Why 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.