Checks, despite their near extinction in consumer payments, remain alive and well when it comes to businesses paying each other.
And that, TransCard CEO Greg Bloh noted, is for a good – if often underappreciated – reason. When it comes to B2B disbursements, there are actually three things a payment method needs to do. Everyone knows the first one, he said, because it’s the most obvious: The method needs to be able to move money from one entity to another.
But that isn’t all it needs to do. The method also needs to allow data and documents to travel along with the payments, and it needs to enable the workflow around it. The check – for its many, many flaws – does address all three of those aspects.
And that's pretty well why it persists.
“That is why checks have been so resistant to replacement. We have seen all kinds of products rolled out to kill the check in corporate payments – prepaid cards, virtual cards – but stacked against them are those three components,” Bloh said. “A lot of businesses can answer for one or two, but not all three.”
And while many of the so-called benefits of checks – their so-called “low cost,” the fact that payors can ride the “check float” for a bit of extra time on a payment – can all be shot down with data on the actual ROI of checks for businesses. Checks are expensive – they can cost anywhere from $3 to $20 each, depending on who you believe, Bloh noted – and that cost tends to eat up any ancillary benefits they seem to provide.
But they inarguably cover the three main things every good disbursement method must handle – which means in order to compete with the check, digital disbursements need to be able to do those same things, and across a very wide range of payment types.
The SMB Payment Problem
While this issue is present in all corporate payments, Bloh told PYMNTS' Karen Webster, the reality is that at the enterprise level, the “big B to big B” payments world, it’s not terribly acute. Large firms have technical departments, and the time and treasury necessary to devote to building out custom products and integrations.
“Whether or not these systems are perfect is debatable, but they are an improvement over checks, and they check all three boxes,” he pointed out.
But when the focus shifts to either SMBs paying each other or trying to pay out the consumers, the luxury of an integration between the two entities evaporates. And, Bloh added, disbursements in this category are a widely ranging field with different regulatory requirements and workflow needs.
“When you really get into that last mile of these payments, the complexity sets in, as the options you need to solve for increase dramatically and the solutions grow more complex.”
The check, for all its limitations, solves for those complexities. To move more businesses into digital payments, Bloh said, digital methods will have to clear that bar better.
The Closed Network
What the payor and the receiver need, according to Bloh, is a closed-loop payment network that not only makes the money move, but also accounts for the data that needs to go along for the ride, while adhering to the specific workflow requirements.
For the party sending the disbursement, he noted, the method needs to push payments in a variety of methods, without an onerous onboarding requirement. For TransCard’s platform, the paying party can create an account for that payments recipient.
For a recipient (after authentication ensures that the funds are being delivered to the right place), a closed network system allows them to gain access to both the funds in a payments account, as well as a variety of tools for further disbursement of those funds. That might mean, for example, pushing funds via ACH to an operating account, the creation of a virtual card or a request of an instant payment, depending on the recipient's needs.
The trick – and a critical feature, Bloh noted – is flexibility in the offerings. B2B disbursements are widely varied, with a host of different requirements depending on who is sending and receiving the funds.
An insurance company disbursing a claim to a customer with a storm-damaged roof, said Bloh, might need dual endorsement of that payment from both the customer and the bank that holds the note on their home. A supplier with a cash flow issue is interested in how to pick up the pace of the payments.
“We offer lots of methods of disbursement, so when the receiver logs into the portal on the web or on mobile, they can tap into a lot of options in a one-stop location,” Bloh said, noting that on TransCard's closed-loop platform, the disbursement options are chosen by the recipient and can adapt to a variety of use cases. They can even choose to have a check drafted and sent to them.
Though, Bloh noted, experience has shown that when something else is offered that can do everything the check can, but faster and cheaper, checks seem less immortal and a lot more slayable.
As Bloh pointed out, the world of disbursements is not getting any easier anytime soon. The regulatory environment is more complicated, and the number of options to account for – things like same-day ACH, for example – are proliferating, and the needs across verticals are growing.
There is a lot to do, and a lot to account for.
But the good news, he said, is that they’re also seeing increased interest. In healthcare, in B2B sales, in insurance – no one is sticking with the check due to an overwhelming affinity for the form, but they just need something that can do everything it does before they can move on.
“But what we’ve seen, especially with large firms issuing checks, is that when we turn on electronic payment capability with workflow and data attached, it really is cutting in on the check," Bloh remarked.
There is a lot to do and a lot to add, he noted, because killing the check isn’t going to be an overnight activity. But it's a race where progress is clearly happening – and one that Bloh believes will accelerate going forward, even if it takes a while for it to be obvious that it is happening.
“There are a lot of checks to displace, but today we are making a small dent in that," he said. "As it becomes more pervasive and we see a larger breadth of customers, we think we will see a much more meaningful impact.”