Prioritizing Payment Principles:
A Dialog on Virtual Card in Context

Announcer  00:04

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.

 

Craig Jeffery  00:17

Welcome to the Treasury Update Podcast. This is Craig Jeffery, your host today. Today’s episode is titled Prioritizing Payment Principles. We’re gonna have a dialogue on virtual card in context, in context of the economy, in context of what people are doing to manage their capital and drive efficiency. I’m joined by Anthony DeBellis, who is the VP of Product Management at Mastercard and Mark Penserini, who’s VP, Partner Management at Corpay. Welcome, Anthony and Mark.

 

Anthony DeBellis  00:47

Thanks, Craig.  Appreciate you having us.

 

Mark Penserini  00:49

Good to be here.

 

Craig Jeffery  00:50

Well, it’s good to have you here. And we’ve spoken many times in different forms, from podcasts to webinars to in person. So I’m glad you guys are here. So that’d be helpful to have a little bit of an introduction about your roles and responsibilities, just so the listeners know who you are, and where you’re talking from.  Anthony, I’ll begin with you if you just do a little introduction about you know what you’re doing at MasterCard, and then Mark we’ll move over to you.

 

Anthony DeBellis  01:14

Sure. So I’m a vice president in MasterCard’s North American commercial center of excellence. So basically, the team is a one stop shop for all things commercial payments. And specifically what I’m doing is I’m a product manager, looking after strategic partnerships. And then also I have a team developed, focused on developing next generation virtual card applications.

 

Craig Jeffery  01:37

Excellent. All right, Mark.

 

Mark Penserini  01:40

Thank you. Yeah, Mark Penserini, vice president of partner management for Corpay.  I’m in the what’s called the invoice pay division, which is what we call our full AP payment automation solutions. So in short order, a customer can send us their payment batch or their payment run and then we’re going to be responsible to make payments on their behalf to the vendors that they choose to pay that week, or however often they send it either by virtual card, ACH, or check. So we manage all of that from our side. Always great to be with Anthony. I mean, we’re we have a great partnership and have had for years.  I do like to say this, we are still the largest commercial issuer of MasterCard in the country. So we’re running a lot of virtual cards.  Again, just an exciting time to be in this business of payments.

 

Craig Jeffery  02:27

Awesome. Well, and both of you and your firm’s we’ve done research together and that’s, you know, research in the industry, that’s been really really interesting to see how payments and virtual cards and other activities, situations, services are changing that environment but but you know, continuing this discussion about, you know, prioritizing different payment principles, principles around payments, you know, on the receivable side, on the payable side? How are these macroeconomic situations where these events impacting both payments and liquidities? With their relationships with their banks with their payors or payees, suppliers or customers? Anthony, I’ll start with you this time. What are you, what are you seeing in terms of the impacts here? You, you work with a lot of huge organizations that span many, many companies. So you’ve got a macro view on this, too.

 

Anthony DeBellis  03:22

Yeah, thanks, Craig. I think there’s a couple of things, you know, one of which is we’re seeing companies really look for optionality when it comes to payment, when it comes to credit. And with that optionality, there’s, you know, biases towards certain things. And those certain things that I’m seeing in my space is both working capital, and security. So I’ll start with working capital, because it ties to a lot of what we just talked about. And you referenced it, Craig, and I’ll cite an E&Y study they put out earlier this year on, you know, where they survey 1200 global CEOs asking, Hey, what are your priorities for the next six months? 96% of them said it was pretty important to improve working capital. I think that speaks volumes to what’s happening in the market where folks are looking for ways to optimize working capital, and then how that relates to payments. Getting paid faster, optimizing payment terms, is a really, those are both really important levers that treasury teams have on hand to optimize their working capital.  You know, when you look at the virtual cards specifically, they can do a lot to facilitate these types of outcomes for companies, you know.  Typically, virtual cards when they’re offered as a payment method, they’re offered with some sort of payment acceleration. As a payer using a virtual card, you can also have some of opportunities to delay a payment or to create some space for operational reasons.

