Beyond the Rebate: What Fintech Brings to Treasury and Finance
I’ve been in sales for about 15 years now, first in the medical device industry, and then in staffing and human capital. About five years ago I made the leap to fintech, first selling fintech solutions to help accounts receivable departments manage incoming payments through cash application software and custom payment portals, then selling a corporate card product for a large bank. I spend my time today providing payment automation solutions to accounts payable and treasury at various enterprise organizations.
It’s been interesting to see the payments process from both the receivables and payables side, but what’s been really fascinating has been observing the difference between how banks and fintech's approach business payments. My experience at the bank showed me that payments are a product to be sold. For a fintech they are a process to be optimized, which means using technology and services to handle not only the movement of funds, but the movement of data.
All about the rebate
My experience selling commercial cards as a bank product was that the sales pitch is based almost exclusively on rebates. Get in front of a new or existing customer and pitch the figure. Don’t go into detail about how the customer will get to that number. Focus on how easy it is to get started. Throw out a signing bonus if need be. Now I’m selling against banks, and they're telling the same story.
What I have seen is that existing providers rarely deliver on the rebate number, because most of the time customers don’t come close to the spend estimate discussed during the sales process. Conveniently, there are clauses for the bank to get their signing bonuses back, drop a few basis points off of the rebate, and ensure the deal is still profitable. Still, in most cases, middle management at the company that implemented the card program is happy, because a small rebate is better than nothing at all.
Unintended consequences for the accounts payable team
The accounts payable team, however, is not so happy. On the surface, cards looks like a free, easy way to pay. But the AP team is the first to discover that card or virtual card has unintended consequences and hidden costs. Suddenly AP has a new payment channel to manage, and they've got to call their suppliers and ask them to take a card.
That is not always an easy sell, and AP people are not salespeople. Top tier suppliers already have negotiated terms and don’t want to give more margin away. Smaller suppliers don’t want to pay the interchange fee. Customers end up getting lots of little vendors or the known acceptors like Cintas or Staples onto the program.
Large customers might get some supplier enablement help with this from a provider in the beginning, but sporadic calling campaigns for support is not a process that scales well with growth. And even if AP has the best team in place, they are unbelievably busy. Enablement doesn’t make the priority list and it becomes something the team steps out to do every few months, then twice a year, then maybe as a new vendor is set up. Maybe. This is why most companies don’t hit the projected rebate.
At the bank, nowhere in the sales cycle did we ever get into the operational costs of implementing a card program. The sale was purely transactional, perhaps backed by a historical relationship. The bid was made on basis points. Closed deals were handed off to client management and the salesperson moved on.
A different approach from fintech
Fintechs look at the whole process surrounding the payment and combine technology and services to address the pain points and make the whole process more efficient.
In accounts receivable, that meant taking all the different processes for receiving different types of payments and wrapping them into a single, secure, automated process for collecting the payments, getting them into the right bank accounts and posting the data back into the ERP.
Here’s what it looks on the accounts payable side:
Being able to initiate all types of payment—checks, ACH, wires, virtual card, international—in a single process is the new normal in the fintech world. The customer now creates one file instead of three or more. This file is typically flexible, as most fintechs can accommodate whatever file the customer pulls out of their accounting system. This is in stark contrast to the rigid format a bank requires. That makes implementation simple, and ongoing IT is minimal as the company is only responsible for maintaining that one file. When an acquisition takes place, or an ERP upgrade is scheduled, only one file will need to be created or updated.
When a new supplier is added, we are quickly able to validate that supplier and ensure the best method of payment. Any supplier payment changes, such as a new card acceptor or an updating ACH account, can be enabled across our entire customer base automatically. Our continuous supplier enablement across all payment modalities usually results in a larger percentage of our customers supplier base accepting cards and ACH. We securely store all this data on behalf of the customer. Additionally, we stand behind our data by fielding first-line payment questions and resolving them in lieu of pushing those back to the customer’s AP department.
Banks have had a lock on business payments—and the treasury relationship—for so long that they haven’t been forced to evolve beyond their traditional role of moving money. And, because of the way they’re organized, with different sales organizations, software requirements, and systems for different payment methods, they think about payments in a very fragmented way.
Sure, they’ll offer competitive rebates on cards, or deep discounts on ACH and check to win the business (it’s a loss leader, after all). But they don’t have the technology nor the mindset to address business payments as a holistic process.
Fintechs are able to handle the complexity of a business payment process and hide it behind intuitive, easy-to-use interfaces, reducing repetitive manual tasks in AR and AP.
Because fintechs are built in the cloud, they have global visibility into all payments and are able to amass large, cross-customer, cross-industry data sets that they use to continually improve the process and add additional value for their customers. They are typically system agnostic, which is a boon for companies that are growing through acquisitions, allowing connection to any bank or ERP, and easily facilitating system upgrades or customer banking changes.
Because of their mainframe setups, banking data will likely be siloed for decades to come. They won't be able to provide global visibility into payment activity, let alone on-demand reporting. For banks, payments are just another product to sell. For fintech, payments are a process they can continually improve using technology and data. Customers can simply connect to their cloud platforms to reap the benefits, instead of reinventing the wheel inside their own companies. For businesses trying to compete against faster, more nimble rivals, fintech represents a huge opportunity.