The pandemic triggered a change in payments for midsized businesses, marked by a shift to digital and a modernization of the human factor of business.
Stephen Markwell, head of payments product strategy and FinTech partnerships, commercial banking, at J.P. Morgan, told Karen Webster that the trends of the past few years are bringing buyers and suppliers together in the spirit of collaboration. And along the way, they can monetize speed together.
But of course, getting there — moving beyond legacy processes and infrastructure — can have its challenges. Markwell noted that midsized businesses want to understand what can go wrong — what the proverbial tip of the spear looks like in terms of innovation.
A teamwork approach where the CFO partners with the organization’s tech experts and cyber-risk professionals is critical when looking at payments as a source for strategic and competitive advantages. Throughout the journey, we’ll see the evolution toward a more intuitive, consumer-focused experience. To draw a parallel, said Markwell, one could look at how communications are evolving — like messaging where we progressed from long distance telephone calls to SMS to text.
Business leaders, of course, are aware of the need for speed when it comes to transactions for their customers.
PYMNTS’ own research shows that 71% of businesses are using digital payments more often, and 98% are using fewer checks. Those data points illustrate, as Markwell said, the many reasons why businesses would transition to digital workflows.
Modernizing How Money Comes In
Markwell offered the accounts receivable process (AR) as an example, where companies have been migrating from sending paper invoices (and receiving paper payments) and manual reconciliation. These methods cost labor and time, he said.
The shift to working from home has also spurred companies to examine their back-office processes, and certain business processes will still be widely distributed, said Markwell, even in hybrid work environments. Those processes are typically done in cloud-based accounting systems, so there’s no reason to “double-post” transactions with banking partners. Doing this lowers fees and helps companies lower their days-sales-outstanding (DSO) ratios.
“There’s a real bottom line impact to those businesses,” he said, and to their enterprise customer bases, too, which in turn cements loyalty.
And Reimagining How Money Goes Out
Accounts payable (AP) offers similar opportunities. Businesses that juggle paper bills are receiving paper checks and reconcile them manually with double entry. Notably, there is also a revenue opportunity on the AP side when businesses go digital. A business can make payments with cards and earn rebates on those transactions.
Though companies have made marked progress in the digital shift, said Markwell, they still have a lot of work to do.
He noted that larger firms, incumbents that have been in business for decades, may have wanted to go digital, but they are still burdened by legacy paper processes, and by inertia.
“Many of those companies have used short-term solutions and have not really implemented fully end-to-end digital workflows,” Markwell said. In contrast, smaller startup companies have not been encumbered by the same legacy tech stacks.
A New Set of Benchmarks
But by and large, the technology is becoming easier to adapt to, and embrace, said Markwell. Application programming interfaces (APIs) make connectivity easier and can streamline how companies operate.
To get there, and to move to collaborations between buyers and suppliers, while modernizing workflows, said Markwell, financial executives must examine payments volumes and frictions in the back office.
“How does your DSO compare to your industry benchmark? What is your cost to reconcile payments? Putting together that internal business case may help point you toward a solution that addresses the biggest problem statement that you have, which could be automating reconciliation or integrating with your accounting package,” he told Webster.
During this, providers have to be able to prove that their solutions provide companies with the modernization they desire — Markwell noted that his own division at J.P. Morgan often speaks not just to treasurers or chief financial officers, but to heads of customer experience too, which can be just as much a driver of digital transformation as the bottom line.
Looking at Security
When thinking about ensuring and strengthening security for digital payments and processes, Markwell said not all solutions are created equal. Partnership models can help with the shift to digital and limit the risks of cyber exposure.
Education is critical as bot and other attacks become ever more sophisticated: Markwell said it is imperative to examine what phishing and other attacks look like and be prepared to combat them. There must also be protocols in place to ensure that enterprises are able to check that all the information is legitimate when suppliers or companies wish to update their profile or have payments routed to new accounts.
Without automation, businesses may hold back on expansion, not yet convinced that they have the technical underpinnings to support that growth. But if those companies think about ways to monetize payments and the activities adjacent to payments, they can fund growth.
“There’s a tremendous amount of opportunity for new business models to emerge on top of these digital networks where counterparties work with each other at scale,” said Markwell.
What Lies Ahead
As 2022 progresses, he said, we’ll see an explosion of micropayments, especially as transactions become faster — and in some cases, nearly instantaneous. Artificial intelligence and machine learning are still relatively new in this space, but he said those advanced technologies will play a much bigger role in informing the decisions companies make about payments and credit.
Moving to an end-to-end digital experience where invoices are sent electronically, payments are received electronically and reconciliation is automatic will pay dividends for buyers and suppliers, he said.
As he told Webster: “There are revenue components, there are expense components, and there are customer satisfaction components, too.”
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