Financial technology, or fintech, is an emerging industry. And like all other aspects of the digital transformation, its adoption has accelerated since the COVID-19 pandemic has forced most organizations to send their employees home to work. Mission Critical magazine recently spoke with Karla Friede, CEO of Nvoicepay, to find out more about automated payment solutions and how businesses can transition from paper checks to ACH to save costs, enable remote work environments, and keep employees safe. Read on to find out what Friede has to say about the benefits available for businesses who partner with the right vendor.
Mission Critical: What percentage of business would you estimate still pay their vendors via check instead of automated payment today?
According to the 2019 AFP JP Morgan Electronic Payments Survey Report, organizations on average make 42% of their vendor payments by check. That’s down from 50% in the prior year, but it’s still stubbornly high compared with consumer life, where check use has fallen dramatically.
It’s important to note that check use varies by company size and industry. In industries that are still paperbound, such as construction and automotive, the percentage could be much higher. In these industries, it’s not uncommon to see companies that still make 100% of their payments by check.
Small- to mid-size companies — companies that are making fewer than 5,000 payments a year — are probably still making a high percentage of payments by check because they don’t have a big enough problem to invest in technology to solve it.
In industries that tend to adopt technology faster — for example, tech companies — you’ll see a lower percentage of check payments.
Would you say most of these companies are doing so because they haven't switched to automated payments or because the vendors do not offer it as a payment option?
Most companies still don't know that there's a much better way to pay, but if they feel like checks are working for them, they may not even be looking for something better. They don’t realize how much they could reduce costs by automating payments, or they think that it’s a big IT implementation when it really isn’t because you don't have to automate your entire accounts payable workflow. You can just automate the payments piece, and it’s pretty fast and easy.
The barrier is not on the vendor side. There’s only a small segment of vendors that insist on being paid by check — maybe 10%. Vendors almost always accept payment via card or ACH. They want to get paid faster and get the money directly into their bank account. The barrier is the labor it takes for accounts payable to reach out and find out how vendors want to be paid; where the remittance information should be sent; and if the vendor wants to receive an ACH, to collect the banking data to be able to send it to them. In B2B [business-to-business] payments, you’re working with thousands, or even tens of thousands of vendors. Accounts payable teams just don’t have the headcount to do that outreach.
How are companies working to avoid operational downtime in the midst of the COVID-19 pandemic if their accounting staff is not able to make payments on time?
We've had a number of customers and prospects reach out and want to get moving with automated payments because their accounting staff is working from home. Paying by check was expensive and time-consuming before the pandemic, but now the problem is acute. It's incredibly problematic to approve invoices and make payments by paper check when your accounting staff is spread across their home offices. You literally have to drive paper from place to place to get approvals and signatures.
Payment automation gives accounts payable the visibility and control they need to do remote payment approvals from home. We've seen a huge uptick in companies wanting to go digital because paper-based checks have been almost impossible to produce in a safe, secure, sustainable way.
How do you feel this pandemic is going to change the way we do business, and do you see the shift as more of a short-term or long-term reaction?
I think there’s a much stronger business case for automation in many business functions and industry segments. There’s certainly a stronger business case for payment automation both in the short term and in the long term.
Prior to the pandemic, the business case for payments automation was centered on efficiency, cost savings, visibility and control. As we have slowly shifted toward more electronic payments, we've seen an uptick in ACH fraud, so there was a secondary need emerging around fraud protection, because that is something we provide for our customers.
With the pandemic, there is a new, urgent need for payments automation as a necessity for business continuity. There are also all these new fraud schemes related to COVID-19, bolstering the need for fraud protection.
Now, we’re heading into a severe global economic downturn. Businesses are going to pivot to reducing costs, and checks cost a lot — around 10 times more than electronic payments. So, in the short term, reducing costs is going to become a driver that accelerates adoption of payment automation. The short-term business case has become multifaceted.
I don’t think that changes over the long term. This could be one area where the crisis changes our behavior forever. Short-term imperatives will drive greater adoption, but as more organizations get a taste of automated payments, it will change the way businesses think about payments. They will realize there is a far better way to pay than writing checks, and I can’t see anyone who’s gotten a taste of payment automation going back to the old way.
Do you have any advice for organizations in terms of what to look for in a vendor, how to make the shift, and how to ensure security?
Fintechs really are redefining payment automation with 100% of payments moving electronically, fraud protection, and high levels of payment services. Buyers should dig into the details and ask questions to really understand what they are getting and the differences between solution providers and bank offerings. What are the SLAs [service level agreements] around payment support and resolution? What does the provider take responsibility for? How is data managed? How do they treat the vendor and what services do they offer the vendor? How do they protect you against fraud? How are they protected in the event of a disaster? And, most importantly, how many payments are really sent electronically with their solution? If it's 20%, that's not a payment solution. That's a payment hobby, and buyers today can do better.
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