many firms’ need for digital transactions. And the cost of real-time payments is enough to give many merchants pause.
“We don’t hear enough about the need on our side” from the merchants on the Sezzle platform, he said.
“But what receivers want now, and payers want, is predictability,” said Youakim. “If I’m expecting a payment on the 15th of the month, I’d like to be paid on the 15th.”
If the money’s not there, he said, “these are the things that wreak havoc with the operations that CFOs are trying to manage day to day. Real-time payment rails can help with that,” even if it means paying a few percentage points to help keep top-line momentum going.
There’s also the advantage of having better fraud controls, he said, especially with the continued inroads that virtual cards are making in the B2B realm, offering a way to pay and get credit.
“You don’t have to give someone a physical card to implement a technology,” he said, adding that “virtual cards create real-time payments. I don’t hear a lot about pain points, which speaks to the innovation in this space.”
As he told Webster, “nothing’s better than having the money today, but having the certainty of knowing it will be there at some later date is almost as good.”
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