For all the money that bank IT departments are pouring into treasury management innovation, a lack of corporate tech literacy and a strategic disparity between buyers and sellers anchors many corporations to an old school B-to-B paradigm dominated by paper checks.
BNY Mellon Treasury Services hopes that broadening functionality to include MasterCard's Payment Gateway will be the enticement that brings remaining Luddite corporates into the fold.
Payments Gateway is an enterprise-wide payment processing platform that can manage multiple payment types, including cards and EFTs. BNY Mellon can use it to offer a number of payments efficiencies. For example, it can offer corporates an automated card "bridge" between suppliers who want immediate payments and buyers who want to hold onto cash for a longer period-differing agendas that have encouraged a payments technology status quo.
"The virtual card allows our clients to continue processing the same way they process today," says Laura McGortey, product line manager for BNY Mellon Treasury Services, who sees Payment Gateway as an additional path to straight through processing that resides alongside options like ACH and wire transfers.
Beyond attempting to make both sides of the payment transaction happy-the card posts payments to suppliers immediately while buyers pay a credit card bill and retain some amount of control over cash flow - the use of virtual cards can also improve data management.
"Credit card companies have always had a large bandwidth to handle information," McGortey says, adding the lure of that data storage is an ability to improve upon the exhaustive manual searches and bookkeeping required for corporates to organize and track paper payments.
Cards additionally can provide tracking of purchases. "If an employee uses MasterCard, there's a report that can be generated," says Alistair Newton, a research vp in the banking group at Gartner. "From the purchaser point of view, the method you use to pay revolves around how you want to control payments."
BNY, which joins Wells Fargo, Citigroup and RBS among Payment Gateway clients, is making it available to all of its clients, and sees a particular fit in upper middle market segment where suppliers are less likely to have robust electronic payments tech. "There's a tier of customers where we see this card transaction is a better fit based on the supplier's tech needs," McGortey says.
Aaron McPherson, a practice director for Financial Insights, also sees opportunity with smaller suppliers. "The tier-one suppliers are pretty well automated with EDI and ACH," he says. "The companies below that tier can't justify the expense of an EDI implementation, so they're doing manual processing with paper checks and remittance."
Kevin Phalen, an integrated card and comprehensive payables product executive for Bank of America Merrill Lynch - which offers a variety of automated payment options-says the card payments option could increase adoption for payments of about $5,000 or less, because the value proposition for buyers and suppliers is "in check."
But for larger items (higher value payments), like heavy equipment-that can carry a six figure price tag-a two percent interchange fee charged to merchants for card purchases makes cards a less attractive automated payments option.
Phalen says there are options that can fix that problem. "What we'll do is sit down with the buyers and suppliers and say for the high value payments, we can still take the payment files and initiate them on behalf of the buyer, but do it via our Paymode solution, which will optimize the best way to pay, thus lowering the cost of making the payments."
Financial institutions face added hurdles in luring corporates to automated payments, with hindrances including the lack of standards among institutions and international jurisdictions, and the fact that many suppliers face a steep automation curve.
Ed Kountz, a senior analyst for Forrester Research, says that in a 2007 survey (the most recent available), checks were still responsible for two thirds of B-to-B payments versus 18 percent ACH. "I don't think the numbers are still at those levels, but they haven't changed a lot, either," Kountz says. "What has been a primary concern with many businesses has been the customer facing or front end payments processing. It touches multiple departments and organizations, and it's daunting to automate all of this."