Banks, which have existed for centuries, have long dominated in the business payments and treasury space. With little competition, they have not been pushed to evolve beyond their traditional money moving role. Thanks to the emergence of fintechs, that is now changing. In recent years, fintechs have sprung up to challenge the longstanding role of banks as the primary processor of business payments. Armed with cutting-edge technology and innovative services, fintechs are fundamentally changing the payments space.
Bank commercial card programs are missing the mark
A key difference between banks and fintechs is the way they view payments. Broadly speaking, many legacy banks view payments as a product to be sold. Fintechs, on the other hand, view payments as a process that can and should be optimized. To fintechs, this perspective means combining financial technology with service to move both money and data.
“An overlooked benefit of automated processes is the capture of data in a digital format, which then allows for the more optimal use of latest generation technology like AI to further improve results,” said Steve Murphy, Director of Commercial and Enterprise Payments Advisory Group.
Banks’ tendency to view payments as a product can cause them to fail to address business payments as a holistic process. This is evident in commercial card sales pitches, which often focus exclusively on rebates, sign-on offers, and other upfront perks that help them close a sale. However, these pitches go into little detail around if or when a customer will reach that rebate number and truly reap those benefits. On top of that, these offers often contain clauses that result in the bank getting their sign-on bonus back.
Also missing in banks’ sales pitches are the details around the true operational costs of implementing a commercial card program. The truth of the matter is that adopting these card programs can place enormous strain on accounts payable (AP) and accounts receivable (AR) teams.
When forced to adopt a new card program, AP teams suddenly have a new payment channel they must manage. They are tasked with talking to their suppliers about accepting a card. But top tier suppliers that have already negotiated terms may be unwilling to give away more of their margin, which is exactly what happens when card payment interchange fees emerge. These unmentioned consequences and hidden costs can take a toll on businesses.
The value of a holistic approach
Unlike traditional banks, fintechs are anything but stagnant. Fintechs are often cloud-based and can amass large, cross-customer, cross-industry data sets and make ongoing improvements to the payment process. With easy-to-use interfaces, AP and AR teams can dedicate less time to repetitive manual tasks related to payments.
Using a holistic view of the process surrounding payments, fintechs such as Corpay combine technology and services to address pain points in the payment journey. For AP and AR teams, this means consolidating different payment types into a single automated collected process.
“Mercator Advisory Group has been expecting the convergence of financial operations now for some time. The most prominent areas in what is now a growing trend is viewing both payables and receivables as a continuous flow,” explained Murphy.
The ability to initiate all payment forms in a single process is the new normal for most fintechs. Cutting-edge technology means that most fintechs can accommodate whatever file a customer pulls from an accounting system, and top-notch service means that supplier enablement and support can be removed from the workload of AP teams. In fact, supplier changes can often be enabled across the entire customer base of a business automatically.
Banking on fintechs is a safe bet
Outdated mainframe setups and existing inefficient legacy systems mean that for many banks, banking data will continue to be siloed for decades. Some banks are embarking on the journey of digital transformation, but this is no quick process.
By definition, fintechs depend on newer financial technology to offer financial services. As a result, fintechs represent a huge opportunity for businesses attempting to compete against quick, nimble rivals. Fintechs make it possible for businesses to simply connect to a cloud platform or other modern infrastructure and reap the many benefits it offers—all without having to reinvent internal infrastructure.
Modernizing payments through process automation benefits customers and mitigates competitive disadvantages of failing to transform. Ultimately, tech-savvy fintechs are key to businesses seeking success in the modern world.
