Fintech in Focus caught up with Josh Cyphers, president of a leading automated B2B payments provider Nvoicepay, a FLEETCOR company. He gave us insights on how payment automation influences the economic picture for companies across industries. We discussed a range of topics, including B2B payments beyond checks, payment strategy, supplier experience, fraud prevention, and more.
Welcome to Fintech in Focus. I'm Ron Nachmann, this is a bi-monthly podcast. We'll explore B2B payments and AP in the age of automation as electronic payments gain traction with more AP teams working remotely, there's a lot to talk about. We'd love to hear your feedback and suggestions. Please email us at email@example.com.
For this first episode, I managed to get a few minutes with Josh Cyphers, the president of Nvoicepay, a FleetCor company. Before he became president Josh oversaw financial planning and product and strategy at Nvoicepay. Prior to Nvoicepay, he held leadership roles at Microsoft, Nike, Fiserv, and several growth-stage technology companies.
We started off by talking about that experience. Then we discussed a wide range of other payment industry topics. Here's Josh.
"So I'm a former CPA, started my career out early on in accounting getting my CPA license and then moved into enterprise software and spent most of my career in various roles in enterprise software, supporting sales and marketing strategy and operational functions. I spent 10 years at Microsoft Enterprise Partner Group. So I really understood how Microsoft went to market and kind of how they built their solutions and marketed their solutions for the enterprise. I've also spent quite a bit of time at Fiserv so I understand the fintech space. I worked at a company called Corillian before it was bought by Fiserv, and we did online banking. So I have quite a bit of experience with accounting and accounting functions, but also with enterprise software and how enterprise software can solve some back-office problems. Which made Nvoicepay a perfect fit for me and was one of the big reasons why I came to work at Nvoicepay and am very excited to be here."
As the economic crisis coming from COVID ripples out incrementally, how have best in class remote payment solutions had an effect?
"It's a good question. So there's both kinds of the economic consequences of the pandemic, but there's also the need for remote work. Traditional AP teams—and most organizations, in general—weren't designed around a remote work concept. AP is very much about having proper internal controls and security and compliance standards that are all designed around on-premise or physical prep, physical on premise activity—things like filing cabinets, working throughout the process, checks and validations. As an example: having the CFO sign a check before you send it out, you walk down and you hand the envelope to the CFO, they sign it, and then you send it out all over the country. A lot of the controls in the traditional accounts payable were never even contemplated to be outside the physical walls of most people.
So to take your AP team and now send most of them into the world really, what it's resulted in is AP teams need to cycle different people on the team into the office every week or so. We've heard a lot of people are just sending in a couple of people one day and a couple other people another day.
That's led to a real sharp demand in any kind of online payment automation or AP automation software that can help assist and maintain internal controls, while enabling their employees to work remotely...which is a bit of a tricky challenge in accounts payable."
How have B2B payments evolved through the aid of checks and what is the real future of payments not including checks?
"So checks have traditionally had a really strong foothold on B2B payments. I think they've been around long enough and there's lots of internal controls designed around check payment. Like I mentioned, the CFO's signature. A lot of the banks have done things like watermarks and positive pay and positive payee to put their own controls around check payments.
So the security is not just within the AP team. It's also taken on by the banks and bank networks. So checks are a very comfortable way to send payments. They're also convenient in that when you send a check or receive a check, the remittance and the information of where that payment needs to be applied, the cash application is right there on the physical check payment. So it's really easy to understand that this amount is for this invoice. Getting away from that has some complexities, but it also has its advantages. But because of the complexities and because of the kind of history and kind of embedded controls that the industry has put in place for check payments, we've seen a really slow transition to electronic payment methods. I think today, some of the research suggests that the majority, if not half of B2B payments are still made by check—again because of the convenience factor and the history and familiarity people have with checks. But what we've seen in COVID through some of the research we've gotten our hands on is that there's been a significant shift. Over the last 10 to 20 years, the percentage of check payments has been slowly declining. But I would say in the last year, just because of COVID, it's taken an accelerated leap almost 10 points up to checks. So if we were doing 50% in checks before companies are now doing 40%. I know it doesn't seem like much to go from 50% to 40%, but it's the single largest leap in the decline of check payments that we've seen.
And we expect that trajectory to just accelerate as companies find solutions and find ways to get more comfortable with electronic payment methods, because there really are benefits and advantages to the digitization of paying your bills. It's just hard to get there. And so until you see the solutions in place, until you've been exposed to it when you see your colleagues at other businesses doing it, you might be reluctant. But once you see it and you see it work and you see it work well, then you realize the benefits and you don't want to turn back."
