B2B Payments in the Networked Age: How to Reduce Risk, Improve Communication, and Transform Your Payments Process
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"While innovation abounds in the consumer world, the most recent true innovation in B2B payment was introduced the same year as the Betamax videotape (1975) using the same IBM patented technology as the 1960's Bat-computer. With more than 50 percent of U.S. payments being made by check, and electronic B2B payment methods that contain too little information, businesses struggle with the consequences of a payment system that is opaque, complex, risky, and disconnected from their core payables and P2P processes. In the Networked Economy of the 21st century, this should not be so and B2B payments are ripe for needed change. In this session, you will hear from industry experts and Ariba customers about how AribaPay (Ariba's groundbreaking B2B payment solution) is changing the game by: • Removing the need for companies to capture, manage, and maintain vendor bank information inside their ERP • Integrating payment directly into the P2P process • Delivering rich remittance and track and trace payment visibility to suppliers • Virtually eliminating payment risk and the need to field supplier inquiries • Supercharging P2P supplier enablement efforts"
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B2B Payments in the Networked Age: How to Reduce Risk, Improve Communication, and Transform Your Payments Process
- 1. #AribaLIVE @ariba B2B Payments in the Networked Age: How to Reduce Risk, Improve Communication, and Transform Your Payments Process Ashley Bartels, Director, Tmobile Scott Pezza, Principal Analyst, Blue Hill Research Jerry Bernhard, Treasurer, Ariba, an SAP Company © 2015 Ariba – an SAP company. All rights reserved.
- 2. #AribaLIVE @ariba Consumer Payments © 2015 Ariba – an SAP company. All rights reserved.2
- 3. #AribaLIVE @ariba Consumer payments are experiencing rapid innovation… © 2015 Ariba – an SAP company. All rights reserved.3
- 4. #AribaLIVE @ariba*”U.S. Companies Cling to Writing Paper Checks”, Wall Street Journal, March 10, 2014, based on sources from MineralTree and Bank of America. See http://on.wsj.com/1gXF8xW …B2B payments are stuck in the past! “ 65%manually correct remittances 80%process invoices manually 90%manually enter or re-key data Issuing and depositing checks cost U.S. businesses between $26 billion and $54 billion in 2010*) A business check can cost an aggregate of $4 to $20…*) “ 54%use Microsoft Excel for processing support 50-60%complete business transactions by check © 2015 Ariba – an SAP company. All rights reserved.4
- 5. #AribaLIVE @ariba merchant acquirer B2B Payments Are Opaque, Complex, and Risky © 2015 Ariba – an SAP company. All rights reserved.5 receipts purchase order sales order invoice order confirm ASN paper email portal P2P & payment data Buyer bank Supplier bank lockbox remittance report Buyer ERP check print & mail mail to lockbox check file check processor sensitive bank information Store bank account # Send bank account # ACH file ACH debits & credits ACH credits FED ACH Where is the payment What is the payment for Why is payment less than invoiced Why 3% fee for on-time payment charge report funds settlement charge file
- 6. #AribaLIVE @ariba Consumer Payments Are Simple… • Single transaction • Payment at point of purchase • Payment at time of purchase • Required data captured with payment © 2015 Ariba – an SAP company. All rights reserved.6
- 7. #AribaLIVE @ariba …B2B Payments Are Not • Multiple invoices in single payment • Payment much LATER • Credits, Adjustments, Discounts… • Required data must be added separately © 2015 Ariba – an SAP company. All rights reserved.7
- 8. #AribaLIVE @ariba Big Blue, Batman, Betamax and B2B Payments © 2015 Ariba – an SAP company. All rights reserved.8
- 9. #AribaLIVE @ariba B2B Electronic Payment Data Limits… © 2015 Ariba – an SAP company. All rights reserved.9 80 Characters 140 Characters
- 10. #AribaLIVE @ariba B2B Electronic Payment Data Limits…No Better than a Tweet! © 2015 Ariba – an SAP company. All rights reserved.10 80 Characters 140 Characters
- 11. #AribaLIVE @ariba It’s 2015…Do You Know Where Your Vendor Bank Account Info Is? © 2015 Ariba – an SAP company. All rights reserved.11
- 12. #AribaLIVE @ariba Major Retailer – Customer Bank Account Info Hacked • Retailer reports bank account info. hacked on 9/2/14. • 92.96 = $125.49B Market Cap • 90.02 = $121.53B Market Cap • Market Cap Loss in 2 Hours: $3.9B © 2015 Ariba – an SAP company. All rights reserved.12
- 13. #AribaLIVE @ariba Next-Generation Payment Solution and Service • Lower cost to collect / maintain bank account data & pay suppliers • Reduce “first-line” A/P help desk inquiry calls • Single P2P process visibility for buyers & suppliers • Electronic payment supports working capital initiatives • Verify supplier data • Data stored in external I/T environment • Rich remittance detail to easily apply funds • Suppliers can go on-line or call 24 x 7 for inquiries and support AribaPay allows buyers to securely pay suppliers via the Ariba Network, while eliminating the need to maintain supplier bank account information and reducing supplier payment inquiries. Lower A/P Costs Buy Right, Pay Right Security, Eliminate Fraud, Reduce Risk Real Supplier Value © 2015 Ariba – an SAP company. All rights reserved.13
