Capitalizing on the virtual payments opportunity

Assessing the impact COVID has had so far on payments technology adoption

The impact of COVID-19 is clearer now that we are over 18 months in, and while most firms entered into full business continuity mode in the initial months of the pandemic, they are resurfacing now and assessing COVID’s impact. Payments organizations had to act urgently to moderate the damage the pandemic could have caused to their customers, their people, their partners, and their businesses. The focus of their actions was short-term, but many of the measures taken laid a foundation for future sustainability and growth. The COVID-19 crisis drove a renewed push for innovation in payments as long-overdue initiatives to overhaul inefficient payments processes gained new urgency.

To gauge the role of payments innovation in companies’ response to COVID-19, WEX worked with (E) BrandConnect, a commercial arm of The Economist Group, to survey several hundred executives in the financial services sector. They found that digital payments had reached a tipping point: “The findings show both opportunity and peril around payments, highlighting a stark reality: financial services companies that don’t adapt may not survive.” In this five-part series, we are delving into their research findings and decoding the opportunity and peril highlighted in the report. In the first article in the series, we outlined how the digital payments transformation was accelerated by the pandemic. In the second article, we highlighted the benefits of payment technology throughout the COVID-19 Pandemic. In this segment, we’ll look at how companies can capitalize on the payments opportunities brought about by the COVID pandemic.

Innovation in the B2B payments arena

Acceleration in digital transformation of B2B payment process through COVID-19

The world of B2B payments can often feel nostalgic. Nearly half of the B2B payments in the US still rely on checks as their primary source of payment. Paper invoices remain common, and most accounts payable teams still process payments manually. However, the payment innovations that have taken the consumer world by storm are now moving into the business side. The report conducted by WEX and (E) BrandConnect (the Digital Payments Tipping Point) stated that “With change comes opportunity: payments technology has adapted to changing demands.” The lockdown that ensued due to the COVID-19 pandemic revealed how labor-intensive and inefficient current business payment processes are.

According to a report by the Association for Financial Professionals, 42% of B2B payments are still made by paper checks in the United States. It’s rare to find an organization that has digitized completely, as 97% still pay at least some of their major business suppliers by check. This stems from executives still wanting to go the traditional route of physically signing off on paper checks, despite the fact that it’s costly, time-consuming, and has a high risk of fraud.

Business suppliers who wanted to survive had to quickly adapt and meet the demands of buyers who were no longer willing to settle for less when making purchases digitally. This meant businesses had to cut ties with outdated payment methods in favor of more reliable and secure electronic payments such as ACH, virtual cards, wire transfers, and real-time payments.

New enthusiasm for virtual cards

Virtual cards, in particular, have started to gain the spotlight in the B2B payment world. These “cards” are used only once and have precise controls attached to them, like dates of use, types of use, and dollar amount available. Virtual cards work behind the scenes as a digital payment method, providing a secure payment option for you while protecting your data from being compromised. A virtual card allows the buyer to have the highest level of security, control, and efficiency when processing payments. They are less susceptible to fraud and data breaches than traditional credit cards due to their one-time use and strict allowances. These cards also allow for suppliers to be paid faster.

Besides updating their payment methods, suppliers had to update the entire digital experience they were giving to their buyers. Anything less than providing an outstanding customer experience was subject to threat. In a recent McKinsey survey of B2B decision-makers across 11 countries in seven sectors and across 14 categories of spend, 36 percent of their sample cited the length of the ordering process as one of the top-three most frustrating issues with suppliers’ websites; 34 percent cited difficulty finding products, and 33 percent cited technical glitches with ordering. On average, the shift in customer preference to digital from traditional interactions doubled, putting the digital experience at the forefront of executives’ minds.

Another common concern among the group surveyed was difficulty setting up payments. To address these challenges, business suppliers amped up their websites and digital features in order to enable effective digital interactions by implementing live chat features and adding the functionality of ordering through mobile apps. These features help make the process from ordering to payment seamless. Although innovations in the B2B payment space are happening rapidly, there is still a long way to go to come close to the innovations that have been happening in the B2C space.