So you'd say that many AP teams have seen the writing on the wall over the past few years, but more of them are acting on it now.
"Yeah. There's definitely been a need to do more electronic AP processing and checks is one of those paper-based processes that has always just kind of lingered around and been one kind of the last bastions of transformation.
And one of the other things that's really pushing it. Isn't just the AP teams, but now you have all the corresponding AR [accounts receivable] teams that your suppliers or your vendors are saying, “We can't accept checks because we would have to send people into the office”. So we need you to start paying with ACH. So what AP teams are seeing is a greater demand for electronic payment because the suppliers no longer want to accept check payments and process those things manually."
Why are companies now paying attention to the idea of a payment strategy?
"I think a lot of it has to do with just the need to transform in a time of uncertainty, in a time of urgency and this crazy time where you have economic conditions and difficulty managing costs or the need to manage cash. As well as the need to digitize and move to more automated systems that are accessible really from anywhere to enable your employees to be remote.
I think when you do that and you start to go down this path of electronic payment enablement, you really have to think of it more in the terms of the holistic payment strategy. It's not simply to just hit ‘select print check’ or change your print check selection and your AP software to ACH and expect it all to just float through. There's a lot of backend work. And a lot of real internal controls and security measures that have to be taken when you do it because what's been taken care of on check isn't necessarily all figured out and taken care of on ACH or on card.
And so there's a whole other set of implications when you start transforming or going into digital payments that you did count for and need to consider. And a lot of companies just haven't really matured that aspect of their AP."
And how does the supplier experience relate to that strategy?
"Again, it's nice to get a check as a supplier, especially if you have a lockbox system and some bank doing your cash application for you, but all the information it's simple, it's secure, and you know you're going to get it. It is slower so these suppliers would probably like to have their cash sooner, but the remittances right there to apply the cash. It's kind of a common, acceptable way that you've just grown accustomed to as a supplier or as an AR department to receive payment. So when you get an ACH, all of a sudden, you get some email with an attachment, might get caught in your spam filter. You don't necessarily know what it's for, but then the next day you see some amount land in your bank account. That's the experience of ACH. Much more disconnected, much more difficult to reconcile and apply cash and to know what falls where if your AR team even has access to the cash account. They may not see the transactions in your bank account.
So there's a lot of complexities and difficulties, and it's just a different way to receive payment and remittance. And so enabling suppliers to be able to easily consent to remittance information and be able to easily reconcile back what lands in their bank account with what invoices are getting paid as a really important part of the overall experience."
What's the current situation with payment fraud right now? And how do you think it's changed?
"So I think payment frauds really have taken a shift over the years. The trends we've seen over the last 10, 15 years has been that check payment fraud has really dropped off. So there's been a steady decline in check payment fraud.
Again, the banks are putting a lot of securities and controls in place, and a lot of companies are putting more controls in place. You have positive payee, watermarks, you have a lot more kind of protection on a check payment than you did in the past. And so the overall network and the system and teams have really figured out how to control and protect check payments. And so over time, we've seen check payments drop off in terms of fraud instances. That said it's still the highest, but it's steadily declined over the last 10, 15 years and pretty rapidly. Meanwhile virtual card payments have also declined. So that the fraud on card payments and on credit has declined as the card networks and companies have put more controls in place for card payment. But overall payment fraud instances, if you look across all payment methods, have actually been increasing probably for almost 10 years now.
And the reason that is, is because of this transformation to electronic payment, primarily around ACH and wire. And the sophistication of these bad actors who have learned through social engineering how to hijack emails, learned vendor email, compromise schemes, where they can pose as your vendor or hack your vendor system and then make it appear as if they're actually the legitimate vendor.
All of those mechanisms aren't as sophisticated, the protection on those isn't as sophisticated as it is on check or card. And so really you have this ACH payment fraud, that's kind of out pacing the declines and the other payment methods. Plus the increased adoption of digital. So with this acceleration in COVID and more people going to electronic for the first time, or maybe not as sophisticated as they should, or with as much kind of insight into what kind of payment fraud risks they're opening themselves up to, has really opened the doors for bad actors.
And we've seen that even happen before COVID. We've seen it happen over the last few years. There's some good research and good studies out there to show what's been going on and how some of these people are manipulating systems and manipulating your AP staff to update bank account information before big payments go out.
And so, the FBI's running down a path of looking at all these business email compromise schemes that bad actors have imposed on the AP teams. It's really kind of Wild West right now. And I would say that the hackers and the bad actors are more sophisticated right now than the internal controls and the network in general.
So it's an area of concern. And with COVID in any certain time, you see more of these types of folks pop up and try to do more of these kinds of activities. So in this economic climate, these difficult COVID times and again with everyone working remotely, there's an increasing trend in payment, fraud risk, and especially around electronic payments."