 

Mark Penserini  04:57

You kind of look back at this and you see even when the pandemic started, right, there was a, there was a start, what I think is a real shift. And we’ve heard this same for my whole life where cash flow is king, well, during the pandemic that I think became more of a reality. And what we saw from a payments company and a payment solution was, a lot of those vendors who were still taking check, all of a sudden said, timeout, I can’t do this anymore. First of all, I need my money faster. Secondly, I can’t afford to have people go to the, you know, go get all this stuff and figure out how to get it into the bank. So I gotta, I gotta stop that stuff. But, you know, so that was maybe the beginning of that shift, then then you have things like this that are starting to happen with banks and potential of recession, and in the credit squeeze is on, that cash flow is king still is a very important phrase. What I’ve also seen over the last three and a half years is there, I think, before the customer typically had a little more control or power over how they wanted to dictate payments to their suppliers. To me that’s flipped. Now the vendor is having more control over how they would need to be paid or want to be paid. Because again, they’re driven by a lot of the factors that are happening in the economy today, I need my money faster, I need it more secure, I don’t have time to wait for it, I’ve got to pay for inventory, or I’ve got to buy more inventory, I’ve got to change what I’m doing. And I don’t have time to hire and more FTE. So I think there’s a lot that goes into that. But we’ve really started to see that shift is as companies start to do more automation, we’re also seeing that vendors are doing more automation, but they’re also driving the determination of how those payments are being made. So it’s a very, it’s a very interesting dynamic we’ve seen over the last three years,

 

Anthony DeBellis  06:57

Mark, I couldn’t agree more. I mean, in our space, in our commercial teams, you know, a lot of time and energy is spent on looking at ways to address acceptance differently. What I mean by acceptance is looking for the value prop of the supplier to receive a certain payment modality, virtual card or otherwise. And that’s because there is such a focus there and there is such a drive, and there is real leverage there on the supplier side to really control those outcomes more so than before. I think there’s really a lot of interesting work being done across, you know, across the ecosystem in this, I’m sure you see it in your world, I see it in my world, but seems like the last few years, specifically, there’s been a lot of investment, I can speak for MasterCard, but I’m sure for many others in ways to, to ensure that, you know, suppliers are really seeing that value and have a real say in how they get paid and where the value prop is for getting paid.

 

Mark Penserini  07:55

And it’s interesting to me too, you know, it used to be a lot of vendors would say, hey, you know, I’ll only take card for this for this amount, and I can’t take it for any more, because there’s fees and all of that. And we can get into all that kind of stuff. But those are changing too. People are just you know, they’re building in the cost of doing business, that’s just cost of doing business. So it really doesn’t matter whether the card or the vendor payments for 5000 or 50,000. I want to pay this way, because this is the most secure and the fastest way, which is virtual card. I know I’m gonna have my money today, I don’t have to wait three or four days or hopefully get it whenever we’re just seeing a lot of those kinds of shifts. The other thing I think is interesting is we are seeing more of our customers negotiate those early pay discounts, right? I mean, they’ve been around forever. But again, I think it’s the cash flow is king, this whole thought of, I better start getting my ducks in order. This isn’t a pandemic, but it potentially could be a recession or potentially could be something else with the banks doing what they’re doing that I just need to be prepared. So we’re seeing a lot more vendors negotiate those kinds of discounts. And on top of it, not necessarily taking ACH, but still want to get it on card because they want it that much faster. And they’re willing, they’re willing to take the discount and do that because they want the money in their in their bank account and they want the money for their cash flow and their needs. So there’s a lot of shifting going on. And in the world of payments right now from my perspective.

 

Anthony DeBellis  09:25

I feel like the reconciliation benefits mark there are another big thing that I’m seeing in my space where you know certain payment modalities. When a supplier receives a payment, they lack the information to know how exactly to apply that and you’re talking about you know, you’re getting let’s, let’s just put this in perspective, you’re getting a payment that’s across 120 invoices and three credits. It’s not so easy to necessary, necessarily apply it.  In this space specifically with virtual cards, there’s been so much work done in terms of providing that rich remittance details. They give so much time and space back to vendors on their AR process, which is just just, you know, it’s an important thing. And, and it’s another value prop along the way.

 

Craig Jeffery  10:12

You know, I think his you guys have been as you guys have been chatting them thinking, oh yeah, I need to ask some questions and interject here this is, but I’m just listening to you guys geek out on some of this good content. But you know, like this idea of you know, what have some impact, you both said something along the lines of, you know, getting your money sooner, and it made me think of the situation. In crises we’ve met, we’ve monitored this and surveyed this, when we go into some kind of crises, people hold back payments, significantly, like the last really big time was COVID. Like that became the the big issue, we got held back, this delaying payments is is a challenge for certainly for the receiving end. And this happens every single quarter, there’s window dressing that occurs and people hold back payments the last week, the last two weeks, the last month. And that whole idea of sometimes the you know, the payment sent payment received is exactly the same time. So if I pay later you receive later. And so it becomes this win loss. And so for things like, hey, I can pay, I can pay sooner, but I’m able to hold my money that’s accomplished with things like virtual card, right? So it’s not linear. It’s not, it’s not connected. It’s there’s space put in, I think that’s how you refer to it, Anthony. And same thing with, you know, some of the supply chain financing vehicles, they provide other funding in there. So these types of tools that add space help, especially in these type of environments. And so this whole resurgence for those those type of vehicles is in this type of environment is seems to be well earned. And you know, if we look at some of the survey data, 21% of firms pay at least 20% of their invoices. Late, right, so 1/5 pay at least 1/5 or invoices late. There’s more data than that, but it’s like, and then when there’s an issue, like we did that during COVID, we hit over 40% we’re intentionally paying late.  In regular times, it’s still pretty significant.  In bad times, it gets exacerbated. So that’s a that’s a key area.

