Why choose a FinTech over a bank?
After years of false starts, businesses are migrating away from paper check payments to suppliers.
Businesses now make less than half of their supplier payments via checks, per the Institute of Finance and Management’s (IOFM) 2018 Future of Accounts Payable Survey. What’s more, three years from now, businesses surveyed by IOFM expect to make more payments to suppliers via Automated Clearing House (ACH) payment than paper check (38 percent versus 18 percent), and businesses expect to double the percentage of payments to suppliers made via virtual card.
Why are businesses so optimistic that they will finally leave costly, inefficient and risky checks in the dust? Seventy percent of them have a strategy in place to move to electronic payments, IOFM finds.
A key element of an electronic payment strategy is how to enable and support suppliers and execute payments. It’s tempting to use a bank to provide those services. After all, banks are trusted partners to businesses, and have financial expertise. But, in most cases, financial technology (FinTech) solutions providers are a better option for businesses as a provider of electronic payments solutions.
Here are five ways that FinTech payment solutions beat bank payment offerings:
1. Multiple payment methods
Banks make the most money on supplier payments made via virtual card. It’s for that reason that many banks only support virtual card payments to suppliers. This forces buyers to partner with multiple banks and/or third parties to pay suppliers in their preferred method or to take a one-size-fits-all approach to electronic payments. In some cases, a buyer’s credit facility bars it from using a competing bank’s payment solution.
FinTech solutions support checks, e-checks, ACH and cards. This eliminates the complexity of partnering with multiple payment providers, the negative impact of a take-it-or-leave approach to supplier payments, and potential interference with their credit facility.
2. A single payment upload file
Some banks support different payment methods to suppliers, but it comes at a cost. Each payment type is supported by a different part of the bank, each with its own systems and processes. This means that buyers must generate a file for each method of payment, log into multiple bank portals to execute the payments and reconcile multiple payment files. If something goes wrong with a payment, information is not in a single location.
FinTech solutions eliminate this hassle by allowing buyers to upload a single payment file for all their supplier payments. FinTech solutions then parse the file based on payment method. Batches then are approved, and items are marked as paid. Easy!
3. Proven supplier enablement and management
Strong supplier adoption is critical to the success of an electronic payments program. But most banks take a half-hearted approach to enabling and supporting a buyer’s suppliers. Most banks only target a buyer’s largest suppliers or those suppliers that accept virtual cards. The onboarding campaigns used by many banks does a poor job of collecting and maintaining supplier information, only last a few months, and they don’t address ongoing changes (“churn”) in a buyer’s supplier base. Some banks require payment files to be formatted in a particular way. And banks typically put the burden of program administration and support on the shoulders of the buyer.
FinTech solutions providers offer proven ongoing services for enabling and supporting suppliers, ensuring optimum supplier adoption and electronic payments program retention.
4. Bank agnostic
Using a bank’s payment solution typically requires a buyer to commit to the bank for other services. Bank commitments can significantly add to the cost of using a bank’s payments service.
FinTech solutions are bank agnostic. They do not require buyers to change their banking relationships. Payments can be funded from any bank account. And buyers can choose how they facilitate supply chain financing and early payment programs.
Banks are in the financial services business, not the automation industry. Few banks own the payment solutions that they market to businesses. Some banks outsource their payments business to other banks or to third parties. This means that most banks have limited control over how quickly the solutions they provide can adapt to meet changing business needs or emerging payments technologies and strategies. And bank solutions cannot easily be customized (if at all) to address a buyer’s needs. The multiple, antiquated solutions that some banks use across different payment methods complicates matters.
Conversely, innovation is a FinTech’s core mission. By partnering with a FinTech, businesses can be assured they are using the most advanced technology for paying suppliers. FinTech solutions also are easier to use and manage than those offered by most banks.
Partnering with a bank for supplier payments seems like a no-brainer. But the solutions provided by FinTechs beat bank offerings in five important ways: support for multiple payment methods, a single payment upload file, proven supplier enablement and support, no bank commitments, and innovation.
If your business is evaluating payment solutions providers, Paymerang wants to speak with you.
Contact Colleen Crist at [email protected] to arrange a no-obligation consultation with one of our payment experts.