This episode was recorded at the Money 20/20 event in 2019. On this episode, PaymentsJournal’s editor-in-chief, Ryan McEndarfer, sat down with Vijay Ramnathan, president of MineralTree, Inc.
PaymentsJournal:
So, Vijay, thank you so much for joining me on today’s episode. To start things off, can you tell us about the latest trends in B2B payments?
Vijay Ramnathan:
Right. As you know, B2B payments has been evolving over the last few years, and we see emerging trends rapidly taking shape. The first that I want to highlight is the emergence of cloud and applications moving to the cloud. As a result, API-based integrations for systems to communicate with each other is becoming a lot easier. So that’s one of the key aspects that’s driving transformation in B2B payments. Faster and real time payments are evolving pretty rapidly as well, with both the public sector and private sector actively playing a role in that. Globally, this has taken off and received massive traction and adoption in the United States as well.
So, that’s another trend that we see and stay close to. Paper, as you know, has been a predominant part of B2B interactions, especially on the accounts payable side and on the payments side. We see the predominance of papers slowly but surely shrinking, and that’s happening on two fronts. One is with invoices and documents such as purchase orders, invoices, and receipts, which are taking on more of a digital form. More importantly, on the payments side, the number of checks being issued by businesses, especially mid-size and large-size entities, are going up. I would say those are some of the key trends that we’re staying close to and see emerging and shaping the B2B payments landscape.
PaymentsJournal:
Well, fantastic. I’m glad that you brought up the declining use of checks and we’ll get to that in a little bit later in this interview here. But earlier in your response, you brought up accounts payable. How do both banks and commercial customers benefit from B2B payments, particularly around accounts payable automation?
Ramnathan:
From a bank standpoint, banks are driven fundamentally by collecting deposits and lending money, and are critical engines of economic growth for any country. One of the areas where AP automation can play a significant role is in growing those deposits because customers and businesses park their money with the banks, then use those funds to disperse payments to their vendors, suppliers, employees, and so on. It can be a significant lever for banks to drive deposit growth. The second aspect is growing fee income, especially in a depressed interest rate environment. Fee income becomes that much more important for banks to generate and AP automation solutions create that in volumes.
The third and final piece I will emphasize, which I think is one of the most important criteria for banks to drive greater customer AP automation adoption, is the wallet share they can drive to such a solution. A lot of bank solutions today are silo and fractional, and on the other hand, also tend to be relatively commoditized. By providing end-to-end and robust API automation solution, banks create a level of stickiness with their customers and also fulfill the promise of being strategic advisors to customers by bringing more value than the individual transaction itself. Now on the business front, AP automation is a back office function. No businesses set up to say, “Hey, I’m going to wake up every single morning and make my AP department better.” They’re all set up with a particular mission in mind deliver a particular product or service, some level of improvement, and driving revenue growth for themselves.
Organizations can use AP automation, in essence, to create better leverage in their back office, create leaner operations to automation in their accounts payable department, and repurpose their employees to focus on more strategic revenue generation and mission-driven activities. In the process, they can also cut costs, drive better control and security, eliminate fraud, drive faster payments, maximize their discounts, and just drive overall value for their enterprise.
PaymentsJournal:
Wonderful. I’m glad that you brought up the strategic part of it here, and I’d like to put a little bit finer of a scope on that. How does AP automation fit into both banks’ and businesses’ strategic planning for the year 2020?
Ramnathan:
Once again, I’ll start with the banks. As we’re all hearing, we may be coming up to a phase of economic uncertainty. We also, as I said previously, have a relatively low interest rate regime at this point, which basically means banks have to drive revenue from other sources. Fee income is a very important source, treasury management more broadly becomes an area of focus, and therefore, this becomes a great fit for banks. From an economic uncertainty standpoint, the other thing that drives businesses is when the revenues are growing, most businesses tend to focus on driving that revenue growth. So in times of prosperity, most businesses focused on driving the revenue growth and focus less on their back office.
But when the economy shifts towards a downturn, it is the perfect time to drive better efficiencies in the back office and create more resources to focus on revenue generation and closing the gap on the growth front. Both from an end business perspective and a bank’s perspective, the economic volatility is actually balanced really well to a focus on AP automation solutions. For the businesses, that creates leaner operations, and with lower unemployment, it is hard for most organizations to find quality talent on a consistent basis. Replacing that shortfall through automation is also a great fit.
PaymentsJournal:
Excellent. Now, why do you think banks looking to offer AP automation solutions should be looking at middle market businesses as a key target?
Ramnathan:
That’s a great question. One, I think it’s a massive addressable market. That’s one. Two is most organizations, banks included, have focused their solutions on the opposite ends of the spectrum – either on small businesses, which tend to have pretty robust capabilities and solutions that are catered specifically for their segment, or on the upper end of the enterprise segment, where a lot of organizations, whether banks or software providers, have created pretty robust capabilities. Larger organizations also tend to have more resources, and therefore may have their own homegrown solutions on this front as well. The mid-market largely has been neglected.
There are a couple of attributes that make middle market retracted. One is their scale of operations is large enough where there’s enough complexity, challenges, and friction within their process that automation is a great tool to drive value. Second, to my earlier point, the fact that the industry as a whole hasn’t presented the mid-market segment with customized options – options that are fit for purpose for the needs of that particular segment – makes it attractive. A solution such as ours makes it very viable for mid-market solutions to solve this problem, drive more automation, and scale as they’re continuing to grow their revenue.
PaymentsJournal:
Certainly very interesting there. Now for my last question, let’s bring up the point that you made earlier in this interview about the declining use of checks. Obviously, it is declining amongst businesses, but there are still some corporations clinging on to check payments. Why do you think that is?
Ramnathan:
You know, Ryan, I get this question a lot. I also get the question of who we compete with more often. I say more often than not, we’re competing against Inertia. I’d say the lack of dramatic shift away from check payments is predominantly due to the fear of change. As you said, checks are declining, but they’re still very popular because most organizations, especially large organizations, have built their processes around checks. Additionally, big amounts of infrastructure spend has happened through ERP systems and back-end processes created fundamentally to receive and pay by checks.
Unless solutions for automation and electronic payments come through, where it’s not requiring significant levels of investment from customers or businesses, it’s going to be hard to penetrate. I think that shift is slowly but surely happening where many solutions, especially virtual cards as an example, don’t require significant investment to drive movement to electronic payments. Therefore, these solutions are leading efforts to move away from checks. Faster payments, same-day ACH, some of these capabilities, will also enhance that movement. I’d say Inertia is the primary driver, but I think the world is changing with better tools that don’t require significant upfront investment from businesses.
PaymentsJournal:
Wonderful. Well, thank you so much for taking the time today to speak to me about reaching commercial banking customers with AP automation. I hope to have you back on the podcast soon.
Ramnathan:
Thank you, Ryan. I enjoyed this conversation as well. Thanks for your and your listeners’ time.