 

Mark Penserini  12:20

And can you imagine getting as the receiver, the receivable piece, getting paid that late, and then it’s coming in the mail, it’s a check. I’m like, Oh, my gosh, we’re in 2023. Right. It’s like, really?  But that I mean, talk about exacerbating the problem on top of it. So it’s, it’s, it’s amazing to me that we still have to write checks, but I just I would be dying, if I was if I was on the receivable side of this, and my customers already paying me late, and then they’re just sticking in the mail. And now I gotta wait for the Postal Service to get it to me. So it just, you know, just makes it worse.

 

Anthony DeBellis  12:59

You know, one thing we saw, and Craig we saw this in the survey we did together, the virtual card survey, that even though it’s a relative minority of payments that are outside of terms, they have a huge impact in terms of friction across an AP spend. So even if you’re paying late 10 20% of time, that 10 20% of time is going to cause escalations, business relationship issues, all sorts of noise and time to deal with it. Just because it’s a relative minority, it creates an outsized impact for organizations to deal with the fallout from it.

 

Craig Jeffery  13:40

I know you guys love virtual cards, and there are their payment types, of course, but in a world where there’s a lot of different payment types, and there’s new payment rails and payment types that come out. But when there’s when there’s certain options that work well or fit certain b2b payment types or situations, we can see different things being different methods being used. When virtual cards were introduced, they were put forth to expand some of those options. And I think in large part to expand the world of card to address that. So this was certainly the case with V cards when they first came out. And then some of the newer features were built to address some of the sticking points that came out when virtual cards first came out, you know, issues perhaps on the receiving end or on the sending end.  I guess want to ask the question this way, really to think about the process. You know, if you think of companies want flexibility, insight, visibility, efficiencies, control, you know, we talked about, you mentioned some things about security. But if we’re looking at those things, what what were some of the sticking points in the early days of virtual card?

 

Anthony DeBellis  14:47

I can kick us off here. I think the biggest sticking point historically has been vendor adoption, right?  Showing the value prop to vendors getting the time and space to do a proper enablement campaign and doing that, you know, in a thoughtful way. And I think, you know, I’ve seen over the years I’ve been involved in this space, it’s come a tremendous way, there’s been a lot of expertise built up, a lot of value provided to suppliers throughout the process, more data driven approaches to how companies and issuers look at campaigns.  That was, I’d say, historically a sticking point and one that’s come very, very far. And the way you can quantifiably see that it’s come far is just in the growth rate of virtual cars. You know, we’re talking about, you know, by some estimates, over 20% annual CAGR forecasted over the next five years. And that really speaks volumes to overcoming this challenge.

 

Craig Jeffery  15:49

So Anthony, is that this greater adoption? Is that is that the network effect that people sign up and then they’re easier to onboard? Or is it because they’re just more open to it because they’ve done it once or twice before, and you’re still onboarding them separately? Any any thoughts on that?

 

Anthony DeBellis  16:08

I think I think you know, getting past the early adoption curve is certainly an element of it, of making it more common vernacular in the payment space. But there’s a there’s many other things, you know, we touched on earlier, how file remittance has come a long way, and how rich remittance details have been embedded into, into card payments. Also just the approach of how companies are going out to the suppliers, and really showing the value of how this programs like this can can actually make a supplier’s life easier from a receipt perspective. That’s a key one.  Advances in straight through processing. Really interesting things there. So just just to kind of dispel that quickly, you know, traditionally, suppliers would receive an email with details to a portal that they go download their card number and process it themselves. And that was all called the old way. And what’s been the new way that it’s been developing it and increasing rapidly straight through processing, where the virtual card is effectively an automated payment and funds are injected directly into the suppliers account feels and looks much more like a like an ACH payment than it does a card payment.