Innovation in payments: real-time payments (RTP)

Aside from Virtual Cards, the pandemic has also accelerated the need for real-time payments (RTP). According to a recent report by ACI Worldwide, nearly 70.3 billion real-time payments transactions were processed globally in 2020, an increase of 41% compared to 2019. Across 48 surveyed markets, the report projects a compound annual growth rate (CAGR) for real-time payments of 23.6% from 2020 to 2025. “The pandemic has cast the spotlight on the importance of digital payments and robust payment infrastructures, condensing a decade of anticipated innovation into one year and creating human behavioral changes that will not reverse as we emerge from the crisis,” said Jeremy Wilmot, chief product officer, ACI Worldwide. “Countries with a robust digital payments infrastructure already in place have coped better than those without when it comes to containing the economic impact of the pandemic. Real-time payments have enabled governments, working jointly with financial institutions, to accelerate much-needed disbursements and economic stimulus payments to their citizens. They have also enabled real-time liquidity to businesses that had to adapt to disrupted supply chains.”

New perspective in existing payments: discounts help maximize purchasing budget

Businesses can maximize their purchasing budgets by capitalizing on discounts offered through dynamic payments. Dynamic payments are terms in a contract that allow a supplier to get paid as soon as invoices are approved. This is done in exchange for a prorated discount. The advantage of dynamic payment terms is that a company’s payment is processed as soon as the invoice is approved and the discount taken for the payment is calculated on a sliding scale. Buyers choose when to pay suppliers earlier to take advantage of these discounts. Dynamic payments benefit suppliers as well because it means they often get paid more quickly than they would have in the past. The discounts made possible by dynamic payments incentivize buyers to pay their suppliers before the bill comes due. During any given payments cycle buyers have the flexibility to choose between optimizing cash flow by paying their suppliers in a traditional manner or maximizing purchasing budgets by taking advantage of those dynamic payments discounts.

New perspective in payments: enterprise resource planning (ERP)

Nearly one and a half years have passed since U.S. workers were ordered to shelter in place to slow the spread of the coronavirus. COVID didn’t just accelerate the growth and adoption of fintech tools it also allowed businesses to find innovative uses for the technology. Traditional business practices were changed as a result. For the first time, to help cut costs and streamline operations, many organizations have been using their enterprise resource planning (ERP) systems in a remote-work ecosystem. Instead of paper forms and familiar ERP and purchase-to-pay screens, fintech adoption requires learning and engaging with new and different digital systems. The next-generation ERP system includes digital solutions and cloud features to help set companies up for even more operational flexibility and resilience.

Finding the industry-specific advantage

Fintech post COVID-19

Prior to the pandemic, it was clear that new payments technologies would play a pivotal role in financial services going forward. COVID-19 has undoubtedly accelerated that process. Business models are being re-evaluated to incorporate new strategies and remote capabilities in a post-COVID-19 world, which includes taking a look at AP and AR departments.

These changes in how we work have an impact on businesses engaging in transactions with new markets as well. “Fintech has shown its potential to close gaps in the delivery of financial services to households and firms in emerging markets and developing economies,” said Caroline Freund, World Bank Global Director for Finance, Competitiveness and Innovation.

A joint study conducted by the World Bank, the Cambridge Centre for Alternative Finance at the University of Cambridge’s Judge Business School, and World Economic Forum, gathered data from 1,385 fintech firms in 169 jurisdictions from mid-June to mid-August, showed most types of fintech firms reporting strong growth for the first half of 2020 compared to the same period in 2019, prior to the pandemic. On average, firms in areas including digital asset exchanges, payments, savings, and wealth management reported growth in transaction numbers and volumes of 13 percent and 11 percent, respectively.

Financial technology companies saw an increase in business, most notably in payments technology implementation, due to changes in how we work that came about during COVID. According to the Economist/WEX joint study, fintechs see payments as the gateway to a new era of business.

Click here to learn more about how WEX payment solutions can be tailored to your business, providing optimized operations for lasting growth and success.

Click here to download and read the full Economist white paper, “The Digital Payments Tipping Point.”

Resources:
Accenture
ACI
Association For Finance Professionals (AFP)
Boston Consulting Group
Cambridge Judge Business School
Deloitte
McKinsey & Company
World Bank Group
World Economic Forum