Although payments in the tens of thousands or even millions tend to characterize business payments, the reality is that many payments made by global buyers to their suppliers are anything but that. Roughly 80 percent of those payments are less than $2,500, and half are paid to suppliers infrequently — perhaps once or twice a year — and largely by check.
Not because checks are a particularly good way to make them, Ingo Money CEO Drew Edwards told Karen Webster — since they’re slow, expensive and ripe for fraud. But in the absence of a modern payouts platform that makes it easy for payors to make the digital choice, checks are the ubiquitous default option.
However, that is slowly changing, Edwards said, as software and technology platforms give those payors a more cost-efficient solution to enable digital payments choice for these ad-hoc payments.
“We love to say that when you can pay anyone, then you can pay everyone. And that’s what’s going to happen in B2B payments with that 80 percent,” Edwards predicted.
Overcoming The Inertia
The B2B payment for that check-trapped 80 percent, said Edwards, bears a striking resemblance to the troubles Ingo saw in the insurance vertical five years ago. The situation is not identical, but very similar: Consumers pay monthly premiums, but companies pay out to them hopefully no more than once or twice in a lifetime.
Checks were seen as a good enough solution that didn’t require them to collect and store consumers’ payments data.
The InsurTech revolution changed that as consumers began to have choices in insurance relationships. Paying claims via a mailed check actually came at a much greater cost than the $15 required to produce the check. Check payments suddenly became a premium that left the consumer unsatisfied — and more likely to jump ship to a provider that could more smoothly manage the stressful claims payout experience.
It’s only a matter of time, Edwards said, before those same concerns and pressures will force payors to reconsider how they make vendor payments to small- and medium-sized businesses (SMBs).
“We are seeing it happening, with the same process that’s working on insurance and applying it to these ad-hoc payments,” he noted.
Breaking The Corporate Check Chokehold
The check’s main advantage has always been ubiquity and inertia, a barrier that is slowly and surely starting to fall in the business payments world.
Edwards said corporates know that checks aren’t cheap and that check fraud is costing them dearly — to the tune of $15 billion a year in annual losses to traditional banks.
Secondly, offering digital payments choice creates a digital relationship with the supplier that can also be monetized if and when a corporate chooses to charge for a choice that accelerates the speed of payment.
Finally, Edwards noted, a modern digital payment experience is a selling point that can be used to create new partnerships with suppliers looking for buyers.
“You put all three of those together, and it should rise to the top of payor product priorities because it’s cheaper, it delights their partners and they can actually expand and monetize those relationships,” Edwards explained.
An Accelerating Opportunity In Identity
The solutions necessary for better ad-hoc vendor payments, Edwards observed, start with identity solutions that create simpler ways for routing payments to their desired endpoint. Consumers and businesses already send and receive money to and from many endpoints — and tapping a universal digital identity, enabling them to instruct anyone, anywhere, how to route those funds is a logical next step.
Edwards likened it to “shopifying” the payments experience so that sending funds doesn’t mean “constantly asking people how they want to be paid.”
The process of getting there is underway, he said. Still, it will take some time as more and larger players begin adopting a model that enables digital identity sufficient to route payments of all kinds — including B2B, B2C, P2P and others — according to the receiver’s preference.
“This is where the risk management lies, and it’s where the good customer experience lies,” Edwards said. “And eventually, we’ll hit a tipping point where people will be motivated to adopt that platform, because there are so many recipients who have already said this is how they want to be paid. And it will be safer to pay that way because of that identity [and the cross client network for tracking good and bad actors].”