This referenced posting appears in PaymentsSource and the author, a senior at a fintech offering cash cycle automation, suggests that the pandemic will accelerate the shift away from checks and towards e-payments. In many (if not all) of our recent discussions with industry participants, a clearly defined expectation is the increased digitization of financial processes. The stark reality of manual process shortcomings has been overtly exposed in the lockdown environment. The impact seems to be rather sudden in some quarters, as we have commented upon previously in these pages.
The author briefly tackles the long history of checks and various electronic alternatives (e.g.; the birth EDI file transfers) and key reasons why checks have remained firmly in place in the U.S. as a B2B payments tool. We see inertia as a key underlying reason, which is supported (if one can say that inertia is supported by anything) by the extra friction created for buyers and suppliers by the adoption of certain e-payments, since they all have different standards and relative shortcomings.
‘But coronavirus is different. For quite some time A/R or A/P teams have been looking for systems that match the seamlessness of consumers’ experiences. One study found that 20% of B2B buyers viewed a lack of alternatives as a critical issue for purchases, showing that many firms want more payment options for B2B transactions…The truth, though, is that despite a desire to move toward digital, no payment technology has equally addressed the varying needs that buyers and suppliers have, resulting in slower rates of adoption of digital payments.’
One of the missing factors in any discussion of AP/AR automation is the opportunity cost associated with not using the data available through digital processes. We believe that this will cause eventual competitive disadvantage given the great AI-related tools now available (and getting better). The author goes on to point out potential impacts to check delivery by a U.S. Postal Service failure, but one would have to be daft to seriously believe a bailout is not imminent…after all what’s a little $25 billion here and there when we are talking about printing trillions every month? In any event, the digital drumbeat is gaining volume and tempo.
‘Digital payments aren’t perfect and they are not friction-free. Historically, this friction has slowed the adoption of the “next best” payment technology and reverted businesses back to paper checks. But we are already starting to see platforms and payment networks continue to make it easier for buyers and suppliers to use digital payments without needing to change current methods or compromise their needs. These innovations will continue to erase friction and raise the value of digital payments, especially as it pertains to the never more important need to ensure cash flows efficiently. And adoption will follow suit…Like many things occurring during the crisis, the paper check’s shortcomings have been amplified. While checks may not completely disappear, the pandemic has forced companies to look at how operations can be digitized and automated. For these reasons, the paper check may be easier to write off this time around.’
Overview provided by Steve Murphy, Director, Commercial & Enterprise Payments Advisory Group at Mercator Advisory Group.