2020 B2B Payments Survey Implications

INTRO: 

Welcome to the Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury news analysis and insights in your car at the gym or wherever you decide to tune in. On this episode of the podcast, host Craig Jeffery joins Brian Greehan senior vice president of Channel and Network Success at Bottomline Technologies to examine survey results around shifting technologies, strategies, and practices used by organizations across the business to business payments landscape. They discuss the overall payments complexity, and challenges being experienced by practitioners within the treasury and finance environment and unique solutions and tactics employed by organizations to optimize payment processes and maximize efficiency. Listen into the discussion to find out more. 

Craig Jeffrey: 

Welcome to the Treasury Update Podcast. This is Craig Jeffrey, and I’m here with Brian Greehan who’s with Bottomline Technologies. Brian, welcome. Thank you for joining the Treasury Update Podcast. 

Brian Greehan: 

Thanks so much for having me Craig. 

Craig Jeffrey: 

Now, Brian as we look at the B2B payment survey, we’ve done this year after year. I wanted to start off by asking you some questions on the challenges for banks. Is there an opportunity for banks in the payment services arena and what are some of the challenges that you see in this space and where are their opportunities? 

Brian Greehan: 

Sure. So when you look at this year’s survey, the survey inquires in for some self-reflection on the part of banks. It’s a wildly competitive market with a lot of investment dollars flowing into it, at the same time a real opportunity for banks to dig in and vigorously compete. So if you look at what’s happening right now, I think banks are recognizing that the idea that they can be the end to end AP or AR solution for any target market is over, there’s simply too much competition and too many good options for an end corporate to choose. The good news though, I think is the banks know this. So if you go back a couple of years, I think maybe they were trying to compete against that or fight against that, but they know it now, they accept it. And I think it’s pivoted where now it’s more of a race to see who can partner most effectively with Fintechs, drive scale and differentiate in terms of how they deliver and bundle those services. 

Craig Jeffrey: 

I mean, you’re in this space all the time. So you see it day after day, week after week, you’re talking to banks and looking at the space. What other data helps you support that in addition to your conversations? Maybe information from the survey that’s indicating this increased awareness on the part of banks and this expectation on the part of corporate users of payment services. 

Brian Greehan: 

Well, it’s interesting. So in terms of, I guess, banks recognizing it, I think they’re shifting to recognize that they need to partner more effectively to deliver the market’s needs. At the same time, there’s still a very real disconnect between corporates and banks. So in this year’s survey, we saw that 76% of banks viewed themselves as being above average in their payable service offering, where only about 40% of corporates felt the same way about their bank. So there’s still clearly a disconnect. At the same time, as you go out there and talk to banks, you’re seeing them increasingly partner with FinTechs across the board, whether it be on the AP side, the AR side and elsewhere. So I think that gap is continuing to narrow. So the good news for banks is that they’re still very much trusted by corporates. So even if a corporate wants to get to an end solution via AFR, AP, or AR, if they can access that solution through their trusted bank relationship, it’s a real opportunity, for the corporate, that’s still providing a stability and sort of the assurance that they need. 

Craig Jeffrey: 

Just following up on this some more, this idea of banks aren’t able to solve every single problem, it’s competitive. It takes a lot of money in investment, and there’s a tremendous amount of solution sets that are out there. There’s a massive amount of resources on the bank side and also limitations. What I’d like to ask you is what is the impact of the FinTech industry having on banks in this space, as they’re coming up with innovative solutions? Where is this playing out and how can banks leverage fintechs to put together perhaps a best of breed end to end solution that you were talking about? 

Brian Greehan: 

Yeah, I think in the corporate space, because the solutions being offered by FinTechs are getting better and better. And by that, I mean, they can be tailored for a specific ERP or a specific industry. Holistic solutions or general solutions that banks had previously provided simply aren’t good enough for the market. So instead a bank is forced or is increasingly choosing to partner with a FinTech to address different market needs. So how a bank partners with a FinTech to address a healthcare or commercial real estate or retail, each one of those verticals has different payments needs, different receivables needs and specific FinTechs are targeting those verticals. 

