The pandemic has triggered an evolution in payments for midsize businesses, marked by a shift to digital and a modernization of the human factor of business.
Stephen Markwell, head of payment product strategy and FinTech partnerships, commercial banking, at JP Morgan, told Karen Webster that trends in recent years are bringing buyers and suppliers together in a spirit of collaboration. And along the way, they can monetize speed together.
But of course, getting there — going beyond legacy processes and infrastructure — can present challenges. Markwell noted that midsize companies 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 technology experts and cyber risk professionals is essential when considering payments as a source of strategic and competitive advantage. Along the journey, we will see the evolution towards a more intuitive and consumer-focused experience. To draw a parallel, Markwell said, one could look at how communications are changing — like messaging where we’ve moved from long-distance phone calls to texting and texting.
Business owners, 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 checks less. These data points illustrate, as Markwell said, the many reasons why companies would shift to digital workflows.
Modernizing the way money comes in
Markwell gave the example of the accounts receivable (AR) process, where companies moved away from sending paper invoices (and receiving paper payments) and manually reconciling. These methods cost labor and time, he said.
The shift to working from home has also prompted companies to examine their back-office processes, and some business processes will still be widely distributed, Markwell said, even in hybrid work environments. These processes are usually done in cloud-based accounting systems, so there’s no reason to “double up” transactions with banking partners. This reduces costs and helps businesses reduce their Days to Unpaid Sales (DSO) ratios.
“There’s a real impact on the bottom line of these companies,” he said, as well as on their corporate customer bases, which in turn cements loyalty.
And reinvent the way money comes out
Accounts Payable (AP) offers similar opportunities. Businesses that juggle paper invoices receive paper checks and reconcile them manually with double entry. Notably, there is also a revenue opportunity on the AP side as businesses go digital. A business can make payments with cards and get discounts on those transactions.
Although companies have made notable progress in going digital, Markwell said, they still have a lot of work to do.
He noted that large enterprises, incumbents who have been in business for decades, may have wanted to go digital, but they are still burdened with legacy paper-based processes and inertia.
“A lot of these companies used short-term solutions and didn’t really implement end-to-end digital workflows,” Markwell said. In contrast, small start-ups have not been encumbered by the same legacy technology stacks.
A new set of benchmarks
But overall, the technology is becoming easier to adapt and adopt, Markwell said. Application programming interfaces (APIs) facilitate connectivity and can streamline business operations.
To get there and move to buyer-vendor collaborations while modernizing workflows, Markwell said, finance leaders need to look at payment volumes and friction in the back office.
“How does your DSO compare to your industry benchmark? What is your cost to reconcile payments? Having this internal business case in place can help steer you toward a solution that solves the biggest problem you’re having, which could be automating reconciliation or integrating with your accounting package,” he said. he told Webster.
Meanwhile, vendors need to be able to prove their solutions give businesses the modernization they want — Markwell noted that his own division at JP Morgan often caters not just to treasurers or CFOs, but also to CX managers, which can be just as much a driver of digital transformation as the bottom line.
In thinking about ensuring and strengthening the security of digital payments and processes, Markwell said not all solutions are created equal. Partnership models can help with the digital shift and limit the risks of cyber exposure.
Education is key as bots and other attacks become increasingly sophisticated: Markwell said it’s imperative to examine what phishing and other attacks look like and be prepared to combat them. Protocols must also be in place to ensure businesses are able to verify that all information is legitimate when vendors or businesses want to update their profile or have payments routed to new accounts.
Without automation, companies may stall in their expansion, not yet convinced that they have the technical foundations to support that growth. But if these companies think about ways to monetize payments and payments-adjacent businesses, they can fund growth.
“There is 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,” Markwell said.
What awaits us
As 2022 progresses, he said, we will see an explosion in micropayments, especially as transactions become faster – and in some cases almost instantaneous. Artificial intelligence and machine learning are still relatively new to this space, but he said these cutting-edge 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 also customer satisfaction components.”