Deep Dive: Why FIs Turn To FinTech AP Solutions
Next-Gen AP Automation

Deep Dive: How FI-FinTech Partnerships Power Businesses’ AP Cost Savings

Businesses must purchase various supplies and services to power their operations, but they often find it challenging to manage vendor payments. Large companies may receive thousands of monthly invoices that must be processed quickly and economically, and firms of all sizes need to track payment obligations and issue funds. Many have not implemented robust digital systems to make it easy to do so, however.

This lack of digitalization is a sizable problem. Forty-seven percent of companies still report using manual approval processes to review submitted invoices before paying sellers, for example, and 36 percent still use paper invoices. Manual processing creates opportunities that can sap employees’ time and increase the likelihood of errors, making businesses eager to automate their systems and to use technologies to handle such tasks. The accounts payable (AP) automation market is expected to grow from $1.6 billion in 2019 to $3.1 billion by 2024.

Banks can also build deeper loyalty with their customers by catering to business clients’ interest in automating accounts payable. Financial institutions (FIs) can connect clients with digital services by creating and offering their own tools or by partnering with FinTechs that have already developed such solutions and extending them to customers. The following Deep Dive examines the factors driving business clients’ demand for AP automation and how they influence FIs’ decisions on when — and how — to work with FinTechs to offer these solutions.

The AP Automation Demand

Processing vendors’ invoices can be expensive if companies lack streamlined AP systems. Businesses took 8.6 days and spent $11.57 on average to process a single invoice in 2019, for example. Moving from manual processing to digital methods could help businesses reduce both figures.

Many companies retain legacy payment processes that create friction, however. Businesses might be set up to pay vendors strictly via paper checks, for example, which is often more costly than digitally disbursing funds. They may also rely on paper invoices if their systems cannot accept and extract data from electronic documents, requiring staff to review invoices and type the details into businesses’ systems.

Companies also need quick methods for issuing payments. A 2019 survey found that 54 percent of large companies and 65 percent of smaller ones cited “manual payment generation workflows [that] are error-prone and time-consuming” as one of the three greatest B2B payment challenges affecting their treasury departments. Slow processes might include those that require treasury teams to issue paper checks or to provide AP staff with physical documents on which they must sign off during payment approval.

All of these factors generate strong demand for AP automation solutions, and companies want to ensure that they are entrusting their financial processes to reliable providers with high-quality offerings. Many businesses may wish to turn to existing partners — such as their FIs — to help them obtain such services.

FI-FinTech Partnerships

FIs must make their own decisions when determining how best to meet customers’ demands for AP automation, though. They could develop in-house solutions, but such processes take time, and business clients that become frustrated waiting for products to launch may turn to other FIs instead.

Banks can more quickly ramp up their offerings if they collaborate with FinTechs that already provide AP automation solutions and extend those services to their clients. An FI might integrate with an AP management solution to enable its business clients to send vendor payments via ACH, checks and virtual cards in a faster and more streamlined manner, for example. U.S. banks appear to be taking these technology partners’ power to heart, as they made 180 percent more investments in FinTechs in 2018 than in the previous year.

FI-FinTech partnerships can take various forms, depending on banks’ needs and budgets. One hands-off approach sees banks referring business clients to trusted FinTechs that can supply AP services, thereby sparing themselves from managing the solutions. This approach may remove obligations from these FIs’ teams, but it also results in fewer opportunities for client engagement.

An alternative strategy sees FIs purchase FinTechs’ solutions, tailor them to their needs and then provide the offerings to customers under their own labels. This method seamlessly embeds AP services into banks’ digital platforms, but it requires FIs to handle activities like marketing and customer support, and to pay for subscriptions to AP software. Yet another option involves banks purchasing sole rights to FinTechs’ solutions, giving them a competitive edge over their peers. This approach places management responsibilities squarely on the FIs, however.

Each of these options is compelling in its own way. Banks will need to select the approach that is best suited to their resources and customer bases. They may consider whether they have the money to make purchases or the staff to take on solutions management, for example. Banks that cannot spare these resources may prefer to use a referral model, but those that want to build reputations as one-stop shops may prefer options that allow them to put their labels on products.

FIs are recognizing their business clients’ growing desires for AP automation that can reduce invoice processing costs, thwart payment fraud and trim hours spent manually inputting information. Those that can provide these services stand to win deeper customer loyalty, but they must work quickly to roll out solutions before their clients defect. The need to offer robust services is prompting FIs to build more partnerships with FinTechs, and such collaborations are likely to grow so long as the experiences remain positive.

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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