FinXTech’s Need to Know: Accounts Payable

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When I think of bookkeeping, the first thing that comes to mind is a scene out of “Peaky Blinders:” a sharply dressed man pacing the floor with a heavy leather book, frantically crunching the numbers to figure out which accounts have an overdue balance and of how much.

Today, accounting software digitizes the majority of this reconciliation process. The problem with this? There are hundreds of software solutions a business can choose from — but more poignantly, software offered by a business’ bank seldom falls at the top of that list.

Many banks have historically been slow to service their small business customers. Account opening, applying for a loan or even getting business cards has traditionally forced business owners to head to a branch. The crucial need for bookkeeping software has turned businesses onto disruptors in the space: Intuit’s Quickbooks, Block’s Square software system, PayPal Holdings, etc. These incumbents, and others, are ready to pounce on a market that’s estimated to grow as big as $45.3 billion.

But banks have the chance to claim some of that market.

The Paycheck Protection Program showed small businesses that there were gaps fintechs couldn’t fill — ones that financial institutions could. Bank leaders looking to strengthen the relationship between their institution and their small business customers may want to start with accounts payable (AP) technology.

 If your bank doesn’t already offer small business customers an integrated AP software as a benefit of having a business account, it’s time to seriously consider it.

Some larger banks — U.S. Bancorp, Fifth Third Bancorp — have built in-house AP offerings for their commercial customers. Others, like my $4 billion bank in southeast Iowa, do not — and probably can’t even afford to consider building. Detroit-based Autobooks provides those in-between banks with a platform to help service the AP and invoicing needs of small businesses.

Autobooks lets banks offer its white-labeled software to their small-business customers to manage accounting, bill pay and invoicing from within the institution’s existing online banking system. This eliminates the need for businesses to go anywhere else to handle their AP, and keeps invoicing and payment data within the bank’s ecosystem. More data can lead to better insights, campaigns and products that generate revenue for the bank.

Autobooks receives payments via credit card, Automated Clearing House (ACH) transfers and lockbox transactions. Because small businesses are already working within the bank’s online system, received funds are automatically deposited directly into the business’ bank account.

Paymode-X from Bottomline Technologies is another solution that banks could use. Paymode-X is an electronic, business-to-business payments network that integrates with the existing cash management systems of a bank’s business customers. It eliminates manual initiation and tracking of electronic and ACH payments; its bi-directional connection to accounting systems helps automate reconciliation. Constant electronic monitoring of payments also better traces and tracks payments for banks.

Bottomline Technologies handles vendor outreach and enrollment into the system, and also helps banks identify opportunities to earn additional revenue through the rebates and discounts a vendor may offer to encourage paying electronically, paying early or buying in high volumes.

In addition to offering it to commercial customers, banks can also use Paymode-X for their internal AP needs.

Bill.com has also marked itself as a notable fintech partner. Bill.com Connect is an end-to-end payments management platform that commercial clients access through a bank’s online portal or mobile app. Platform features include a payments inbox to receive, manage and process invoices digitally, automatic forwarding of invoices to the appropriate party, digital signatures and customizable workflows to enable automated approvals.

Bill.com also touts a network of over three million businesses, which could be an attractive benefit for commercial clients looking to expand, partner and more simply get paid.

There is still time and space for banks to plant their flag in the small business space; fintech partners could be an attractive way to break that ground.

Autobooks, Bottomline Technologies and Bill.com are all vetted companies for FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email [email protected].

Three Steps to Building a Post-Pandemic Payments Strategy

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The Covid-19 pandemic spotlighted contactless payments. To stay competitive with the future of payments, community banks must offer multifaceted options, like virtual cards, P2P payments and digital wallets.

But building a digital and contactless payments strategy goes beyond just offering digital wallets — though that can be a key tool. To become their customers’ primary transactional relationship, community banks need a strategy to make credit and debit payments easy in any digital channel.

Digital banking and contactless payment adoption accelerated during the coronavirus pandemic. A Mastercard survey conducted last year found that contactless transactions grew twice as fast as traditional checkout methods at grocery and drug stores between February and March. Additionally, Juniper Research found that spend in digital wallets is projected to increase 83% by 2025 due to adoption of digital payments during the pandemic. Three key steps for community banks looking to construct a card strategy are to audit your payments capabilities and gaps, use digital to become the passive provider of choice and diversify your card and payment portfolio.

Audit Payments Capabilities, Gaps
Before bank leaders can roll out new card programs, they must evaluate where their bank’s existing programs are and if any service gaps exist. Common questions every manager should evaluate are:

  • How much revenue is the current card program driving, and is it increasing or decreasing?
  • What is the wallet share of the bank’s current cards and is it increasing or decreasing?
  • Who are customers using to make payments outside your network?
  • What payment options can you support? Options should encompass virtual cards, P2P payments, purpose-driven cards that are targeted to specific audiences and needs and digital wallets.

From here, bank leaders can figure out where their greatest opportunities lie. It might be in building a set of niche card programs to meet a specific need, such as teen card accounts, gig worker cards or a virtual card offering. It could also be expanding card options to include prepaid programs, bringing debit cards in-house or adding card controls to enhance the customer experience.

Become the “Passive Payment” Provider of Choice
Once bank leaders understand their opportunities, they need to build strategies that help their cards become the “passive payment” provider of choice. Taking security as a given, customers care most about convenience. They will use the payment option that is the easiest for their chosen channel of commerce.

Digital wallets and contactless are becoming table stakes for banks; they are no longer “nice-to-have” products that will differentiate your institution from your competitors. The rise in e-commerce means that banks must make it easy for their customers to fulfill those purchases with their preferred payment option virtually.

Additionally, customers are increasingly demanding instant access to new accounts. Instant digital card issuance enables customers to issue or reissue a credit or debit card digitally and on demand for immediate use.

Banks should also work to ensure that their cards are able to integrate with existing digital wallets, allowing customers to “push-provision” their cards into their preferred wallet or app, rather than manually entering their card information.

Diversify the Card, Payment Portfolio
A diverse payments strategy is more than just offering a general-purpose debit or credit card. People increasingly want purpose-driven cards that meet their specific needs and situations. Families love accounts that provide the parents control over funds while giving their teens the ability to learn how to manage their money and spend with some autonomy. A dedicated business card can make paying vendors and other bills easy to manage without staff in the office to run a traditional accounts payable team. In addition, many businesses want “team” or “disbursement” cards they can issue to employees and monitor the transactions in real-time while retaining some control over how the funds are spent. The combinations are endless — elderly care accounts, affiliations with membership organizations and gig worker cards are other popular options.

To determine which products a community bank should focus on, leaders need to analyze customers’ spending behaviors by channel, using transaction data to look for trends. Then, they can build campaigns to target the most profitable or most engaged customers.

The additional revenue sources will be vital to community banks’ survival, given continually low interest rates. By building a comprehensive digital, contactless and physical card payments strategy, institutions can positioned themselves to remain the bank of choice for their communities.