- 14. #AribaLIVE @ariba Buyer Payment Instructions Rich Remittance Track and Trace Payment Status Bank Account Management Invoice status PO’s, Invoices, Contracts, Receipts PO’s, Invoices, Contracts, Receipts Supplier Buyer Bank Supplier Bank Debit Credit AribaPay. Certain. Secure. Simple. © 2015 Ariba – an SAP company. All rights reserved.14
- 15. © 2015 Blue Hill Research. All Rights Reserved. A View of B2B Payments Scott Pezza Principal Analyst, Blue Hill Research
- 16. © 2015 Blue Hill Research. All Rights Reserved. Scott Pezza ABOUT THE ANALYST Principal Analyst Scott Pezza is a Principal Analyst with Blue Hill Research, a Boston-based technology research and advisory firm. Scott’s research is dedicated to topics that are top-of-mind for the Office of the CFO, from working capital management and enterprise performance management to the day-to-day operations of accounts payable and receivable. His career spans the breadth of the physical and financial supply chain, from logistics to software-as-a- service technology to business research. He has spent the past seven exploring how businesses tackle challenges from warehousing and transportation to procurement, payments, and receivables management. He received his B.A. from Clark University, his J.D. from Boston University School of Law, and his M.B.A. from Boston University Graduate School of Management. @scottpezza www.linkedin.com/in/scottpezza
- 17. © 2015 Blue Hill Research. All Rights Reserved. A View of B2B Payments Speed Cost Benefits Geography Security
- 18. © 2015 Blue Hill Research. All Rights Reserved. A View of B2B Payments Speed Cost Benefits Geography SecurityFrom the Buy-Side • Time to execute (payment files, check runs, etc.) • Time in transit • DPO-Neutral From the Sell-Side • Time in transit • Time to settle • Ease of reconciliation • DSO Impact
- 19. © 2015 Blue Hill Research. All Rights Reserved. A View of B2B Payments Speed Cost Benefits Geography SecurityFrom the Buy-Side • Labor cost • Printing and Postage • Bank service fees (e.g. Positive Pay) From the Sell-Side • Labor cost (receive, deposit, reconcile, apply) • Opportunity Cost / Short-Term Financing
- 20. © 2015 Blue Hill Research. All Rights Reserved. A View of B2B Payments Speed Cost Benefits Geography SecurityFrom the Buy-Side • Limited options • Shift to wires (added cost) • Cash management • Currency availability, conversion, hedging From the Sell-Side • Settlement delays (esp. cross-border checks) • Currency risk (esp. with slower payment methods)
- 21. © 2015 Blue Hill Research. All Rights Reserved. A View of B2B Payments Speed Cost Benefits Geography SecurityFrom the Buy-Side • Discounts (incentive for ACH/EFT usage) • Rebates for card • Better control over disbursements From the Sell-Side • Faster receipt of funds • Easier reconciliation and cash application (w/ better remittance)
- 22. © 2015 Blue Hill Research. All Rights Reserved. A View of B2B Payments Speed Cost Benefits Geography SecurityFrom the Buy-Side • Data storage and information management • Positive Pay / Reverse Positive Pay • Physical security (stock, signatures, etc.) From the Sell-Side • PCI-DSS requirements when storing customer credit card information • Security concerns when customers manage bank account information • Fraud-related clawbacks for recourse payments Common Concern: Fraud
- 23. #AribaLIVE @ariba Jerry Bernard • Background Treasurer of Ariba, reporting to Head of SAP Global Treasury Manage treasury activities for Ariba and other SAP treasury functions Previously held various finance/treasury positions in electric utility and manufacturing industries Certified Treasury Professional (CTP), active in Association of Financial Professionals (AFP) © 2015 Ariba – an SAP company. All rights reserved.23
- 24. #AribaLIVE @ariba Payments – A Treasurer’s Perspective • What matters? Clarity in forecasting = > working capital optimization => minimize borrowing costs / maximize investable cash Efficiency in internal processes Financial supply chain integration Banking and transaction fees © 2015 Ariba – an SAP company. All rights reserved.24
- 25. #AribaLIVE @ariba Payments – A Treasurer’s Perspective • Challenges? Trading partner buy-in Reconciliation of remittance information / integration with accounting systems Availability of IT resources Cross-border / FX transactions • Considerations Industry trends - Payment process changes accelerating Fraud control/Regulatory compliance © 2015 Ariba – an SAP company. All rights reserved.25
Editor's Notes