Nvoicepay did some research about how many companies are considering automated payments, correct?
"So actually FleetCor, Comdata and Nvoicepay worked with a major card network provider and had an a third party firm go out and contact hundreds of CFOs, controllers and Heads of Finance to ask them like where they were in terms of considering payment automation. 85% we're either evaluating, considering, or currently implementing payment automation.
This was before COVID. So it just gets back to the point we were talking about earlier, right? Where companies see the need to digitize their payments. And it's great to see that they're not trying to do it on their own, but they're actually looking to a third party or to a solution provider who has the expertise, who has the controls, who can help them through the process, because it is more complicated than it might seem on the surface."
Give me the top three problems that companies have with their AP, that automation solves.
1) "One of the things with accounts payable that always pops up is it's a back office cost. It's a necessary evil. It's something that companies really want to try and manage and mitigate. Especially when they're growing to make sure it doesn't have this disproportionate increase in cost. So there's always this need to create operational efficiencies so you're not just having to hire body after body to take care and manage through the manual processes.
So there's always this need to not necessarily reduce cost, but at least minimize costs and increase operational efficiencies so that the people you have can do more value added activities, that's first or second."
2) "And then the next one, that's a very close second, if not first, is also around reducing payment fraud risk and really cash is your most liquid asset. AP’s sending it out in real time. Once it's out the door, it can be incredibly difficult to get back if it's not done the right way. So reducing payment fraud risk is definitely on the top of mind for most CFOs. Again, it is the most liquid asset and, quite frankly, it could be one of the most challenging things to try and recover on or try and recover from. And it's one of the things as a former CFO myself, that kept me up at night, was making sure that our payments are going to the right vendors at the right time. And whenever we got a call from a vendor saying, “Hey, where's my payment?” two or three weeks after we thought we sent it, our hearts would sink. We just knew that was a bad call to get. Most times, I've only had one instance, but most times it was just a communication error that went to the wrong address, or it wasn't the right amount or the remittance was incorrect or whatever it wasn't, we could fix it, right? There are those occasions, and it happens quite often actually, where you realize it went to the wrong person or one of the bad actors."
3) "The third thing I would say is really visibility and control. And again, it's protecting that most liquid asset of yours. So knowing where your cash is going, knowing how much you've got the cash management around it and making sure your working capital is sufficient, especially in difficult economic times. I would say those are kind of the top three problems that a good AP automation payment automation solution can help solve."
Many companies think they're fully automating by taking an ACH and paying that way. In broad strokes, what are the pitfalls for companies that manage their own ACH?
"Yeah. We've talked about this a little bit before, right? There's definitely the supplier experience, the cash application on the AR side. Being able to tie that remittance back to the amount that drops into their bank accounts and making sure they're getting that remittance information and they understand what those amounts were for. So that's definitely part of it. And a lot of times what those AR folks will do is they'll engage your AP teams when they don't know. And your AP teams will spend time on the phone trying to help them walk through the cash application. You don't want your AP teams doing cash applications for your suppliers. It's a very costly endeavor.
The other part is really around the controls and the security associated with ACH that aren't necessarily all in place by the banks, by the networks, by Sarbanes Oxley. And all of those are sort of things, although they are making improvements that they have in place, maybe for check payment. And, I always think just signing the check is one of the major controls of a check payment is required and every check that is sent out in cash, is a signature. You don't have that concept with ACH. Once it's sent, it's sent. Nobody actually has to physically sign it. And so there's just a lot of controls like that, that aren't necessarily around or in place, or that people have all kind of solved for and figured out on ACH payments that they have for checks, given the check has been around for so many years."
Nvoicepay invests in fully staffed support teams in order to help AP teams make their employees more successful. So in that context, why are people important in payment automation?
"Well, I think anything you do in accounts payable, and this really kind of holds true for almost any back office process. If everything runs according to plan or within the context and properly within the context of your process and whatever you've set up, there's very little effort or manual intervention involved. It's that five, 10, maybe 20% of exceptions that cause all the work. And so there's the 80/20 rule that's just as applicable in accounts payable. 80% of your staff time is going to be spent on 20% or less of your payments. And so it's managing those exceptions. Exception handling is a big deal and no matter what you do, no matter what system you put in place, there's always going to be some amount of time that your staff is going to have to spend managing through the exceptions.
And that's why Nvoicepay’s solution isn't just software and really you can't solve the AP problem with just software. You have to have a good set of comprehensive services to handle and manage and support those exceptions."
So when a company decides to take on a solution, why is it important that an AP solution be easy to implement and deploy?
