Online bill payers are twice as likely to remain active banking customers according to a comScore study. So business bill pay should be a no-brainer for banks, right? Not so fast. Business bill pay in its current form is broken. Here are five reasons why business bill pay has yet to reach its potential.
Challenge #1: There’s No Revenue
Online bill pay should make life easier for customers while driving incremental revenue for banks. But that won’t happen unless customers actually use the solutions. The problem is that many banks push businesses to adopt consumer-oriented bill pay products that are not designed to handle the scale and complexity of business payments. As a result, less than 2 percent of business banking customers use bill pay. And 76 percent of business bills are still paid by paper checks which are time consuming, expensive and prone to errors.
Businesses make dozens, hundreds or sometimes even thousands of payments each month. In many cases higher volumes can lead to higher costs for banks. How can this happen? The cost of a transaction depends on whether or not payments are settled electronically through ACH or through remotely created paper checks. ACH payments will cost a bank about a few cents each, while checks can cost five times as much. But the sheer volume of potential billers makes it nearly impossible for a bank to build a comprehensive ACH directory of this size on its own. There are more than 27 million business billers in the United States.
As a business increases its volume of monthly payments, it also increases the likelihood that payments will be made to unlisted billers. As this happens, more payments have to be made by expensive paper checks which can raise a bank’s overhead for offering the service by 500 percent.
Challenge #2: Current Solutions are Poorly Constructed
Growing businesses have demanding payment needs that cannot be met by current business bill pay solutions. These businesses have outgrown paper-based accounting ledgers and simple Excel spreadsheets to track their finances. They have graduated to QuickBooks, NetSuite, Microsoft Dynamics GP, or another professional accounting system that tracks payables, partial payments, multiple invoices, and other more complicated transactions. They rely on structured payment processes that require a system to provide insight into the operational elements of the business, such as cash, customers, receivables, vendors, and payables.
The whole point of paying bills online is to increase efficiency, and if online bill pay is not integrated with these systems customers must resort to the tedious, error prone, and manual processes of keying invoices and payments twice – first in their accounting system and then in their bill pay solution.
Challenge #3: Current Solutions Don’t Meet Business Needs
Business customers require a system that can automate the entire invoice-to-payment process, using the proper workflows and controls to process invoices and make payments simple and intuitive. But most of today’s business bill pay solutions lack these basic capabilities. For example, at a certain point in their growth, companies begin making partial payments or combining multiple invoices into a single payment and need to be able to track the status of these payments to help payees apply them correctly. Remittance advice alleviates these problems and is key to avoiding confusing, time-consuming phone calls between a company and its vendors or partners. It also helps avoid the even worse fate of duplicate payments and all the headaches in trying to correct them.
Another weakness of basic business bill pay solutions is a lack of workflow and documentation capabilities. Workflow issues can be an inconvenience, cost a company money due to inefficiencies, and be a security risk. Most companies follow a dual-control regimen in which one person (e.g., the company accountant) generates a payment but another person (e.g., the owner or controller) approves it. When the payment is submitted for approval it must often be accompanied by a variety of back-up documentation, including receipts, purchase orders, and expense reports. Bill pay services built from consumer models don’t have these capabilities, which is one of the many ways they can expose a business to internal and external fraud. It’s also another reason why they don’t meet the needs of today’s businesses.
Challenge #4: Solutions aren’t Built to Grow
Supporting business banking customers as they grow seems like common sense, but most banks are sorely neglecting some of their most successful clients by failing to deliver payment solutions that grow with them. Smaller companies may get by using imperfect bill pay solutions that are built for consumers. But growing companies become more sophisticated and need things like advanced workflow and approval process, and support for payment mechanisms such as ACH. And as they graduate to more complex ERP and accounting packages they need these systems to integrate with their bank. If a bank doesn’t support these things, companies will have to revert back to manual processes or worse yet, seek alternate solutions from a bank that can meet their needs.
Challenge #5: Solutions are Strategically Important, but Treated Tactically
Payments are a strategically important part of any business and banks need to treat them that way. However, most banks either treat payments tactically as a point solution, or even worse, as a complete afterthought. But when you stop and think about it, what is more strategic to a growing business than cash flow? Proper bill pay solutions can drive efficiency into this strategic function by improving workflows from invoice through to payment, and documenting the process, and providing the insight needed to better manage cash flow.
What can banks do to meet the payment needs of businesses?
It’s clear that bill pay in its current form is not built for business use. But current shortcomings aside, a more robust accounts payable and payment automation solution would greatly improve loyalty among business banking customers. By funneling businesses toward inadequate solutions built for consumers, banks risk losing money and making customers unhappy. And by not offering anything they’re leaving money on the table.
For more information about what commercial customers are looking for in their bill pay solutions and how to meet their needs, visit http://www.mineraltree.com/for-banks.