- Back in the Seinfeldian ‘90s, many of us probably dealt with symptoms of hip displasia brought on by sitting on wallets like George Costanza or sore shoulders from carrying around so many receipts. Because back then, consumer payments were still pretty old school consisting of cash, check or credit card with the requisite paper receipts as the output. But in the last 20 years, Consumer payments…the methods and means that you and I use to settle transactions every day…has undergone some pretty radical and rapid innovation NEXT SLIDE
- In the last 20 years in our daily lives we have seen the advent of such things as Stored value Loyalty cards (which may be causing similar stresses to our wallets, hips and shoulders as receipts once did), Paypal which opened up a whole world of online payment bypassing traditional bank methods, Square (pictured here) which is enabling small merchants across the globe to accept card payments cheaper and more effectively (and how cool is it to automatically get an email receipt each time?), and now such things as mobile payment led by ApplePay which not only promises to make it more convenient and easy to conclude a transaction at a physical store, but with the idea of account tokenization, is making the transaction a lot more secure. Which, given the news lately of breaches and hacks, is certainly something the market I looking for. So from a consumer payments perspective, this really is a golden age of innovation and rapid change as payment technology catches up and leverages the possibilities of the networked age we live in. NEXT SLIDE
- B2B Payments…not so much. Rather than innovating and moving forward, B2B Payments are stuck in the past. (skim through the stats and end with the paper check stat leading into the anecdote below) According to a 2008 paper by the Federal Reserve Bank of Atlanta, one of the first recorded uses of a paper bank instruction was by one Nasir-i Khosrau, an Iranian merchant traveler to the city of Basra in the early 11th century AD. It’s a safe bet Mr. Khosrau didn’t know he would begin a trend of settling business transactions by paper checks that would sweep across the globe in the coming centuries and still hold sway over more than 50% of B2B payments in the US in 2014! Now, while checks may be a US problem, Europe having moved to pretty much all electronic, the other stats hold true for europe as well because the problem with B2B payment is not simply the intractability of paper checks, but the inability to access and deal with the data that needs to be delivered with B2B payments. NEXT SLIDE
- The fundamental problem with B2B payments is not the paper problem somewhat unique to the US. No, the paper is a symptom of the fundamental root issue with B2B payments. Namely that the information regarding the payment is disconnected from the delivery of goods or services by some period of time. P2P related transactional information is sent back and forth (either in paper, through a portal or electronic and automated through the Ariba Network) and is completed long before payment is executed. When it comes time to execute payment, none of the methods are able to meet the goal of combining funds settlement and rich remittance information in a timely manner. But believe it or not, check comes closest…which is why, in lieu of european style madates for electronic payment, it is still such a large part of US payments. CLICK (advance check payment animation) The advantage of checks is that payers can include pages upon pages of paper remittance information after the perforation. This enables them to identify the specific invoices being paid by a single check along with some other information as necessary. The problem is that because of all that paper they are expensive (from the cost of labor, materials, and postage to the cost of the lockbox processing opening, scanning and electronifying that paper on the supplier end) and offer zero visibility to the supplier regarding the status and timing of that payment, leaving the supplier with high costs and the question of “Where is the payment?” (the check is in the mail!)…and they are of course SLOW! CLICK ACH (US) or electronic methods of payment solve the problem of speed, settling funds typically overnight from the point of execution. However, the level of remittance they can carry is limited typically to 80 characters in the US and 140 Characters in SEPA jurisdictions. And while larger suppliers can often consume this information electronically (limited though it is), most suppliers rely on reports from their bank and have to manually manage reconciling those funds to receivables due. And with the very limited remittance info available, this is often a major pain point, particularly when the single credit is for multiple invoices or if the amount being paid is less than what the supplier invoiced. And for the buyer, paying their suppliers via ACH, while cheaper and holding less fraud risk than paper checks, means that they have to capture, manage and maintain supplier bank account information in their vendor master. Simply holding this sensitive information is risky enough, but they also need to validate that the bank information belongs to who they think it belongs to, lest they pay the wrong entity. CLICK Finally, many suppliers are paid by a card based form of payment, be that traditional Pcard on PO at point of purchase, or upon invoice approval or at invoice due date with buyer initiated payment cards. Regardless of the particular card-based product, the result is the same…relatively quick settlement of funds (within a few days) to the supplier some times with detailed, level 3 information…but at a HUGE premium cost in the form of interchange fees of 2.5% to 3.