The pandemic unleashed a shift in payments for mid-market companies, characterized by a shift towards digitization and a modernization of the human factor of business.
Stephen Markwell, Head of Payments Product Strategy and FinTech Partnerships, Commercial Banking, at JP Morgan, told Karen Webster that the trends of recent years are bringing buyers and providers together in a spirit of collaboration. And by the way, they can monetize speed together.
But of course, getting there—beyond legacy processes and infrastructure—can bring its challenges. Markwell noted that midsize companies want to understand what can go wrong – what the proverbial tip of the spear looks like when it comes to innovation.
A teamwork approach, with the CFO working alongside the company’s technology experts and cyber risk experts, is critical when considering payments as a source of strategic and competitive advantage. Throughout the journey we will see the evolution towards a more intuitive, consumer-centric experience. To draw a parallel, Markwell said, you could look at how communication is evolving — like messaging, where we’ve evolved from long-distance calling to texting to texting.
Executives are naturally aware of the need for speed when it comes to transactions for their clients.
PYMNTS’ own research shows that 71% of businesses use digital payments more often and 98% use checks less. These data points, Markwell said, illustrate the many reasons companies would make the move to digital workflows.
Modernize how money comes in
Markwell cited the AR process as an example, where companies have transitioned from sending paper invoices (and receiving paper payments) to manual reconciliation. These methods take labor and time, he said.
The shift to working remotely has also prompted organizations to review their back office processes, and certain business processes will still be prevalent even in hybrid work environments, Markwell said. These processes are typically performed in cloud-based accounting systems, so there is no need to double-book transactions with banking partners. This lowers fees and helps businesses lower their Days-Sales-Outstanding (DSO) ratio.
“These companies have a real impact on the bottom line,” he said, and also on their enterprise customer base, which in turn cements loyalty.
And reinvent how money runs out
Accounts Payable (AP) offers similar capabilities. Businesses that juggle paper invoices receive paper checks and reconcile them manually with double entry. Notably, there is also a revenue opportunity on the AP side as companies go digital. A business can pay with cards and get discounts on these transactions.
While companies have made significant strides in digital transformation, Markwell said they still have work to do.
He noted that larger companies, established companies that have been in business for decades, may have wanted to go digital but are still burdened by outdated paper processes and inertia.
“A lot of these companies were using short-term solutions and not really implementing end-to-end, fully digital workflows,” Markwell said. In contrast, smaller startups haven’t been burdened by the same legacy tech stacks.
A new set of benchmarks
But by and large, the technology is becoming easier and easier to adapt to and embrace, Markwell said. Application programming interfaces (APIs) facilitate connectivity and can streamline the way organizations work.
To get there and move towards buyer-supplier collaboration while modernizing workflows, Markwell says finance leaders must examine payment volumes and back-office friction.
“How does your DSO compare to your industry benchmark? What are your payment reconciliation costs? Putting this internal business case together can help you find a solution that addresses the biggest problem you have, which might be automating the reconciliation or integrating it with your accounting package,” he told Webster.
In doing so, vendors must be able to demonstrate that their solutions bring companies the desired modernization – Markwell noted that his own department at JP Morgan often not only speaks to treasurers or chief financial officers, but also to heads of customer experience can just as well be a driver of digital Transformation to be like the end result.
look at security
When it comes to ensuring and strengthening security for digital payments and processes, Markwell said not all solutions are created equal. Partnership models can help in the transition to digital and limit the risks of cyber exposure.
Awareness is key as bot and other attacks become more sophisticated: Markwell said it’s essential to research what phishing and other attacks look like and be prepared to combat them. Logs must also be in place to ensure businesses can verify that all information is legitimate when suppliers or businesses want to update their profile or redirect payments to new accounts.
Without automation, companies may be reluctant to expand, not yet confident that they have the technical foundation to support that growth. But when these companies think about ways to monetize payments and related activities, they can fund growth.
“On these digital networks where counterparties are collaborating at scale, there is a tremendous amount of opportunity for new business models to emerge,” Markwell said.
what lies ahead
Throughout 2022, he said, we’ll see an explosion of micropayments, especially as transactions get faster — and in some cases, almost instantaneously. Artificial intelligence and machine learning are relatively new in this area, but he said these advanced technologies will play a much bigger role in informing the decisions companies make about payments and lending.
Transitioning to an end-to-end digital experience, where invoices are sent electronically, payments are received electronically, and reconciliation is automated, will pay off for buyers and suppliers, he said.
As he told Webster, “There are revenue components, expense components, and also customer satisfaction components.”