How Banks Can Grab a Slice of the $11 Trillion B2B Pie

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A team of economists at the Federal Reserve has tracked noncash payment trends in the U.S. since 2001, including the number and value of transactions across all major payment methods.

Leveraging their December 2021 Payments Study update, Visa’s Business Solutions team estimates there were 2.9 billion B2B checks for an estimated $11.8 trillion. This represents 26% of all checks paid by U.S. depository institutions and 57% of paid check dollar value, based on the Fed’s 2018 Check Sample Survey. Given the ongoing decline in check use by U.S. consumers, we suspect the B2B share is likely even higher today.

Despite decades of decline in check use, check displacement is still a massive growth opportunity for electronic payments, particularly for commercial card. For context, commercial card rails process an estimated $500 billion in business spend — equivalent to just 4% percent of the value of B2B checks, according to McKinsey & Co.’s U.S. Payments Map estimating 2020 U.S. commercial card spend at $485 billion.

Readers are likely familiar with the traditional challenges to commercial card acceptance by suppliers: card processing fees, manual processing of virtual card payments, accounts receivable reconciliation, among others. These challenges are real, but payments innovators are making strides on these daily. For example, let’s consider the inertia by corporate buyers who write all these checks. According to the Fed’s last Check Sample Survey, 82% of B2B checks were for $2,500 or less; 55% were for $500 or less.

These low-value transactions can be paid via a commercial card, right? Unfortunately, too few buyers feel motivated to pursue these opportunities. Often the return on investment feels too low to track down all the data about where these checks are going and then convince suppliers to accept card. Generating a consolidated spend file may require tapping into multiple systems with disparate data structures. In the end, fewer than half of a company’s suppliers are likely to accept commercial cards. It’s no wonder decision makers don’t jump at the chance when bank salespeople ask for a spend file simply to determine if there’s an opportunity worth pursuing.

A New Operating Model
But what if that weren’t the model? What if we took the burden of finding opportunities away from the corporate client entirely? What if a card salesperson showed up at the door with a credible opportunity already in hand? There’s one model that client banks can tap into that does just that.

Each of the 2.9 billion B2B checks paid every year is paid by a financial institution. Most financial institutions (or their processors) use optical character recognition (OCR) in the daily processing of those checks. By repurposing OCR data from checks, banks can identify which suppliers their corporate customers are paying that already accept commercial card, and then pinpointing which business bank customers have the greatest opportunity to shift check spend with those suppliers to card. These banks’ salespeople no longer begin a client conversation by asking for a spend file. Instead, they present a credible analysis, based on the client’s own payments volume processed by the bank.

What used to be a data mining project for the client becomes a simple, data-driven decision about how to move forward. Banks are in a unique position to approach business customers about these opportunities. Without the deposit relationship, commercial card salespeople must use the old model.

If it sounds too good to be true, it’s not. But it does take work. Some could make the argument that the easy growth in commercial card is over; that commercial card issuers are in a race to the bottom. We are more optimistic than that. We believe there is a tremendous, untapped opportunity out there: an $11.8 trillion pie in the form of 2.9 billion B2B checks.

The Great Payments Opportunity

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payments-5-20-19.pngBanks have an opportunity to deepen relationships with their corporate customers facing payment challenges. One promising product could be integrated receivables solutions.

While most business-to-business payments are still done through paper check, electronic payments are growing rapidly. Paper checks remain at about 50 percent of business-to-business payments, according to the 2016 Electronic Payments Survey by the Association for Financial Professionals. But Automated Clearing House payments grew 9.4 percent in 2018, according to the National Automated Clearinghouse Association — a trend that is forcing businesses with high receivables volumes to look for ways to process electronic payments more efficiently.

Electronic payments create unique challenges for bank corporate customers. While the deposit is received electronically at the bank, the remittance and detailed payment information are typically sent separately in an email, document or spreadsheet. The corporate treasurer must manually connect, or re-associate, the remittance information to the deposit, which creates delays in crediting the customers’ account. As electronic ACH volumes increase, treasurers solve this problem by hiring more accounting staff to reconcile these payments.

