Passing The Middle-Market Automation Exam

Though many financial institutions recognize the opportunity to help middle-market businesses automate their AP payments, they have not been able to fully capitalize on the opportunity.

Here the elusive payments opportunity meets or, in fact, doesn’t meet, the elusive audience: accounts payable automation for middle-market firms. Maybe not a hard concept, but not so easy.

In a webinar with PYMNTS’ Karen Webster, BC Krishna, CEO and founder of MineralTree, and Justin King, senior director of commercial payments at Visa, the trio delved into the ways financial institution and other stakeholders can capitalize on the opportunity. And what better way to get quick answers than a pop quiz? Eight questions and a series of detailed answers marked the webinar.


Middle-market businesses are defined as those businesses whose sales are between a) $50 million and $1 billion, b) $100 million and $1 billion, c) $50 million and $500 million or d) who really knows?

“One of these four answers are correct,” offered Webster — and the question is, which?

Krishna offered up what amounted to a new choice, answer e: “I choose the answer ‘All of the above’ because … it is really who you ask.” Some observers will define this market as $10 million in the top line to $1 billion. There are others who will state that the definition of mid-market can hinge on the segment of business that is being discussed, such as traditional banking versus commercial banking. But in the end, he said, “in the payments business, it doesn’t matter. It’s about how many payments you make, not what the revenue is,” while firms with revenues of $1 million to $250 million do represent an opportunity for adding value by automating AP processes, depending on the business. A million-dollar construction firm, he said, is not the same as a million-dollar doctor’s office.

King said that at the end of the day, “there are always going to be some arbitrary definitions of what a segment is.” The National Center for the Middle Market must have a definition of what the term is so that they can do data analytics and sample and survey these firms. Visa prefers to define mid-market as a set of needs and a set of customer behaviors, he said. And both the needs and behaviors change as firms grow, he said. So, he said, his answer would be D.


True or false: Middle-market businesses and payments needs are more like small businesses than large businesses.

To answer this question, said Krishna, think of this: “Is an adolescent more like a baby or a grownup?” He described mid-market as more of a continuum, with some firms at the lower end and some at the higher end of that continuum. The payments need and compliance needs of larger companies, said Krishna, are necessarily different from those of smaller firms.

Visa would look at that continuum but focus on process and technology, said King. Formalized processes tend to take root, along with automation, as firms grow, he said, especially along units and activities involving finance or accounting.


True or false: Using cards is not in the mix of payment options that middle-market firms consider because they do not think suppliers do not want to be paid using this method.

False, said King, “but the perception that suppliers do not want to be paid using cards is one of the barriers that prevent firms from embracing virtual cards or purchasing cards. There is the perception that that is the case but it is not true.”

There are several reasons why there is not more widespread card adoption in the middle market, he said. “The first barrier is about control and visibility, and this is a perception thing” among financial executives, including CFOs, who might be concerned over a lack of control over visibility, he said. There are also challenges with IT, with some firms of the mindset that they will not have the resources or staff to handle those cards. Another barrier lies with the perception that suppliers will not accept the cards. And then, King noted, embracing cards for a payables program may be stymied because financial professionals “don’t understand the value of the program …. The value is obvious to a lot of people in the industry, but it also tells me that a lot of these banks reaching out … may not have the right value proposition in explaining the benefits of those programs.”

They fail to explain the ROI of the program, which comes with a reduced need to write checks, for example, or reissue them when they are lost.

Krishna agreed, stating that smaller firms become larger and mid-market tend to keep some biases intact when it comes to payments and even as they grow. But “in order use a card in accounts payable, you must integrate that card into the process,” Krishna said, which among many firms is a definitive one across invoice, approval and payment steps, right down to stuffing envelopes with checks and affixing stamps.

True or false: The ROI of card programs is unappealing to middle-market businesses.

Herein lies a paradox, said Krishna, as each of us as consumers have cards in our pockets and understand the benefits of using plastic to make a payment, such as extended payments, rewards and the ability to manage cash flow more effectively. These are factors that bring basic benefits and an ROI to mid-market firms as well. But there’s a difference between going to a merchant to buy a computer, knowing that card will be accepted for payment versus using a card for accounts payable and wondering if it will be accepted by the vendor or vendors. In the end, the benefits of using the card for AP, in the way just mentioned, translates to benefits “multiplied many times over … that are very significant,” added Krishna.

