A single purchase request now triggers a web of approvals, data exchanges, and funding decisions that stretch far beyond traditional accounts payable and receivable processes. As AR/AP workflows grow more complex, banks and networks face a critical question: where do they truly fit in a value chain full of opportunity, but short on clarity?
To mitigate this uncertainty, Hugh Thomas, Lead Commercial and Enterprise Analyst at Javelin Strategy & Research, mapped the AR/AP value chain, outline the major players in the space, and examined how financial institutions can differentiate themselves in his latest report, Capabilities in Context: A Value Chain Analysis of AP and AR Providers.
Becoming Entrenched in the Process
Historically, many financial services firms have overextended themselves in their efforts to establish a role within AR/AP processes.
“When I first started in this business, you had banks trying to get into the procurement space effectively,” Thomas said. “When Ariba came on in Canada it was a bunch of bank partners who were facilitating its growth. They would take the treasury relationship with people into the procurement space, and they would say: ‘Here’s this marketplace where you can go and do spot buys and so forth.’”
“If history proved anything, it was that was maybe a step too far for banks in terms of expanding out the value chain,” he said. “You don’t necessarily want to have a strategic component of your procurement be a function of who you use for treasury services from a bank. Let’s let everyone do what their mission critical component is of their job.”
There have been notable successes, particularly through partnerships and integrations. For example, Mastercard has a relationship with SAP Taulia that enables embedded finance within enterprise environments. Visa has formed similar relationships, in which business partners handle approvals while both buyer and seller move funds internally, after which Visa or Mastercard finalizes the transaction.
Once card networks become entrenched in these processes, they are able to offer partner businesses additional value-added services, further strengthening those relationships.
“You see that in terms of helping suppliers like SAP to appreciate. This is where someone is going to be more amenable to taking a virtual card,” Thomas said. “Or banks are sharing out use cases in terms of real-time payments that they’re trying to cross-pollinate in terms of use, and then they can build better solutions to address and can grow real-time payments in partnership with the providers along this value chain.”
Procuring the Widget
Given these opportunities, it is critical for financial services companies to understand the AR/AP value chain holistically. From a payables perspective, for instance, a department may notify procurement that it needs a widget. Procurement then identifies the widget, negotiates pricing, and returns the information to the requesting department.
“Bearing in mind that there’s some risk in doing this from the buyer’s perspective, procurement could say, ‘Widget provider, we will give you the funds for this now if you like, if you want to give us a discount for paying you now,’” Thomas said. “Or, ‘We can give you a card and you can authorize so you’ve got the funds effectively earmarked that you’re going to get paid or we can pay you when the goods arrive immediately.’”
By analyzing where data flows and risk reside across the value chain, financial institutions can help customers better manage cash flow and balance operations. In this role, the bank effectively acts as an intermediary bank network between counterparties.
To achieve this, an FI must understand the end-to-end AR/AP process and introduce its solution in a way that allows them to be applied at multiple points in the value chain. This applies to both buyer and seller perspectives: the seller may receive payment earlier, the buyer may extend payment terms, or the bank could intervene to enable both outcomes simultaneously.
“The whole idea of understanding the value chain is for a would-be financier or would-be arbiter of payment timing and payment data and risk mitigation, to understand what data is available, where and what controls are available, where and what commitments have been made available, and where you can then plug in your solutions more effectively,” Thomas said.
Finding Execution Gaps
Another key consideration for banks is safeguarding revenue. Most companies currently filling gaps in the AR/AP process are fintech software-as-a-service providers. While some offer niche capabilities, others have begun to assume aspects of the traditional bank role.
Some fintechs now provide working capital acceleration solutions or virtual card offerings that could conceivably cut into a bank’s market share. A financial institution that understands this landscape can choose to partner selectively, working only with providers that do not present a conflict of interest.
What’s more, a full understanding of the players in the AR/AP value chain unlocks additional opportunities.
“At any given point in the lifecycle of a receivable, there’s an opportunity to do everything from finance it to sell it to somebody for $0.50 on the dollar—with the notion that maybe they can recover credit they’ve extended and that has turned into bad debt,” Thomas said. “The recommendation is to look at those execution gaps, particularly where they suggest a potential for plugging in embedded payment and liquidity tools, and then use real-time data to influence payment method and timing.”
Who’s Who in the Zoo
By influencing timing within the AR/AP process, banks can create dynamic benefits for both themselves and their customers.
“As data becomes more readily available, you’re better able to say, ‘If I moved all these guys out to 45 days, I think we’d still be compliant,’” Thomas said. “’We’re paying them in 30 days just because there’s a pay cycle that we’re working against or that just keeps everything in sync. Move these guys out to 45 days, we can do this because we’ve got a new agentic AI solution plugged in or something like that, so we pay exactly on the day.”
Once financial institutions are partnered with AR/AP providers, it becomes possible to combine data and automation tools to deliver incremental value. For example, in specific scenarios, a bank could stretch the process even further to better meet customer needs.
“That’s the genesis of this, it’s looking at who’s who in the zoo in terms of this space on both the payables and receivables side,” Thomas said. “The best way to do that if you want to understand who’s playing where, is from a value chain analysis.”
“The other pieces are just about segmenting and prioritizing who you want to work with based on how they monetize and use the report to say, ‘Here’s a long list, a catalog of who does what, where they are in the value chain, and how they make money,’” he said. “’Let’s triage that list and figure out who you want to talk to first in terms of where you think your solution might fit.’”