 

Mark Penserini  17:20

It’s like anything, I think the virtual card has evolved as well. You know, we talk about this a lot on our side about it being the most secure, fastest way for a vendor to be paid, then it’s like, okay, but what does that mean?  There are different types of of virtual card payments that you can make today. And we utilize what’s called a single use single swipe card. So that’s where the security comes from. I mean, one, it’s got to be used within that customer that vendor’s point of sale system, because that’s who it’s tied to, and it’s going to go into their bank account. But now it’s it can only be swiped once and people don’t people didn’t realize that right? Or, you know, when you explain that to a vendor, it’s like, Wait, yeah, this isn’t a debit card, it can’t be used for any other reason, it’s got to be swiped once and it’s got to be swiped for the exact amount of the remittance, right. So it all ties together. And then it becomes much more simpler for the vendor and the receiving department to go, Okay, this is easy, right? I can reconcile this, I don’t have to worry about trying to swipe it multiple times, because I’ve got five invoices in here, and I’ve got to balance all this. And it’s, it’s very secure, because it can only be used by the vendor, it can only be swiped once and it has to be swiped for the exact amount of that vendor payment. So those are things I think that have really gone a long way to build confidence with vendors that you know what, card card is secure for me to be able to utilize and for me to be able to get my money and to get it faster. And it’s just more widely used. Everybody always asked me if I’m at a conference or whatever, you know, are you seeing card adoption drop? No.  To Anthony’s point, it’s going the other way. And for a lot of reasons. ACH is kind of scary right now. I mean, just the amount of fraud that you have to fight and deal with. If you’re trying to manage and store your own vendor’s, banking information. I do not want to be in your AP department. I’m just being honest, that’s a that’s a lot of pressure. And I don’t have to do any of that with a card. Right? I just I can process the card vendors gonna get it, we’re done with it. There’s no ACH issues for me to deal with. There’s no banking information for me to store or have to pass. Those are I think the added benefits that people are now starting to latch on to that you know what, this is a lot simpler. And it’s just going to be a lot easier for me in the long run. Everything has a cost. ACH has a bigger cost than anybody thinks, and card has a cost, they all do. And it’s again that goes back to I think more and more vendors are getting smarter about this is just part of doing business, I need to build this into my business model, people need to understand that this is just the way it works. And it’s all it’s all in there, right. But that goes back to having more information, more data, so I can price things properly, and build those costs in, so I can take advantage of getting my cash faster.

 

Craig Jeffery  20:22

That’s, that’s really interesting, as you think about the different payment types, everyone’s pursuing this, not only paying in whatever timeframe that exists, but this security and so you’re, they’re trying to remove the payment information that’s, that’s there, you do that by tokenization, you do that by one time use, you do that by controlling the amounts, either through bank services, electronically or whatever from from an ACH standpoint, or just using a virtual card, one time use number. All of these are meant to duress, the big issue that’s out there. I mean, there, everybody’s been attacked on the payment side. And it’s very sophisticated. It’s not letting up at all. You know, you kept you kept saying swiped. And that’s more of an industry term. But can you swipe a virtual card? Right?

 

Mark Penserini  21:10

Yeah, I mean, I mean, the term virtual card, is that right? I mean, there’s no plastic, right. But most most systems, if you’re working, if you’re taking card or you have a merchant acquirer, you have the ability to basically go into your point of sale system, and enter the data, right, which is technically swiping it just like if you were at a store, and you handed them your card, they’re going to swipe it through a machine or stick it now into a machine. But yeah, old school, I guess I’m getting old.

 

Craig Jeffery  21:36

Yeah, the points are, it’s just as like it’s become virtual. So there is no, there is no card and the card numbers used once for a specific amount, and, and it basically disappears, you know, it’s like, it’s no longer available to be stolen. So thanks for letting me have a little fun with you on that.

 

Mark Penserini  21:52

Well, and to your point, right, I mean, the vendor, and the next time they get paid, they’re gonna get a new number, right. So you never, that’s the other thing you don’t have to worry about is the vendors never going to get the same card number.  We regenerate that number with MasterCard’s help every time we issue a payment. So again, more security, you don’t have to worry about any of your banking information. And you don’t even have to worry about the card number being the same, because it’s going to change the next time you get paid.

 

Craig Jeffery  22:18

Some of the data shows that increase control over payment workflows to reduce fraud. Top item, right, those identified is very important, important. Number two, processing costs was close number number two, right? So it’s, there’s always an efficiency play. And certainly the last five years, this idea of control was really, really significant. Anything else on the processing cost, or, you know, the issue of communicating, you know, to support the straight through processing, right? So, if you send stuff and they don’t know how to apply it, there’s a phone call back or there’s an email back, saying What were you paying?  And then you’ve broken two companies processes.  Anything else on that topic about payment types, or even, even virtual card that that’s helping to address the virtual card support for for those drivers?