Brian Greehan: 

So then it’s on a bank to determine what market are they really trying to pursue? Are they trying to go downmarket into small business, large enterprise, by vertical? Partner with the FinTechs that makes sense based on the market they’re trying to serve. And then it’s on them to figure out how to bundle the multiple partnerships they have, how do they deliver them? How do they contract them? How do they service them to make sure that the end corporate still benefits from having that trusted bank relationship, even though through that trusted bank relationship, they may be accessing a number of different third-party FinTechs? 

Craig Jeffrey: 

Yeah. With that, a couple of other results from the survey. And I do encourage anyone to look, you can look at strategictreasurer.com or Bottomline’s website to find more information on this report. But a couple areas here when we looked at companies FinTech strategy for B2B payments, fully half of the corporate respondents favored increasing their FinTech use versus just 8% plan to increase the use of bank developed solution. So there’s certainly a view on the corporate side FinTechs are playing there and that supports what your comment was. The second had to do with how Fintechs were winning on safety and value. And I just wanted to recap a few of these things for the setup to the question it’s what were the reasons or the key reasons why corporate AP professionals and treasury professionals preferred FinTechs? 

Craig Jeffrey: 

It was security and solutions robustness, were number one, we’re looking at relative costs that came in second and overall scope and breadth of functionality took third place. So there’s some definite preferences for this type of arrangement with FinTechs compared to banks or in some kind of balanced relationship. How should, and I’ll ask you from the corporate perspective, how should corporates think about this? What should be their mindset as they approach their banks, or as they approach FinTechs if it’s not through a bank to a FinTech? 

Brian Greehan: 

Corporate’s are really in the driving seat right now in the sense that they can have a really high bar in the days where they had to be satisfied with the off the shelf general bank offering are over. And there’s investment dollars flowing into a FinTech industry that targets particular verticals or market sizes. And with that, the solutions are getting much stronger. So if you’re using an ERP that’s specific to your vertical, you can probably find a payments banking services solution that ties into your ERP. So you can live in your ERP. So I think for corporates, the bar just needs to continue to rise or is continuing to rise and banks have to figure out how to meet that. And increasingly that’s by partnering with FinTechs. So when you look at the survey, corporates were seeking efficiency and cost was still important, but not the number one, efficiency was really what’s driving a lot of their decisions. 

Brian Greehan: 

They want faster processes. They want less people doing more administrative tasks such as matching invoices and things like that. They’re really seeking efficiency in faster payments, in 2020, it really just forced the issue more so than ever before, right? The idea of cutting checks or receiving checks right now, not so good. So the opportunity for corporates right now is to leverage a combination of FinTechs in banks or FinTechs through your bank to really drive efficiency that wasn’t possible before. And then Craig, the last comment I’d make is on fraud and risk. So in the B2B survey this year, we did see by a pretty healthy degree, banks are a little bit more focused on fraud than corporates. Banks, almost 70% of them were more concerned about payment fraud and the corporate side only about 52%. 

Brian Greehan: 

And I don’t think it’s because fraud is an afterthought for corporates. I think it’s just a different scale. So for a corporate, they hear about fraud, but it’s not really real until it happens to them. On the bank side, they’re looking across their customer base and they’re seeing it and they’re wondering who’s liable for it. And the risk is just really kind of staring them in the face. So I think banks are going to continue to focus on solving for fraud and risk and liability while corporates are going to continue to pursue efficiency and making sure the solution they have is really architected for the industry that they’re in. And I think those two things meeting in the middle is really going to drive the industry forward, right? Bank saw them for fraud, being really smart about it and corporate seeking and demanding efficiency in their processes. 

Craig Jeffrey: 

That’s helpful and scary in a way. Brian, I think my next question was going to be what’s driving AP and I was going to ask you about efficiency, security, staffing, and scalability, but it seems like fraud is near the top, if not the top, but what’s driving AP? And how has this changed over time? Maybe the interplay of efficiencies, security and scalability. And then I’d like to hear you comment on what does this mean? Is it just a fraud play or what should we be thinking about there? 

