How Businesses Can Make Payments Their Competitive Advantage

Chris Brooks, CFO at Modulr, offers Finance Monthly their perspective on how businesses can turn payments to their advantage in fraught times.

As the Chief Financial Officer at Modulr and someone with over 15 years’ experience in the finance industry, I’ve witnessed a great deal of change in the way businesses manage their payments. But to date, no period has been as transformative as the one we’re entering right now.

For decades, small businesses have been let down by their payment processes. That’s because the majority rely on outdated, manual and inefficient payment services from traditional banks with legacy IT systems. The problem is compounded by the inefficiency of banks when disbursing loans, which are often critical to getting small businesses off the ground. In fact, some small business owners claim to have been left on the verge of collapse after the amount of time taken to process their bounce-back loans.

Sometimes it takes a crisis to shake businesses out of apathy. COVID-19 has shone a light on payment inefficiencies and highlighted the urgency of digitalisation.

Fortunately, fintechs are flourishing across the UK and providing new technologies that could transform the payment space. Here are three areas where payments innovation could help businesses become more resilient, future-proof and competitive.

Sometimes it takes a crisis to shake businesses out of apathy.

1. Maintaining security and business continuity

When COVID-19 led to sudden and widespread remote working, it starkly exposed the hidden inefficiencies in existing processes. Companies that were stuck in the old, manual way of managing payments suffered major disruption. While those that were ahead of the digitalisation curve managed to maintain business continuity.

In the accountancy space, many practices had already embraced cloud computing and payments automation. They were able to make the transition to remote working seamlessly – accessing client workflows from home and managing payments through centralised portals like Sage Salary and Supplier Payments, just as they would in the office.

But we’ve also heard from accountants who, prior to the crisis, had still been in the habit of driving to their clients’ offices and picking up folders of paperwork. Many more were doing things digitally – thanks in part to Making Tax Digital - but not in a completely centralised way, which required the ad-hoc sharing of files across insecure methods like email or third-party file transfer systems.

These workarounds are highly problematic in a time of crisis. Fraudsters will actively seek to exploit new vulnerabilities. According to UK Finance, Authorised Push Payment (APP) fraud cost UK businesses £138.7m in 2019. Only £33.8m was reimbursed. And since COVID-19, we’ve seen the emergence of entirely new scams and techniques.

Fortunately, new payment technologies such as Confirmation of Payee (CoP) are being introduced to help businesses safeguard funds. With CoP, payment service providers (PSPs) will be able to check if the name of the individual or organisation entered by the payer matches the identifying information of the account paid. This can prevent consumers and businesses from being tricked into pushing funds to a fraudster’s account.

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2. Reducing operational costs

As businesses seek to recover from the impact of COVID-19 and navigate this tough economic environment, finding ways to maximise efficiency and reduce operational costs will be critical. This is especially true for businesses that have furloughed employees and are forced to work with leaner teams.

Manual payment processes are a heavy burden for finance teams in today’s fast-paced, challenging environment. They waste time, incur errors and result in significant administrative costs. That’s why fintechs are developing sophisticated solutions that allow businesses to automate all aspects of the payments workflow.

A good example is payment splitting. This is when a business receives an incoming payment, divides it based on a calculated percentage, and sends two payments out to end beneficiaries. When done manually, it’s a time-consuming process. But automation offers a powerful solution, allowing payments to be split automatically based on customisable rules.

Imagine a property management business that’s collecting rent from tenants. Rent collections are typically complex and unwieldy, as payments are sent to the estate agent’s bank account and then manually reconciled and split before sending funds to the landlord. But with automated payment splitting, rules are set to automate the amount collected and sent on – drastically cutting down admin time and reducing operational costs.

That’s just one example of the power of automation. It can have a significant impact on all aspects of payments – receivables, payables, collections and disbursement. Not only does this reduce operational costs, it can help businesses to maintain payments continuity when employees are forced to work away from the office.

3. Improving cashflow management

Cashflow is the lifeblood of any business, and right now it’s even more vital for survival.

Faster Payments is a relatively new scheme compared to traditional methods like Bacs, but it’s already having an immense impact on UK commerce and business uptake is likely to accelerate. Initially designed to speed up the payment process for retailers, Faster Payments are meant to clear in less than 2 hours, though this is often far lower; at Modulr we’ve reduced it to seconds. This is a major improvement on Bacs payments, which can take up to three days to clear, meaning funds are held in limbo for that time period.

Cashflow is the lifeblood of any business, and right now it’s even more vital for survival.

The impact of using Faster Payments can be far-reaching. By allowing just-in-time payments and the ability for a business to hold onto cash right down to the very second, Faster Payments enables greater control, visibility and forecasting of cashflow throughout the year. Finance teams can more accurately predict what cash they will have and when, and plan to pay invoices at strategic times. This will be increasingly critical as businesses strive to recover from the impact of COVID-19.

To summarise; technology is going to continue disrupting all areas of business. And the same goes for the payments industry. New solutions being developed by fintechs can help companies to improve cashflow management, significantly reduce operational costs and protect their money.

With such a challenging and uncertain economic environment in the months ahead, there’s never been a bigger incentive for change. Companies are faced with a critical choice – to keep relying on slow, outdated payment methods, or overhaul everything and find better ways of moving and accepting money. By choosing the latter, businesses can boost their resilience and weather future storms. And those that move first might that find payments become their competitive advantage.