"Well, I've worked in accounts payable. I've spent years in accounting and finance teams. Kind of the number one rule that I've always seen prevail is change is bad. You never want to disrupt the current process, right? It causes people to spend time figuring new things out, having to change the way they do things.
And so the status quo was always preferable when you look and talk to the actual teams. The other part of it is most software projects that you have in the back office, especially around finance and accounting. When you ask a CFO with the typical implementation of any kind of automation software in their department, they're going to guess it's six to nine months. And so a lot of times they don't even move forward with a project just because it's such a long duration. It's such a big commitment on their teams and a big burden on their teams. Plus it's going to usually involve some level of IT, which they're going to have to find the IT resources and time to give because IT doesn't necessarily support AP as much as they should. And so for those reasons, if you can find a payment automation solution, that's easy to deploy. That's built around your systems and around your processes and your workflows, and can have little to no impact to your teams or then have a need for IT, then you're going to have a lot more success in adoption and getting that automated solution in place."
Nvoicepay saw quite a lot of growth over the past year. Do you think the competition has seen the same growth?
"I would say in the time of COVID, any kind of AP automation, back-office automation provider is seeing great growth. We're seeing above and beyond what our competitors see, because we've really gone about solving the real problems and understanding what those problems are. And I mentioned earlier about having comprehensive services in addition to the automated automation software, a lot of our competitors just want to do the software and they don't want to take on the burden of the services. So while they experienced growth in what people do see value in just the software, they're not solving the full problem.
The other thing is a lot of the solution providers aren't necessarily helping enable you to pay your bills electronically. They're mostly focused on just trying to pay whatever amount of your bills they can on a virtual card and continuing to pay by check. They don't make a lot of money paying by ACHs so they're less focused on having electronic enablement. With Nvoicepay, we've found the real problem in AP. And the real challenge for AP is getting vendors set up on ACH. Getting paid by ACH and managing that, managing the exceptions on ACH, and then updating the information in a secure, controlled way so that you can avoid the payment fraud associated with ACH.
And so we've really experienced unprecedented growth because people have seen that in our solution. Our competitors have experienced unprecedented growth as well because of the age of COVID and the need for remote work. But we have a feeling our solution will continue to prevail and we'll continue to see that growth. Because we're really trying to solve the AP problems and the problems most companies have with B2B payments, where others are just kind of riding the wave of technology and automation in a time of crisis."
With innovations like real-time payments and new single day processing for international payments, we see a lot of focus on payment speed. How important is that? And is there risk involved there?
"The network can always create more efficiency and we saw that even with not just the introduction of the ACH payment, right?
The network and the banks and the financial institutions not-to-network, they can always create more efficiencies, more real-time payments. They can always create more controls within their network. But the reality is what's really important are the internal controls and processes outside of those banking members.
That's where the real risk comes in and that often gets forgotten. So just because there's different payment rails or different payment methods, or the banks put in new controls doesn't mean you don't have these AP and AR processes outside of the network. So the AP teams manage the bank information, the AR team, or the vendor email compromise, that we talked about earlier.
Really to solve the problem you have, you can't just look within this closed loop banking network. You really have to look outside to the companies that are actually transacting through that network and the work they're doing to feed those payments through the system. That's where a lot of the exposure and risk comes in - is in their internal processes and in their internal control.
And so until you have a solution that helps them and protects them or takes the full responsibility off their shoulders. It's not going to be a full solution and it's always going to be an increased risk. Deloitte did a study when real-time payments was first released in the UK. They saw a tripling in B2B payment fraud.
So the payment fraud they'd see on ACH. As soon as they introduced the real-time payment network, there was a tripling in B2B payment fraud because it was faster and the same thing from check to ACH. We're seeing that increase in ACH fraud because it was faster. It gave companies less time to recover those payments.
So faster isn't always better. Now it's on the burden of the companies to do a better job of verifying and validating payment information and who they're paying and how much before it ever enters the network. So a different payment rail, or different payment mechanism in a banking network, doesn't always take the burden. Usually it puts more burden on the shoulders of the AP teams, making those payments."
That was Josh Cyphers, president of Nvoicepay. And this has been the first episode of FinTech and Focus. It takes a team to produce this podcast. Our team includes Alyssa Callahan, Jason Christofferson, Michelle Lee, Brad Loder, Danielle Crow, and Aaron Schiller. Our next episode comes out in two weeks. Look out for it. And if you have any feedback or suggestions, we'd love to hear from you. Just email firstname.lastname@example.org that's email@example.com for Fintech in Focus. I'm Ron Nachmann. Thanks for listening. We'll see you next time.