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May 25, 2016

ePayments: an idea that continues to evolve

In the context of payment, the concept of “the check” was conceived by Dutch traders in the early 1500s. The check became a way of banking through clearing houses and a safer alternative to keeping money at home. Today, 500 years later, check payments continue as an accepted form of monetary transactions.

However, the idea of making payments “digitally” continues to intrigue and influence the goals of accounts payable organizations. The sheer scale of transactions has created a need for alternatives to paper payments, which would promote cheaper and quicker methods for reducing waste while improving security.

One example of how organizations initially pushed to move away from checks is ACH or Automated Clearing House. Invented in the early 70s by a California group of bankers, the Special Committee on Paperless Entries (SCOPE), the goal was to create an automated payment system to replace or augment the volume of checks being cleared.

In 1972 SCOPE formed the first ACH association and established a legal, technical and operational framework for dealing with how electronic payments should work. By 1978 all financial institutions in the United States were able to transfer ACH payments back and forth. Ten years later, over a billion ACH payments had been transferred. Between 2000 and 2001, ACH payments grew to over 1 billion transfers in one year. In 2012, over 21 billion transfers occurred, totaling $36.9 trillion.

Today, there are several methods for payment used in the B2B sphere. These include wire transfers and purchasing cards. Yet despite the efforts of becoming digital, in the world of AP checks continue to be ubiquitous in B2B payments. According to an AP automation study conducted by The Institute of Financial Operations, they account for 50 percent of payments.

The path to innovation, however, continues and in recent years has evolved to embody new ways of thinking about not only payments, but even how we conceive the notion of credit cards in view of the development of virtual cards.

According to PYMTS.com, virtual cards have been around for some time. Though initially marketed primarily to consumers to improve the security of online payments, the use of virtual cards has gradually gained momentum in B2B companies, particularly in travel, invoice and health care payments, where use of paper checks prevails.

By definition, virtual credit cards are cards that generate a unique credit card number to coincide with a specific transaction. Also referred to as “single-use credit cards,” virtual cards offer businesses a highly controlled and secure way of making payments. Through virtual card products, issuers provide companies with specific 16-digit card numbers they may use online or by phone to apply to specific transactions or payees, thus providing an extra layer of security compared with traditional card products. There is no actual plastic card issued. And depending on the issuer, maximum charges can be set for the virtual numbers, further protecting transactions.

Today, some studies note that as many as 20% of companies use virtual cards for making payments. Benefits of virtual cards provide over wire transfers or traditional cards include:

  • Authorized exact amounts that are due to a specific payment
  • Batch of payments can be made from an accounting system
  • Separate listing for each payment transaction
  • Rebates based on volume translating into revenue generation

At Determine, we enable ePayment options, including ACH and virtual cards. Organizations looking to standardize their payment processes are driving adoption to these alternative methods of payment. Suppliers are also discovering benefits in accepting virtual card and ePayment. Even if virtual card options draw a fee of one or two percent, the difference is often between making a sale or not. Additionally, increases in productivity are seen as balancing against the small cost.

Flexible payment helps vendors move to paperless options without interrupting the flow of goods and services. Those options are now preferred by most companies and many suppliers. Today, AP is and continues to become more aware of the business necessity for automation, and ePayments is no exception.

In this spirit, we invite you to join us for a webinar where, with our colleagues at Ardent Partners and WEX, we will discuss the state of Payment in 2016, including the benefits of ePayment systems and how to transition suppliers to paperless processing.

 

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