The Future of Payments

Seth Goodman, Director, North America Product Head, Citi Commercial Cards, Citi

As a digitally connected CFO, you likely wake up and check your phone first thing for emails. You may ask your smart home device for the weather forecast or to order you a car to get to work. In the car you can pre-pay for your coffee or pay with a QR code in store. In the elevator on the way up to your office, you may use your phone to order new clothing, or make dinner reservations at a restaurant. Finally, when you sit down at your desk, and approve a vendor payment, you likely authorize or physically sign checks that are put in envelopes and mailed. Something is wrong with this picture.

The state of technology and our consumer expectations are rapidly evolving, however, business payments have failed to keep up. Consider these statistics; Over two-thirds of consumer payments are made electronically, 24 percent of eCommerce goods are ordered using a mobile phone and 90 percent of adults have their mobile phone within arm’s reach at all times. However, for corporate payments, approximately 50 percent of vendor payments are still made using paper checks.

The good news is that corporate payments are beginning to evolve. One of the most significant trends is the increasing adoption of virtual cards and Straight Through Processing (STP) payments. According to the 2017 RPMG Research Corporation Purchasing Card Survey, approximately 36 percent of North American Fortune 500 Companies had a virtual card program in 2017. The pace of virtual card adoption is accelerating quickly with over 60percent of Fortune 500 Companies forecasted to have a program in place by 2019. If your company does not already have plans to launch a virtual card program, you should consider taking the leap.

The pace of virtual card adoption is accelerating quickly with over 60 percent of Fortune 500 Companies forecasted to have a program in place by 2019

Virtual cards are unique one-time tokenized account numbers which are used to pay suppliers as part of a standard accounts payable process. Like a typical credit card, each virtual card number has a standard 16-digit number, expiration date, and 3-digit security code for seamless transactions. However, one of the key differences between a typical credit card and a virtual card is the ability to set each virtual card number with a set of controls. The controls lock down potential misuse or fraud, ensuring the appropriate use by the supplier and capture custom data to assist with analysis, allocation, and reconciliations of payments.

Virtual card accounts can be generated through two methods. First, there is the standard pull method which requires suppliers to use their point of sale terminals to process the transaction. Secondly, there is the push method also known as STP which delivers the payment directly into the supplier’s bank account.

STP refers to the B2B payment process where payment instructions are initiated by clients and settle without active supplier involvement. Instead of the supplier receiving the virtual card number via email and using its point of sale terminal to process the payment, the payment is sent directly into the supplier’s bank account. This process eliminates the supplier’s need to manually enter card details or handle PCI (Payment Card Industry) data. Some key buyer benefits of STP include, the ability to automate all payments, expand card acceptance, manage the precise timing of payments, and improve reconciliation.

With that said, supplier acceptance is crucial to a successful virtual card account program. For STP, clients should target suppliers who prefer automated payments, accept large volumes of payments, may not accept virtual card numbers via email, or are concerned about security.

Another factor to consider relates to interchange rates as it is often difficult for suppliers to determine which rate they ultimately qualify for accepting card payments. This is due to the fact that rates are dependent on the type of transaction, the amount of the transaction, as well as the data that is submitted through the process. However, proprietary interchange rate structures are gaining popularity, making it simple and easy for suppliers to understand and know what fees they will pay for each virtual card account transaction. This trend allows a buyer to continue to earn rebates while associated suppliers benefit from reduced fees.

With virtual cards on the rise in the payment’s industry today, it is time to put down your pen, recycle your checks and join the automated payments movement.

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