Deluxe CEO: Building The Digital Bridge For The ‘Last 40 Percent’ Of B2B Payments

It’s a digital world – but it still has plenty of paper. In fact, there’s $21 trillion in paper checks moving around the U.S. economy every year. By any measure, paper checks are a force to be reckoned with, especially in B2B payments – and it will take no small amount of effort to remove this “pulp friction” from the way buyers and suppliers pay one another.

The path from getting from here to there, of course, involves introspection on the part of executives themselves and can be smoothed a bit by digital checks, electronic invoices and electronic payments.

“Pulp friction” was the key topic in an “On the Agenda” webcast with PYMNTS’ Karen Webster and Barry McCarthy, CEO of Deluxe, who said that payments choice could forge the bridge from paper payments to those rendered digitally.

Though consumer payments have been digitized and moved to electronic forms, there still exists a “giant, gaping opportunity for B2B payments,” McCarthy told Webster, as more than 40 percent of B2B payments are still being done via dead trees aka the paper check.

The “traditional” way of sending and receiving those payments is a multi-step process, including collecting envelopes, printing the checks, maybe signing them, affixing stamps and posting them. And on the receiving side, the checks have to be deposited.

At a high level, firms on the receiving end of payments would like to have an alternative to paper checks: They’d like to receive funds faster than a paper check can convey them.

Frustration Is Off The Charts

But in shifting to digital B2B payments, as with any payments transaction, there are two sides to the equation — and they must be in harmony, said McCarthy. And that harmony has been elusive. Thus far, the digital journey has been fraught with friction, where executives would rate their progress, on a scale of one to 10, at about a two or three — but their level of frustration at a 10.

A wholesale shift to digital means the sender and receiver must both agree to change their systems — and those systems must be able to “talk” to one another (a basic function of any two-sided market, noted McCarthy).

“The payor and the payee have to align on how the transaction is going to flow,” he explained. Checks are ubiquitous (“everyone can agree on checks,” noted McCarthy), but digital payments solutions are not.

Take hospitals, a segment of the market that Deluxe serves with its healthcare payments exchange. As much as they want to make those payments digital, it’s unlikely that a hospital will change everything about its accounts payable process to send a digital payment to a supplier, McCarthy remarked.

A food distributor or provisioner arriving at a restaurant would likely need payment after the products have been inspected, but before they leave the premises, and a paper check was the most ubiquitous way to make that transaction happen. But if a tree damaged a homeowner’s roof, the digital payment may be highly valued in allowing for repairs to get underway immediately, and waiting for a check presents friction.

So it’s critical to work with what’s in place now while eyeing the digital future, maintained McCarthy. “The trick here is to find solutions that can live within the existing systems of how a payor and payee operate their business,” he said.

Bridges And Moats 

Deluxe has been constructing the “bridge” between paper payments and digital payments by building directories of receivers by vertical, enabling its digital payments platform to plug into the payor’s check processing system, and digitizing the checks that those billing systems generate. The company’s payment “switch” routes the funds to the payee digitally — or via check, if they still prefer — and later this month, an “intelligent router” will map payment preferences across its payee directories. McCarthy said that its Medical Payment Exchange platform, which launched last year in conjunction with ECHO Health, now has 160,000 payees. He said the company would build directories for property and casualty insurers, payroll providers, and other enterprises in a similar fashion.

Leveraging Deluxe’s lockbox business — which McCarthy describes as its “moat,” since Deluxe operates roughly half of the lockboxes in the U.S. — incoming payments can also be digitized and posted to payee accounts adding payment credentials and payees to the Deluxe network. According to McCarthy, Deluxe’s platform processes roughly $3 trillion annually in B2B payments. “We meet the payor and the payee where they are today,” he said.

Payments will become increasingly digitized, McCarthy predicted — although payments choice will always be a central, guiding principle as Deluxe digitizes the assets it already has in place.

Noting the continuing stickiness of checks, “as a company that prints paper checks, we’re grateful for that,” McCarthy told Webster. But, he added, “we are not in the business of just printing paper checks forever. We’re in the business of also digitizing those last 40-plus percent of payments.”