Keeping Tabs On B2B Payments’ Tipping Point

We all have a tipping point. And as Malcolm Gladwell writes, the tipping point comes when critical mass or a boiling point is reached.

To paraphrase “Network,” the tipping point comes when we’ve decided we’re not going to take it anymore. So it is with business. Archaic processes? Check. Frustration? Check. Checks? Check.

Thus the tipping point may be in the offing, enough so that it becomes the title of our latest report on B2B payments, spotlighting the opportunity for innovative payment methods to upset the tried and true methods that could use a bit of shaking up.

Among the first questions one might pose before looking at the data might be: Is there any satisfaction with B2B payment methods as they are done today? And if so — why?

Consider the fact that current methods trace their genesis back decades, maybe even beyond. It’s well known that paper dominates the corporate payments landscape.

To get at the root of the matter, in the B2B Payment Tipping Point Playbook, and in collaboration with Mastercard, PYMNTS took the pulse of payments across hundreds of executives, with responses coming from firms that ran the gamut from smaller companies with top lines between $1 million to $10 million, mid-sized firms from $10 million to $1 billion in revenues and larger companies with $1 billion in sales.

Drilling Down Into The Status Quo

The data show that of entrenched methods, nothing is all that … well, entrenched. The commitment levels to different payment methods might strike an observer as less than enthusiastic.

As evidence, consider the fact that 32 percent of firms use checks more often than any other payment method when it comes to receiving payments. As many as 34 percent resort to that method when sending payments. Beyond that, roughly 18 percent use regular ACH, in equal measure as their preferred payment method. Beyond that, credit cards trail as the go-to payment choice, slightly above mid-single digit percentages (for sending and receiving).

Just because companies have been utilizing the above methods does not mean those options are well liked. Regular ACH merits a satisfaction level of about 74 percent, with electronic bank transfers at the high 60 percent level, and cards close behind. Not exactly unanimous votes.

Here’s a glaring stat: checks, that oft-utilized payment choice, comes in fourth when it comes to payments satisfaction. Seemingly incongruous data: that the method most often used is among the lesser of those preferred.

It’s kind of like dating someone you’re not all  that attracted to.

The Paper Chase Leaves Firms Winded

One illustration of how the paper chase can be onerous: the larger the firm the less satisfaction and ease was cited as a factor in using checks — by barely more than half of firms of that larger scale.

Ah, but as we found in the report, risk aversion is likely at play here regardless of the size of the business. For in the corporate realm (as in all commerce), a transaction is only as solid as the willingness of both parties to accept the ways in which that transaction is done. One wrinkle here is that firms are loath to embrace payment methodologies that are in turn not enthusiastically championed by suppliers. Why invest time and money in, say, an ePayables system when getting suppliers onboard is a headache in and of itself?

So in a nutshell, we do business this way because this is the way in which business is done.

Mastercard and PYMNTS found the other side of the equation — the yin to the payments yang, the darker side of transacting amid these standardized methods.

If speed and convenience and security are the holy grails of payment choices, the costs and manual processes are the Pandora’s Box of B2B.  After all, checks ain’t cheap and can cost more than $30 per transaction, which compares unfavorably with ePayables at $9 per transaction.

Comes The Tipping Point

If there is a sort of resignation over payments methods, and there is acknowledgment that friction exists, the Playbook also found that payments professionals are aware of, and seem to look forward to embracing, alternatives to cash, checks and traditional credit cards. About 30 percent of respondents expect their check usage to decrease, while more than that tally — 37 percent — expect their ePayables efforts to increase, leveraging, for example, the power of virtual cards. And amid the move to embrace the virtual cards, there is a sanguine outlook on that tech-driven option — 49 percent see satisfaction with that option to increase in the future.

Here’s another data point, and one that speaks to time frame: 33 percent of firms surveyed look to roll out real-time payments innovations (where smaller firms acknowledged interest, possibly eyeing streamlining cash flow) through the next three years and 32 percent look to implement automated payables (an area of interest where more than 40 percent of larger firms look to invest in those innovations), with another 26 percent reaching for payments enabled from invoices. Real-time payments garners interest from 73 percent of firms, who state that the enhanced data and instant funds would boost the efficiency of reconciliation processes.

As to just who might be looked to as the providers of such innovations, the answer might be surprising: when it comes to B2B, firms are eyeing their banks — and as many as 69 percent see banks as their main payment solutions providers, while the banks themselves have been gearing up to bring new solutions to market.

Hmm. Checks and ACH seem sticky, at least for now, amid of a slew of alternatives. But where there is interest, anticipation and even eagerness in the mix … might the tipping point loom?