Brian Greehan: 

I think it’s difficult to say, what’s driving AP overall. I think it is a combination Craig of fraud efficiency, cost savings, at the same time, all those things align, right? A bank solving for fraud is going to help their corporates. Corporates seeking efficiency is going to force your banks to partner with more FinTechs and to think about APIs and ERP integrations a little bit more effectively. So again, it goes back to, I think, as we go into 2021 to be a corporate right now, I think is such an opportunity to raise the bar in terms of what you’re expecting from your bank relationship or from your FinTech relationship, because the solutions are going to continue to get stronger and stronger. 

Craig Jeffrey: 

And I want to go through a couple of stats and see if you have any comments on those. So we’re talking about AP, but we can also bring in treasury here. The internal department held responsible for loss due to fraud, AP 68%, the C-suite, so the executive suite 18% and treasury 14%, what do you make of that? 

Brian Greehan: 

I guess I could answer the question a couple of different ways, right? At the end of the day, depending on the magnitude of the loss, right? The C-suite is ultimately going to be held accountable and we’re seeing payments losses, the magnitude is increasing. So I think the C-suite certainly is not off the hook, but in terms of where the responsibility typically falls, it doesn’t surprise me that it’s in AP, right? Those are the folks on the front line. Those are the ones that are making the payments. Those are the ones that need to manage the manual processes. And if a company doesn’t invest in a stronger solution that takes away a lot of that manual lift and a lot of the administrative ask you’re really setting up your AP team to fail. So even though they’re held responsible today, I think at the end of the day, the company has to enable those folks to be successful by providing them with a smarter AP solution that does mitigate fraud. 

Craig Jeffrey: 

Yeah. Yeah. So it is surprising that it’s almost five times the number of treasury and treasury does payments as well, not as many, but just interesting to see how that’s escalated treasury decline and AP increase. So Brian is there some sort of influence between this next response that we had and the issue about the internal departments being held responsible for fraud with AP perhaps held more responsible than treasury by almost five fold? We asked what the APs leading driver for increasing automation number one was efficiency. And that was 62% of respondents indicated that as the top driver. Number two was cost savings, which relates to efficiency in many ways. And then third at 11% was security. Is this going at odds with one another? What can we think about this? 

Brian Greehan: 

Yeah, it’s a little alarming, right? That the folks that are being primarily held responsible for fraud loss are not necessarily thinking about it day in and day out. And there’s probably an opportunity within corporates to tighten up that gap, right? To get AP folks, to be a little bit more security minded at the same time, I can appreciate, again, the AP folks typically drowning in paperwork, drowning in process. And so for them, as they show up to work every day, they’re thinking about how do I get these payments out on time to the right folks and typically understaffed. 

Brian Greehan: 

And so again, sort of thinking about how do I do this efficiently and what do I need to do it more efficiently and not really necessarily thinking about security. And then at the same time, when an issue does happen, they’re going to be the ones held accountable. And so at the end of the day, though, when I look at a fraud loss for our corporate, it does come back to the C-suite. It does come back to treasury, even if AP is going to be held responsible in the day to day, it’s on the leadership of an organization to make sure they’re providing the best tools for AP to help them drive efficiency, but not at the expense of security. 

Craig Jeffrey: 

Yeah. It’s a tough balancing equation here. Moving on to this broader topic of digitization or automation or end to end automation fraud is not the only thing on the top of the mind as we’ve seen except for AP it’s number three, I would say, but we look at what’s at the forefront of the payables professional mind, or the treasury professionals mind with regard to digitization. It’s certainly a hot topic. It’s a massive change movement from paper processes to electronic, from manual to electronic. What is happening with the move to digital? How would you summarize that for our listeners? 

Brian Greehan: 

A couple of things. So A, I think it’s happening, right? So the top quartile of corporates are making more than 90% of their payments electronically. So I think for sure, we’re headed in the right direction, 2020 is only going to accelerate that, and we haven’t seen the stats, but that move towards digitization and efficiency, certainly going to be accelerated by the realities of 2020 with folks moving to remote. And then in terms of some of the complexity and the obstacles they face, I think for a middle market company, or even small business, their opportunity to drive security and efficiency can sometimes be accomplished in a single solution versus as you go up market in that enterprise space. Yes, they are sometimes more sophisticated from an ability or capability standpoint, at the same time, it’s very difficult to find a single solution. 