Corporates also face added complexity from payment networks, which are becoming a more common way for large companies to pay their suppliers. While more efficient for the payer, this process requires treasury staff to log onto multiple payment network aggregation sites and download the remittance information. These downloaded files require manual re-association to the payment in order to credit the customer’s account, which requires adding more staff.

Corporates are also using mobile to accept field payments, like collecting payment on the delivery of goods or services, new customer orders or credit holds and collections. However, mobile payments again force treasurers to manually reconcile them. Moreover, most commercial banking mobile applications are designed for the treasurer of the business, with features such as balances, history and transfers. Collecting field payments needs to be configured so that field representative can simply collect the payments and remittance.

The corporate treasurer needs increased levels of automation to solve these challenges and problems. Traditional bank lockbox processing was designed for checks and relies on manual entry of the corporate’s payments and delivery of a reconciled file. This paper-based approach will be insufficient as more payments become electronic.

Treasurers should consider integrated receivables systems that match all payments types from all payment channels using artificial intelligence. A consolidated payment file updates the corporate’s enterprise resource planning system once these payments are processed. The integrated receivable solution then provides the corporate with a single archive of all their payments, rather than just a lockbox.

Right now, corporate customers are looking to financial technology firms for integrated receivable solutions because banks are moving too slowly. This disintermediates corporate customers from the banks they do business with. But almost 73 percent of corporate treasurers believe it is important or very important for their bank to provide integrated receivables, according to Aite.

This is an opportunity for bankers. The integrated receivable market offers many software solutions for banks so they can quickly ramp up and meet the needs of their corporate customers.

Bankers have a wide range of fintech partners to choose from for integrated receivables software and should look for one with expertise and knowledge of the corporate market. The solutions should leverage artificial intelligence and robotic process automation to process payments from any channel, include security with high availability and be easy for the bank and corporate customers to use.

Have MVB and BillGO Reached True Financial Symbiosis?

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payments-7-18-18.pngSometimes a fintech partnership doesn’t result in a new product or service for the bank but can still result in new opportunities for both organizations. The relationship between BillGO, a real-time payments provider based in Fort Collins, Colorado, and MVB Financial Corp., a $1.6 billion asset financial holding company headquartered in Fairmont, West Virginia, isn’t your typical partnership story. Instead, it’s an example of true symbiosis between a bank and a fintech firm, with MVB gaining deposits and fee income while helping BillGO scale its real-time payments solution to more than 5,000 banks and credit unions. Less than a year ago, the company worked with just 200 institutions. It plans to go live with another 3,000 in the next few months.

The two companies were recognized as finalists for the Best of FinXTech Partnership at Bank Director’s 2018 Best of FinXTech Awards.

MVB supports BillGO’s growth in a number of ways. The bank processes its payments, resulting in fee income for MVB. The bank also holds deposits for the company and its B2B clients in connection with their transactions. And the bank’s compliance expertise is another key benefit. “We keep them out of trouble, so to speak,” says MVB CEO Larry Mazza.

This growing understanding of the fintech industry’s needs, gained in part due to its relationship with BillGO, is quietly turning MVB into a bank of choice for fintech firms.

“We’re meeting other, more mature fintech companies that allow us to help them in different ways,” Mazza says. “It’s really started to be very positive for us, in learning fintech [and] in profitability, deposits as well as fee income.”

“They don’t really advertise it, but they do have a specialty with fintech because of their compliance [expertise], because of their ability with payments and their ability with partnerships to deliver some unique offerings that fintech companies can’t normally do by themselves,” says BillGO CEO Dan Holt.

Before partnering with MVB, BillGO worked with a larger bank, but Holt says MVB is a Goldilocks-style bank for the company: Big enough to help the company scale, but small enough to make decisions quickly and develop an in-depth relationship with his company. Holt adds that his company has access to MVB’s executive team, unlike his previous banking provider.

