B2B Leads the Charge to Digital Payments, Cashless Economy

Stewart Heath

Kontrol Payables

Published on November 04, 2017

MasterCard is talking about smarter, digitally inclusive cities. Visa just issued a challenge to cities to go "cashless." Whatever you call them (cashless, digital, virtual, mobile, touchless), payments that don't require a physical form of payment are on track to dominate the consumer market in the coming decade, especially in urban areas. In the U.S., this is an arena where the B2B sphere, which has often lagged in innovation, is actually a leader and can share the lessons it has learned on going virtual with those in the B2C community who want to do the same. 

Globally, cities looking to spur economic growth are exploring a variety of payments innovations. These include simple advancements like automated payment for recurring utility bills; more tech-centric developments like mobile-ready point-of-sale devices that let consumers pay for goods and services, including transit fare, using an app on their phones or even wearable devices like watches; and even the wild west realm of all-digital "cryptocurrencies" like bitcoin, the possibilities of which remain largely untapped despite rapidly increasing market valuations (over $5000 per bitcoin as of this writing). 

Yet, according to a 2016 study, while 75% of U.S. consumers preferred using credit or debit cards to using cash for the majority of their payments, only 13% had actually used mobile payments at a retail location. Compare this to the approximately 30% of U.S. companies that have fully automated their payments, using non-physical forms of payment, including virtual card and ACH, to fulfill their financial obligations. Why have organizations - both for- and non-profit - and their vendors been quicker to adopt virtual payments for their B2B payments?

1. The actual costs of using cash are staggering
While credit card use obviously involves more up-front costs, in the form of card fees, the processing costs associated with a cash transaction are actually more prohibitive: On the B2B side, printing, paper and labor costs add up to an average of $33 per invoice paid via cash, according to some estimates, all of which are minimized or eliminated by automated payments. Similarly, on the B2C side, the labor costs involved with managing cash, along with the increased risk of theft and counterfeiting, combine to make cash payments that much more costly for both vendors and consumers. 

2. Cash is inherently insecure
Speaking of theft, the fraud issue with cash is enormous. We certainly talk a lot about data-driven financial crime, but on both the B2B and B2C sides, nothing is less traceable, and therefore more vulnerable, than cash payments. Likewise, the potential for fraud with check payments is the reason why most retailers long ago abandoned checks as an acceptable payment form - and why B2B vendors are increasingly doing the same. Yes, electronic payments are subject to their own unique security risks, which is why it's important for B2B buyers and vendors to evaluate their options carefully to choose the most secure, yet efficient platform for their needs.

3. Cash is much less rewarding
On the consumer side, this is pretty axiomatic: No cash transaction ever gave you frequent flier miles. This is even more true for those who do not have access to credit card products: retailers often pass credit card fees along to consumers with slightly increased product or service costs, which one pays whether or not one is using a card or cash to pay. Just as those consumers who don't use cards, by choice or not, miss out on rewards like miles and cash back, organizations that don't use electronic payments miss out on what may be the single biggest benefit of all: virtual card rebates. These quarterly rebates actually pay you back for using electronic payments, and may even underwrite the costs of upgraded accounting software or other capital expenses. 

We don't doubt that consumer payments will go in the same direction as B2B with adoption of cash and physical card alternatives. The question is not if, but when and how. Increased government interest and investment in the infrastructure needed to make the cashless economy a reality, especially at the city level, is surely a major step forward.

If you're ready to consider going cashless with your B2B payments, but don't know where to start simply email me at stewart.heath@harvardgraceadvisors.com or call me at (888) 350-1188.  There’s no obligation and never any cost.

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