Five intrinsic problems with bank B2B payment solutions
This dates me, but I don’t mind telling you: I used to sell Yellow Pages advertising on the North Carolina Coast. It’s a resort area, and it used to be that when people vacationed down there, they went to the phone book to find restaurants and doctors and whatever else they needed. Then the internet blew up and I found overnight that I was selling an outdated product.
Realizing the Yellow Pages were on the way out, I switched to selling business-to-business payment solutions for a regional bank. Then cloud technology came along and again I found myself selling a suddenly outdated product.
New payments-as-a-service companies using cloud technology and good old-fashioned human customer service are outperforming bank payment solutions, finally offering business customers the functionality and service they’ve long desired. It was a no-brainer for me to hop over to selling a cloud solution. I knew I made the right decision when a company I’d been trying to sell my old solution to for years hopped right onboard with my new solution. Here are five reasons why you should, too:
1. Configurable, business-owned solutions. Supplier payments only account for a tiny slice of bank revenue, and they invest in them accordingly. Only one bank actually has their own payment technology, so the service most sell has the bank’s name on it, yet is actually outsourced to one of a couple of third-party technology providers.
Every company has different accounting needs, AP systems and workflows, but the legacy client-server technology these providers use doesn’t allow for any kind of customization. It’s challenging for the bank’s account reps to help customers. If a customer needs something configured, it can take a year or more (if the technology provider is even willing to do it). Even simple requests such as vendor information updates can sometimes take three or four months to process.
Payments companies, on the other hand, focus solely on payments and continually invest in technology and services to solve all the challenges that surround them. With cloud technology, AP departments can easily configure the software themselves to meet their needs.
2. One workflow. Banks offer different solutions for each type of payment: card, ACH and checks. Each is handled by a different division of the bank and requires a separate workflow. On top of that, not all banks offer all solutions. Banks make the most money on card payments, so some banks don’t offer any other payment solutions. You may have to work with a couple of banks to get all the pieces. That’s complicated. Another possible complication: it’s not uncommon for the terms and conditions of your relationship with your credit facility to bar you from using a payment solution from a competing bank.
In contrast, cloud solutions let you make all types of payments within a single workflow. You select the payments you want to make, click ‘pay’ and the technology takes over and makes them in the most advantageous way: by credit card, if possible, then ACH, and if neither of those are possible, by check. And since these payment service providers aren’t banks, they don’t interfere with relationships with your existing credit facilities.
3. No underwriting necessary. With bank payment solutions, the bank disburses payments on behalf of the customer. They sweep the account a few days later, so they’re actually floating the customer the money. That’s a risk for the bank, so it requires underwriting, which shows up on your balance sheet as debt in the form of a line of credit. That can have an impact on your credit rating and borrowing ability.
Cloud solutions don’t require underwriting because they use the customer’s own money. They sweep the account immediately upon receiving the payment file. There’s no float, but of course there’s very little value to the float when interest rates are so low. Any small gains from playing the float are far outweighed by the opportunity to increase card rebates, not to mention the operational efficiency realized by having a single workflow.
4. Supplier enablement and management. Managing supplier payment information is half the battle when it comes to card and ACH payments. Bank solutions only partially address it. They typically won’t enable suppliers with whom you spend less than about $20,000 a year. That leaves out a lot of suppliers.
And supplier information is always changing. Banks rely on their account managers to go back to the customer and get updated vendor lists and submit them to the technology provider. That’s not a high-priority task for someone who’s incentivized on new sales, and in the time it takes for the software company to make the updates, some of the information will already be out of date.
Since each division within the bank is only working with the suppliers that take the payment type they’re supporting, they have no way to share information; they have no way of knowing if a supplier who used to only take checks or ACH now takes cards, for example. It’s very hard to optimize your payments program this way. Consequently, you could be leaving a lot of money on the table in card rebates or other payment perks.
Payments-as-a-service providers in the cloud continuously update supplier information across their database. Technology alerts them to changes in payment types accepted, and if they get an alert that a supplier now accepts credit cards that information is shared with every customer doing business with that supplier.
5. End-to-end payment management. Bank solutions really just provide different pipes for moving different types of payment. They don’t provide much in the way of services on the front-end, or the back-end. As anyone in AP knows, payment isn’t really done until it’s received and reconciled. Chasing down failed payments eats up a lot of AP time that could be better spent on more strategic activities.
With cloud platforms, customers and vendors have full visibility into the progress of the payment at all times. Technology helps to identify exceptions before errors are made. If errors are made, customer service representatives follow up and fix them. For the customer, it’s an end-to-end solution that sees the payment through all the way to reconciliation.
Of course, these payment solutions come with all the other well-known advantages of cloud technology: easy integration, intuitive user interface, subscription-based pricing, and no setup or cancellation fees. I’ve seen this movie before, and I can tell you how it ends: bank payment solutions are about to go the way of the Yellow Pages.