This announcement in Finextra is about commercial card technology adoption associated with virtual cards, which has been the high growth driver in that part of the B2B payments space for the past 6+ years (with a pass for the pandemic recessionary impact). Lloyds Bank is now providing straight-through processing for virtual cards using Visa’s STP platform.
Members of CEP will be very familiar with the dominant form of virtual card payments, which requires the supplier to process their own payment after receiving the appropriate information via secure mail, portal, or some other agreed method. This is the supplier-initiated model and still represents more than 90% of virtual card processing.
The other less prevalent model (buyer-initiated) is for suppliers to be set up to have the virtual card payment automatically processed without human intervention, while settlement to its bank account occurs generally in same-day, while remittance data is also digitally provided for faster reconciliation.
‘Lloyds Bank has become the first bank in Europe to partner with Visa to offer Straight Through Processing (STP) technology to customers using its commercial charge cards….Straight-Through Processing (STP) enables a more efficient way to pay invoices while providing the traditional benefits of commercial card payments to both the buyer and the supplier….With STP, buyers can request to time their payments to maximise the number of days before their statement, giving them more flexibility with their cashflow than would be the case with a bank transfer….Suppliers benefit by receiving funds directly into their accounts without the need to manually input card details or use card terminals….STP also makes it easier for suppliers to identify the source of inbound payments thanks to the rich remittance data.’
The STP type of virtual card payment is not new technology and is of course the more logical and beneficial for suppliers, given the speed and lack of manual handling by receivables staff, reducing operating costs, and improving DSO by at least 1-2 days. However, buyer-initiated virtual cards have not caught on in North America or other regions in any large way since the merchant setup is a bit more complicated, requiring up-front resources that most merchants don’t have or don’t want to apply.
So the upfront inconvenience is a large opportunity cost for suppliers and one that the issuing part of the industry has yet to figure out. That is one reason why receivables automation intermediaries are receiving more attention–they can step in and process virtual cards on behalf of suppliers using advanced methods such as RPA–which is good but also adds incremental cost to suppliers.
We have not received a briefing but would expect that Visa has stepped up (perhaps through Lloyds acquiring arm) with some support to ease the initial supplier investment friction so they can get going with STP. As we have pointed out in a number of research pieces, the security and working capital flexibility of virtual card technology should allow for a much greater share of B2B invoiced payables volumes, and this is the way to get there.
‘Helen Jones, Executive Director, Visa Business Solutions at Visa, added: “Commercial cards are a secure, reliable and convenient way for businesses to pay. STP will help make the experience of paying invoices easier and more streamlined for both suppliers and buyers. We’re delighted to partner with Lloyds Bank to help their customers better manage their cashflow and their supplier relationships at such a critical moment for UK businesses.”…The launch of STP is the latest in a series of payment innovations Lloyds Bank has introduced to support its business customers.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group