 

Anthony DeBellis  23:13

I mean, I could touch on something we’ve been working on at MasterCard, we’ve been working to apply artificial intelligence and machine learning to corporate payment data and invoice data. So we can help companies actually make that payment decision faster and in an automated way, and then pair that with straight through processing. So from a supplier’s perspective, they have this outcome where they can send their their customer an invoice and within a few days, receive a virtual card payment that, to Mark’s point, is secure control control has rich remittance details. So just Mark, Craig and Mark it just an example of innovation that we’re looking at in the space too.  Applying AI and ML, and pairing that with straight through processing.

 

Mark Penserini  23:59

Again, I’m kind of an old dude, but I’m excited to see where some of this AI stuffs gonna take us. Again, I’m still baffled by the percentage of checks that we write to vendors every day, it just blows my mind. I, you know, on a personal level, and for most people, I mean, I haven’t had a checking account for or having a check of a checking account. I don’t even call it a checking account, but I’ve had one for years, but I don’t have any checks. I haven’t had checks for years, but we still are kind of stuck with a pretty decent percentage of of writing checks. And it just amazes me.

 

Anthony DeBellis  24:37

To that point. I mean, that’s where the fraud is.  Like over the last three and a half years of COVID, I think check fraud has increased over 50% by some studies.  Over 50% increases in that payment modality.  And then you tag on all the other things you have to do to write a check, to mail a check, to receive a check, to cash a check, to reconcile the payment, etc, and so on. It’s amazing. It’s amazing.

 

Mark Penserini  25:08

Well, the technology is being used against us or against people who write checks. I mean, the ability now to what used to be in my day and age was white washing, right, which was basically wiping out the name on the cheque and putting somebody else’s name on it or changing the amount. Now, they’re just using technology to do it. I mean, it’s so simple to be able to manipulate an actual check and deposit that and there’s nothing you can do about it.

 

Craig Jeffery  25:37

The biggest problems with checks in my view is not that they’re expensive, they’re inefficient, they cause paper cuts, or they’re very susceptible to fraud, is that when we talk with like, our European counterparts, they just make fun of us relentlessly about it. And it’s like, what do you say? It’s like, okay, there’s less checks each year, but they’re going away. So I want to move on to final thoughts. And, Mark, I’ll begin with you and then let Anthony close out. So you know, just as you leave the audience with some of these thoughts, I think everybody knows the, the eagerness you guys have around virtual cards and how that’s changed over time this has been, there’s been a great discussion, but what principle for payments or point of emphasis, would you want a corporate payments professional to focus on after listening to you?

 

Mark Penserini  26:23

For your own internal AP department, a lot of this we’ve talked about still goes back to the underlying issue of security.  It’s your security for your data, it’s your security of your vendors’ data. And it’s the relationship that you have with your vendors that’s so important to your business and to their business. So I think it’s, it’s just making sure that you’re doing everything you can to hopefully move away from these manual processes, and particularly away from paper and move into this digital world in a very secure fashion. There’s so much opportunity right now to establish the proper guidelines. And there’s plenty of help out there. So I think for me, that’s the biggest thing, I mean, virtual card again, like I said, it’s the most secure, fastest way to pay a vendor. But it’s also I think, for your own self self, just making sure that your business and your AP department is shored up from a security standpoint.

 

Craig Jeffery  27:26

So security is the top thing from Mark’s perspective.  Anthony, anything that you’d like to leave the audience with?

 

Anthony DeBellis  27:34

Completely agree with, with what Mark said about security. I think another key tip just think about is for companies, it’s just optionality and thinking about there’s never going to be a one size fits all. But there are a lot of options and tools out there to hit the objectives that you as a company have. And there’s overarching principles to apply.  You know, security, completely agree with Mark, is one of them. And then other things could be, you know, working capital, other things could be efficiency. And I think efficiency in this day and age is going to be, especially for AP teams, more and more important. And then all these things more and more from a payer perspective, should really be wrapped in value to your vendors, to your suppliers. I mean, these are these are important business relationships. And you know, Mark, you raise the important point too, vendors are having an outsized or an increased level of influence into the way that they’re getting paid. To be a good partner to your vendors, is to really go shoulder to shoulder and show them how you’re providing them value, whether that’s safeguarding their payments, providing richer remittance details, helping them get paid faster, whatever the outcome is, I think all those things really go hand in hand.

 

Craig Jeffery  28:52

Excellent. Thank you, Anthony and Mark.  Really appreciate your time on today’s Treasury Update Podcast.

 

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