Brian Greehan: 

Their payment schemes are more complex. They may have different ERPs. So I think the ability to solve those is a little more challenging and will take a little bit more time. And then I think you look at companies overall, their B2B spend continues to be digitized at a pretty rapid clip and that’s great. And now they’re looking for what’s next, sort of that long tail. And I look at two opportunities there for banks, for FinTechs and for corporates to solve for. And one of them is on the B2C space. So a lot of these large organizations make a tremendous amount of B2B payments, but then also a lot of small dollar or sometimes larger dollar B2C payments. And they’re painful to make, they’re largely check based, results in a lot of [inaudible 00:17:56] issues as well. And the other piece of it is that for these payments, while maybe not as many of them, and certainly the dollar amount is not as rich, the importance of the payments, shouldn’t be diminished. 

Brian Greehan: 

These are going to customers usually. So the experience for the recipient is huge. These aren’t vendor payments, these are customer payments and the ability to provide a consumer with the ability to choose how they’re going to be paid with a brandment experience from a corporate, all considerations and all complexity is in terms of how you get to 100% digitization. And then the last piece, or maybe the piece that’s moving along at the same pace in terms of focus as B2C is global. So a lot of organizations, the vast majority of their payments here in the U.S. reside and their destination is in the U.S. they’re domestic payments. But increasingly you’re seeing, 1%, 5%, 10% of their payments are global payments, and how are they solving for those? How are they working with their bank or their FinTech to do that? So I think if you look at digitization and trends, even amongst market leaders, where 90% of their payments are already electronic, I think you’re going to see an opportunity and a focus on both B2C and global payments going forward. 

Craig Jeffrey: 

I wanted to get your feedback on this from this research and other research we do throughout the year, it looks to us by the time we get to the end of 2020, the movement from paper to electronic, or the movement to automation will in one year, will have achieved between two and two and a half years worth of typical movement to automation where COVID, and this work from home environment, all these situations created an accelerated movement to digital methods. Is that what you’re seeing too, in the space something along those lines, two to two and a half years worth of activity in one single year? 

Brian Greehan: 

Yeah, very much so Craig, and I wouldn’t have quantified any differently than that in terms of two, three years, maybe consolidate it into one, but I think it’s a combination or convergence of market expectations from both corporates, their vendors, the real need, not just the expectation, but the real need for improvement here, just given where 2020 has taken us. And then lastly, investment and on the investment side, whether it be from venture firms, from large institutions, the amount of investment flowing into this space to solve this issue, to address those needs to address those expectations is really unprecedented. And you think about it sort of in the consumer space years ago, with things like PayPal, Square, Venmo, it really changed, P&P and the consumer payments experience, Apple Pay, et cetera. And I think that’s what you’re seeing to some degree in the B2B space. And it’s going to really change the way that organizations pay and get paid over the next 12 months. 

Craig Jeffrey: 

Very good. Brian, I want to thank you so much for your time talking through this and your partnership in this industry research. This is invaluable, and I think it’s five years running we’ve done this together, but at the end, I wanted to give you a chance to make any final thoughts or closing remarks on either the survey or what’s happening here. 

Brian Greehan: 

Yeah, maybe this year more than any other, I’m excited to do this 12 months from now. So we just sort of made our prediction and we’ll put that stick in the ground and saying, we think we’re going to see huge advancement over the next 12 months. So for me, that’s the part I’m most excited about. Again, the expectations are there from corporates, from vendors, the need is there, the investment dollars are flowing. It just feels like we have gone over that tipping point. We’re really going to start to see progress that we’ve never seen before. And checks will always be there, but I think those are going to be more and more diminished, but more importantly, I think focus on security, the corporate experience, the vendor experience, and just sort of how B2B flows is going to really change over the next year. 

OUTRO: 

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