And MVB is an investor in BillGO. “I felt this would be a really good [way] for us to start the process of investing in fintech,” says Mazza. “Once you invest money in it, it definitely piques your interest.” He describes the bank as an active investor, and Mazza has served on the company’s board since January 2017.

This expertise has been invaluable for BillGO, given Mazza’s financial background and his ability to shed light on the needs of the banking industry, says Holt.

Just as the BillGO relationship is a strong reputation-builder for MVB with other fintech firms, Holt says that MVB’s investment in BillGO speaks volumes about his company’s reputation to potential bank clients. New customers feel more comfortable knowing a traditional financial institution is an investor and has completed the associated due diligence.

Holt joined the MVB board late last year as an extension of the partnership between the two organizations, and Mazza says his background has been highly beneficial to the bank. “[Holt] has intimate knowledge into the industry and payment processing,” says Mazza, and his expertise enhances board discussions about technology trends and opportunities. “Our board members could see the difference.”

Many bank boards struggle to add tech-savvy directors, with 44 percent of bank directors and executives in Bank Director’s 2018 Compensation Survey citing this as a key challenge.

“Banks are more traditional. They really honor regulation,” says Mazza. “It’s our lifeblood, and we have taken regulation extremely seriously. We see regulation as a competitive advantage, if we do it right.” But partnering with BillGO, and adding Holt to the board, is helping MVB think like a startup as well. “That has changed our lives,” he says. “BillGO has helped us think more innovatively [and be] more forward-thinking.”

Automating Middle Market Vendor Payments with Commercial Cards

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vendor-payments-7-5-17.pngWhy are so many businesses still using checks for vendor payments, after all these years? Advances in payment technology has created better ways to pay and be paid and there are now opportunities for banks to offer something different. BC Krishna, the president and CEO of MineralTree, and Justin King, senior director of partnerships at Visa, sit down to discuss this issue in the following Q&A.

Q: Why are middle market businesses continuing to use checks for vendor payments?
JK: First, there is a perception among middle-market companies that checks are convenient, quick and secure. However, sending and receiving checks creates significant waste in the form of higher processing costs (for both suppliers and buyers) and lost cash flow (for suppliers). Furthermore, recent research from the Association of American Certified Fraud Examiners (ACFE) shows that a majority of business-to-business payment fraud is check-based. Second, middle-market companies sometimes do not have access to the bank and technology platforms that are helping drive payment optimization among large companies over the recent years. These feature-rich tools can help optimize payments holistically by enabling payment to the right supplier, with the right payment method, at the right time.

BC: On the surface, checks are easy. There’s no supplier enrollment. There are no questions such as: Are you a card-accepting merchant? Do you accept my card? Sending remittance detail, which is critical for any invoice payment, is trivial. The detail is on every check stub, and getting setup to send checks is simple. There’s no need to be underwritten for cards or ACH. There are no limits on how many checks I can send out. However, checks are slow and paper-based so they require more manual work to create and send. There is also no guarantee as to when the payment will arrive at the vendor’s location that could put you at risk for late-payment penalties.

Q: Are commercial cards in broad use for making vendor payments, as opposed to just travel and entertainment?
JK: Commercial cards for vendor payments, or virtual commercial cards, are being leveraged broadly for a variety of use cases among large market companies in the U.S. and Canada. They are also a growing payment product outside North America and emerging as a key payment method for small to medium sized businesses in the U.S.

BC: Our experience is that commercial cards are still an emerging payment vehicle, especially for middle market companies. The market is gaining more awareness of the benefits, principally to buyers, of card-based payments, but it is still early days. The market opportunity is gigantic.

Q: What is keeping commercial cards from being THE payment method of choice for vendor payments?
JK: Research shows that there are three primary perceptions that can be barriers to the adoption of virtual commercial cards. Those are unknown value to the organization, anticipated supplier resistance and lack of technical resources to perform a system integration with a payables platform. We know from experience that these barriers can be overcome with the right platforms, the right processes and the right client education.