The best way to show the ROI, said King, “is to let the data do the talking … and show the benefits that [firms] will see when they implement a program.”

This may seem to be a simple process on its face, said Krishna, but it proves relatively harder when dealing with middle-market companies. The resource question comes into play here, he said, noting that the question comes down to just who in a smaller firm, which out of perhaps 50 people, is tasked with data capture and card processes.


True or false: Financial institutions have overlooked the middle market because they do not meet the needs of middle-market businesses as well as scale.

King noted that while banks have not overlooked the space, there have been “varying degrees” of how effectively they have been able to sell into the space in the first place, retain customers or help maximize the payments mix. Sometimes it’s not a sales challenge but a technology challenge, as in, “do they have the right technology that the middle market needs and wants that is available to the bank’s set of products?” King asked.

“In many cases, they don’t have it, and in those cases, we see firms in the middle market embrace the third-party FinTech market” and their payments solutions.

King said that some financial institutions are indeed focused on the middle market but added that 85 percent of those companies are banked by 400 to 500 financial institutions around the country.  And the question becomes whether those 400 to 500 financial institutions have properly addressed the needs of the middle market. Some of them have, he said, and some have not.

In response to Webster’s question as to whether these cards can be “productized” or packaged well to sell into the middle market, Krishna noted that the cards may tend to be looked at by financial institutions as “payments rails.” But a larger issue in bringing cards to middle-market firms as a product lies with the fact that many of these firms simply do not understand them, as it is a process.

“These are not people who may fully understand the benefits of a commercial card process,” Krishna said. However, as firms grow and scale, the complexities of payments bring questions as to how to grapple with payments across, for example, ACH or wire conduits or checks.


True or false: All card programs are created equal.

False, said King. Similar concepts may exist between virtual cards, ghost cards or buyer-initiated payments, but the way they are executed can vary.

Cards may have 16-digit identifying numbers and expiration dates tied to card accounts (and not through a physical card), but then differences kick in. Virtual cards may be set up for one-time use, with AP integration, a payment instruction file. Or certain cards can be used for certain suppliers or for certain services, such as telecom, for example. But the common thread to Visa, said King, is that these payments are served through payment gateways. And that is what his firm has done with MineralTree, he said, to take that gateway, create APIs that support those card types and the functions within those cards, and then make them available to customers. As for insight into the card mechanics themselves, King posited that some cards, like ghost cards, may need a bit more oversight as the payments here are not tied to an automatic process.

The sheer preponderance of different card types and offerings mean that the industry must demystify some of these offerings to the middle market, said Krishna, which may use cards interchangeably.

“Even some of the resellers do not have the terms straight,” he said.

Eventually, firms must settle on a few things: what process will be used to make a payment, how to know that the payment (and the card) “is secure … [that] the person that I want to pay is going to get paid at the time that I expect them to get paid, and how do I get the benefits?” Krishna said.


True or false: Card-based payments offer the same benefits to suppliers as other options, including early payments, discounts, working-capital terms and supply-chain financing.

Krishna said there are differences in what benefits accrue to which suppliers, what the costs are and what the process is. In looking at working-capital terms versus card-based payments, some of the advantages are similar, such as with extended payments.

But just who pays the discount or who pays the fees might be very different. In working-capital arrangements, the fees are paid by the buyer, while with card-based payments, they are paid by the merchant. The basic theme, though, is trying to solve the issue of cash flow management for both buyers and suppliers.

Going back to the concept of use and behaviors, King said it becomes necessary to “think about what we are all trying to do for our end customers, which is to help them optimize their payments mix and their AP process. We don’t have the goal to eliminate all payment methods other than cards. We understand there is going to be a healthy payment mix for a company to have a successful AP process.”


True or false: Visa and MineralTree are helping middle-market businesses solve these problems.

Not surprisingly, the duo agreed with a resounding “true.” Krishna said that the mix between Visa rails and virtual cards and their attendant benefits, from rebates to security, would be hard to duplicate if a company tried to do it alone. By working with Visa, with what Krishna cited as his own firm’s innovations in integration with accounting systems, the AP management process becomes faster. And there is a role here for financial institutions, too, said Krishna, who stated that “our goal with Visa is to show [financial institutions] what’s possible … and shine a light on what these customers need today.”

“Any issuer that has a card program knows that there is a large middle-market opportunity out there, no matter how you define it …. They know that there is a huge amount of interchange revenue waiting to be earned by converting as few as 5 percent of [check payments] to cards.”