Will fraudsters finally break paper checks' hold on B2B payments?

Accounts payables automation is a tough sell for companies that don't want to abandon a process they have clung to for decades. But this old process is a big target for fraudsters — and growing.

Thieves are finding companies’ accounts payable departments to be lucrative targets due to the repetitive manual processes and arcane procedures that can lead to human error. These are the very processes that AP automation streamlines and, often by default, acts as a fraud fighter due to reduction of the complexity and improved invoice-to-payment matching technology.

Reported B2B payment fraud and attempted fraud is up for the fourth year in a row, according to the AFP 2018 Payments Fraud and Control Survey. It affected 78 percent of companies in 2017, up from 74 percent one year earlier.

Despite this trend, most companies remain wary of gutting their AP processes for something new and unfamiliar.

“The key issue is the implementation since it’s not a simple process. There’s also the complexity of how do you do it seamlessly without disrupting the existing processes,” said Gilles Ubaghs, senior analyst in the wholesale banking and payments practice at Aite Group.

The rising risk of fraud may finally motivate some companies to automate their AP.

In the AFP’s 2017 survey, it explored the payment methods that experienced the most fraud. Not surprisingly, checks were the top source of fraud, followed by wire transfers. Over half (55 percent) of all surveyed companies had experienced fraud or attempted fraud with B2B checks compared to less than one quarter experiencing fraud on commercial cards (23 percent) and ACH debits (22 percent).

On the surface, the act of automating a company’s accounts payables can be a major win for it and its suppliers. AP automation reduces the cost of paying vendors, speeds up payments, identifies invoicing problems or fraud much sooner and provides a corporate treasury department with greater control over its cash flow. It can also become a source of revenue when virtual payment cards are introduced and the company can earn interchange revenue.

“Oftentimes it turns a cost center into a revenue center, but everybody is unique,” said Jay Dearborn, president of corporate payments and travel, at WEX, which provides services for fleet cards, health care and other business lines. He emphasized that each company is different so any AP automation implementation can have varying results.

While these may be very attractive reasons to automate an AP department there can be significant obstacles.

“The high level reason is inertia," said Steve Murphy, director of commercial and enterprise payments practice at Mercator Advisory Group. "Payables and receivables processes have been established and ingrained for many years, generally believed to be effective in the paper paradigm. So the 'if it’s not broke, don’t fix it' rationalization fits well.”

Both Comdata (a unit of Fleetcor) and WEX are very heavily invested in the fleet card business and are seeking to expand beyond. WEX has made major inroads into expansion into healthcare vertical with its WEX Health division when the company acquired healthcare technology provider Evolution1 in 2014. Similarly, Comdata has expanded its offerings in virtual cards with a B2B vendor enrollment tool in an effort to speed adoption of its non-fleet cards business.

In an effort to expand its corporate payment and virtual card offerings and be less reliant on its fleet card business, WEX signed an agreement last week to acquire Noventis, a virtual card network. The deal is expected to close in the first half of 2019, pending regulatory approvals.

“In the U.S., virtual cards have been growing at a 20 percent pace for several years now, and should continue to do so over the next few years as well," Murphy said. "But they still represent a relatively small part of B2B payments."

While the move to acquire Noventis appears to be a straightforward acquisition of an existing supplier, it’s also an effort to block arch-rival fleet card competitor, Comdata, from expanding too far into virtual cards and AP automation markets. Just this year, Noventis signed an agreement with Comdata to expand the fleet card company’s range of suppliers that can accept payments through its virtual cards to further reduce a reliance on paper checks.