Electronic payments offer many advantages over paying with paper check. Ardent Partners research has shown that, no matter the payment method (i.e., ACH, wire, card, networks, etc.), ePayments cost up to 75% less to process than a paper check. Add to this the realization that manual, paper-based workflows are prone to errors such as overpayments and missed payments, can present a risk of fraud, offer almost no visibility, and are downright slow for payment to arrive, and it’s easy to wonder why ePayments aren’t more prevalent.
That’s not to say ePayments are a small percentage of the B2B payment ecosystem. In fact, Ardent’s recent ePayments research (“ePayments Rising: The 2014 Market Report”) showed that 58% of all B2B payments are made electronically. ePayments are not new—not by a long stretch—so why haven’t paper checks fallen by the wayside yet?
The Faults of ePayments
Although there are some newer ePayment technologies that have recently been introduced, ePayments have existed for quite some time. Wire transfers originated in the late 1800s—the “wire” in the name comes from payment information traveling over telegraph wires—and ACH payments came about in the 1970s (note that ACH is a US-based platform, there are other ePayment initiatives/infrastructures like SEPA that cover other regions). Corporate travel cards arose in the 1930s, to be followed by purchasing cards in the 1980s. It’s taken more than 100 years for ePayments to capture a majority of B2B payments, and there are a handful of reasons for this.
First, and most important, is the difficulty convincing suppliers to switch to electronic payments. Many suppliers, which tend to be small and mid-sized enterprises, only want paper checks because paper is a known quantity. Electronic payments, despite the lower per-payment expense, can have other costs—such as opportunity cost, technology cost if implementing a new payment method, and risk in exposing bank account information to customers. Some of these costs can be accounted for, but the transition from paper checks to any sort of electronic method could be a long (and costly) road no matter what.
Besides the cost and interest barriers, there’s also a lack of standardization in remittance information. Some ePayment methods offer better remittance detail to suppliers than others; ACH has only 80 characters of usable space and wire transfer provides a mere 140 for remittance details. Commercial cards can be much better than that, but suppliers have to pay interchange and merchant discount rates to use the card network, which some suppliers may not want to do.
Lastly, there’s the internal change management problem on both the buyer and supplier side of the world. If someone on the AP/finance team isn’t closely managing the transition to ePayments, then the project could likely be abandoned before it starts to show value. Truly these are major issues for ePayments gaining traction worldwide.
Can ePayments Improve?
These problems, while significant, are not insurmountable. The rise of payment capabilities in business networks traditionally used for eInvoicing, such as Ariba and Basware, offers hope that ePayments will take an even larger share of the pie in the next few years. Bottomline Technologies’ Paymode-X and NVoicePay’s payment portal are yet two more examples of solutions that use existing ePayment technologies and, yet, simplify them to remove many of the roadblocks to adoption.
With so much happening in the payments space right now, there’s a very real possibility that the problem of rich remittance information with ePayments is fast disappearing. The number of B2B payments settled via check is already decreasing—in 2013, Ardent Research found that 47% of payments were made via check, compared to 42% today—so there’s no telling what the percentage will be in the next year or two. Either way, we’ll be watching the payments ecosystem closely for changes.
Keep up with the latest discussion on ePayments and other accounts payable automation topics at the Ardent Partners LinkedIn Group.
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