% or higher. 3 primary payment methods, each with it’s own particular strengths and weaknesses, but none of which solve the fundamental problem of the disconnect between the payment and the information about what is being paid. And all of them contributing to a B2B payment process that is opaque, complex and risky…and stuck in the 20th century! So why is this? With so much innovation on the consumer side of things, why is B2B so far behind? NEXT SLIDE
- Well, a large part of the answer is that, relatively speaking, Consumer payments are simple…(Just speak to it) NEXT SLIDE
- But while consumer payments are relatively simple, B2B payments, for the most part, are not. In a b2b environment goods and services are often delivered weeks or months prior to payment, and multiple invoices are often settled with a single payment. Additionally, some of those invoices may have been adjusted with the final payment being less than the amount originally invoiced due to credit adjustments, discounts, disputes, etc. As a result, detailed remittance information is critical to those receiving payment. Paper checks excel here because there is no limit to the number of pages of descriptive info that can be included after the check perforation (as any vendor receiving reams of consolidated payment info can attest!). Paper checks remain popular with businesses because, even though terribly expensive, rife with fraud, desperately slow to settle, and horribly opaque with regards to forecasting settlement, they do offer a unique advantage from a b2b perspective….they can deliver information. But while the value of the detailed remittance delivered with paper checks is difficult to overstate, there is this little matter of paper checks being terribly expensive, rife with fraud, desperately slow to settle, and horribly opaque! So given the weakness of paper checks and, as we will see in the study results from Ardent Partners, the desire to get off paper checks, why in lieu of european style mandates are 50% or more of B2B payments still made by paper check in the US? Why do suppliers still resist? Well, I think it has a lot to do with what B2B payments have in common with Big Blue, Batman and the Betamax videotape. NEXT SLIDE
- What do Big Blue (IBM), Batman and Betamax have in common with today’s B2B Electronic Payments, particularly in the US? US ACH Payments…94 character addenda…80 usuable characters. (CTX counts for 3% of all US B2B electronic payments…so 97% of B2B ePayments in US are restricted to 80 characters of information). Why 80 characters? It is a very specific number…based on the 80 column IBM punch card patented in 1928 (the same punch cards Batman used to input data into his state of the art for 1963 Bat-Computer) and which was still the dominant standard for data capture at the time that the ACH rules sill governing payment today were established for B2B transactions in 1975, which happened to be the exact same year that Sony introduced the now long-obsolete Betamax video cassette player. NEXT SLIDE
- So in 2015 in the US, with the incredible complexities of business commerce today, and the gigabits of critical data being exchanged by trading partners via business networks, the dominant form of electronic payment in the US relies on rules established in 1975 using 1928 technology that can only transmit 80 characters of data. (Long Pause)….and we wonder why we have problems with B2B payments. Now, proper kudos to the Single European Payments Area and their ability through regulation to essentially eliminate the paper check, but they still haven’t solved the primary problem of connecting the settlement of funds to the rich data required with it. Advanced as they are, the SEPA schema still allows for only 140 characters of data to be included with the payment. And while that is nearly double what ACH allows for in the US, it is still woefully inadequate to the need at hand. In fact, that 140 character number may look familiar because even though better than the US version, (NEXT SLIDE) it’s still no better than a tweet
- I think we would all agree that detailed, rich remittance is at the root of much of the problem for B2B payments. That is why the Federal reserve based here in my hometown of Minneapolis is leading a remittnce coalition task force to figure out how to fix this. That is why in the UK and europe, there is a Richer Remittance initiative underway to do the same there. Because clearly 80 characters, or even a remittance tweet, is not enough. But while that is certainly a core issue with B2B payments, it is not he only problem… NEXT SLIDE