BC: I completely agree with Justin. Cost—to the supplier—is a factor too. Vendor payments are usually higher value than travel and entertainment expenses. Middle market vendor payments can average $2,500 per item, and there may be some resistance to adopting electronic payments if there is concern about the security of these transactions, for example. The good news is that there are payables platforms that help protect organizations against fraud and provide access to one-time use cards as a payment method.

Q: What is the relationship between MineralTree and Visa about?
JK: MineralTree and Visa have a strategic alliance, under which MineralTree has integrated with Visa’s accounts payable automation capabilities. These capabilities enable MineralTree, together with participating Visa financial institutions in the U.S., to provide the bank’s corporate clients with a full suite of Visa virtual commercial card creation, controls management and processing.

BC: We want to make it easy to enable a Visa financial institution to drive commercial card adoption. And that means eliminating the hurdles of integration and supplier enrollment. It also delivers a packaged solution that addresses the accounts payable vendor management pain that middle market clients experience.

Q: Can smaller issuers benefit from a commercial card program?
JK: Not all issuers have commercial cards, but most financial institutions that have a significant customer base of middle market and large market organizations often offer a commercial card program to clients. These programs drive an opportunity to diversify revenue streams, create greater customer stickiness, and deploy a product capability highly desired among commercial customers. Issuers of all sizes can benefit from having a commercial card program.

Mozido: Friend or Foe

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friend-or-foe-3.png

About two billion people are completely unbanked across the globe today. These are individuals with no checking, savings accounts or credit cards. They lack basic financial services that people in developed economies take for granted.

That said, there are also over six billion smartphones in the world. It’s now common even for the unbanked in developing economies to own some kind of mobile device. These individuals represent a huge, ignored opportunity for financial service providers. They’re exactly the people that mobile payments technology provider Mozido aims to serve. Mozido’s core technology is a cloud-based mobile payments platform for both consumers and businesses. Within that are mobile financial services, payments and loyalty programs. All someone needs to make use of the platform is access to a mobile device.

So what does this opportunity look like for banks?

THE GOOD:
One of the best-use scenarios for Mozido is bill bay for the unbanked. These are the people that stand in line at an office or local convenience store to pay their bills with cash. With Mozido’s mobile wallet, consumers can instead “top up” their account through verified merchants. Instead of waiting in line to pay their bills with cash, people can pay through the Mozido mobile wallet. The mobile wallet also functions for a variety of other payments. Think of international money transfers that the unbanked get charged high fees for. Instead of sending an international wire transfer through Western Union, consumers have another option. They can use their Mozido mobile wallet to send money across borders at a fraction of the cost.

THE BAD:
On top of payments, Mozido offers POS and CRM integration for merchants. And an enterprise mobile rewards solution. And a real-time B2B cash-processing solution called mVault. And a cloud-based mobile transaction architecture called MoTEAF.

Get the point?

Mozido has grand ambitions in the payment space, there’s no doubt about that. But is tackling too many aspects all at once taking away from its focus? In the area of mobile payments, strong regional players in developing economies are emerging. They’re servicing the unbanked in localized, efficient and low-cost ways. If you live in Kenya, there’s a mobile payments wallet designed with Kenyans in mind. And so on for Indonesia, Mexico and South Africa. Other areas like POS, CRM and cloud infrastructure are also crowded with superior products. With almost every aspect of Mozido’s suite, you can say almost the exact same thing. Does it work? Yes. Is there a better option out there? Probably.

OUR VERDICT: FOE
Today, Mozido is pursuing a strategy of partnering with and acquiring firms in the mobile payment space. Mozido’s main focus of late has been the Asia-Pacific region, including forays into China and Taiwan. As Mozido continues to push into various areas of mobile payments, we consider Mozido to be a foe, although it is not as much of a threat as many other domestic fintechs, as its focus is not the United States, and the underbanked aren’t necessarily the most sought after (read: profitable) customers a bank could grab. Should Mozido create partnerships here in the states, I might change my tune, but for now it’s positioned closer to the minor nuisance end of the spectrum. For the consumer, Mozido represents an opportunity that many have never had before, and a much needed one—so perhaps there could be a friendly future for all? Time will tell!