Many consumers prefer digital payments over cash and checks—are businesses ready for the transition? Here's what to know about digital payment options.
Within the last decade, the population of U.S. consumers carrying cash and writing checks has continued to decline, favoring the convenience and security of digital payments. Corporations, however, have been slow to make the switch from analog to digital. While businesses identify checks as the least-preferred payment method, a significant share of commercial transactions still happen via paper checks. That also meant that when the COVID-19 pandemic hit, many were unprepared to accommodate the kind of alternative payments necessitated by consumer preferences and a rapid switch to remote work.
Before the pandemic, companies that had been slow to go paperless pointed to concerns regarding the IT work required, fear of giving up control, and managing vendor confidential data such as account information.
Now, the payments landscape is changing rapidly. As established banks vet, adopt and develop new payment solutions, commercial clients get the best of both worlds: the convenience of new payment solutions and the expertise offered by financial institutions. These new solutions are helping corporations overcome traditional hurdles to electronic payment adoption.
Just as consumers have come to expect the convenience of one-touch payments and instant transfers, commercial customers are increasingly demanding better payment options. What’s more, modernizing payments can help to optimize relationships with vendors, provide more visibility into a business, and pave the way for better automation and scale across the business.
While technology offers new avenues for better payments, financial institutions are making it easier for commercial clients to understand where they can improve and the best technology to make that happen.
Digital Payments Allow Increased Security
One of the biggest misconceptions about the new payments landscape is that giving up paper checks and going digital poses a security risk. While high-profile data breaches make headlines—and are a legitimate concern—check fraud is, for many businesses, a growing and pervasive risk. The FBI estimates that U.S. check fraud totaled more than $18 billion in losses in 2018, and impacted 70 percent of all organizations in the country.
Digital payment options, provided they’re the right ones, could be cheaper and more secure for senders and recipients. While fraud is increasing in digital payments, it is still well below the rate of fraud with checks. According to the Association for Financial Professionals (AFP) 2020 AFP Payments Fraud and Control Survey, while fraud in ACH payment methods rose last year, checks remain the top method of fraud, with 74% of organizations reporting they've experienced check fraud.
Still, new technology—including products like virtual cards, AP automation, and real-time payments—is bringing greater ability for organizations to seize back control, and to mitigate the opportunity for fraud in digital payments.
Pay Online and Get More Control
Business leaders who are reluctant to digitize payments say that the process of seeing and signing the checks before mailing keeps them in control. In reality, paper checks can be a source of uncertainty for the sender and the recipient. Between the time a check is sent and cashed, it can be difficult to know where it is, and as mentioned above, susceptible to fraud.
In a study by Deloitte, 30 percent of middle-market businesses said processing time is a major concern—for payers and payees—with transactions taking about 30 days to complete and late payments resulting in a domino effect on businesses.
New payment options, such as AP automation solutions, real-time payments and virtual credit cards, make it possible to precisely time payments and have real visibility into their status and how it affects cash flow. As the name suggests, virtual credit cards exist online. They have the same key info as a physical card, including card number, expiration date, and security code. However, they generate randomized 16-digit numbers with specific parameters, including payee, amount, and payment period. What this means for companies is more control; they can narrowly define the terms of payment and revoke access at any time.
Updating Payments Offers Real ROI
Cost is another perceived hurdle for businesses that are reluctant to modernize. Acquiring new technology and moving accounts over is an investment of time and money. What they don’t consider is the return on investment—which can be immediate.
Cutting, sending, and reconciling check payments requires more resources than many companies realize. Deloitte reports that middle-market organizations spend nearly $8 to process a single supplier payment, with 62 percent of costs stemming from labor.
There is an indirect cost as well. Reconciling invoices and managing remittance data is cumbersome and prone to errors. At many smaller organizations, a single person may handle payments and be privy to idiosyncrasies of those accounts. This poses a risk—accounts receivables and payables effectively depend on one or two key people—and can be a barrier for hiring the next generation of talent.
Putting Payments in Perspective
When it comes to e-payments, there may be no single “best” solution. For many companies, circumstances and customer or vendor relationships will dictate the digital payment. Increasingly, banks work with corporate clients to vet and help integrate the best payment options—and understand how they fit into the bigger picture of cash-flow and working capital management.
Banks can take this a step further by partnering with third parties to manage accounts payable; in doing so, they can help to determine the safest and most cost-effective way to make payments.
For companies that invest the time and resources to modernize their payment systems, there are myriad benefits. That might include direct savings, better cash-flow management, and improved visibility into operations—or all of the above. Fifth Third can help companies take the first steps by understanding the nuances of their industry and finding payment solutions that can help them achieve their business objectives.