Size matters: Why large companies outpace in payments digitization
How the pandemic accelerator drove digital payments transformation.
“Big” rarely brings to mind the terms “fast,” “agile,” or “early adopter,” especially when it comes to companies, but that’s exactly what happened with business payments digitization during the pandemic. The big guys went big, and it paid off. Big time.
Our recent report commissioned from PYMNTS.com shows that 74% of CFOs at the largest companies believe digitizing their payments operations can help improve their management of cash flow and working capital.
The report, titled Business Payments Digitization: Large Companies Set The Pace, is based on a survey of 400 leading CFOs at companies with $400 million to $2 billion annual revenue in five industries – manufacturing, finance, retail, transportation, and healthcare. It digs into the what/why/how details around CFO and financial department strategies, incentives, and initiatives in adopting digitized payments, what they hoped to gain from expanding their capabilities, and the actual benefits they’re realizing.
What follows are some of the more compelling highlights.
Digital payments is about transformation, not automation
For big company CFOs, the digitization of B2B payments is about a commitment to a much broader digital transformation of business processes as a whole, an embrace of a B2B commerce digital ecosystem if you will. While some of these efforts toward digital payments pre-date the global pandemic, it was a real catalyst in speeding up the integration of new technologies. For big companies, automation is seen as the path to process transformation, not an end goal in and of itself.
The reason that large companies outpaced others in this regard is likely the fact that they have the most to gain by digitizing payments since they have more transaction volume. So, why didn’t they do it sooner? The moves were there, but the pandemic was the inflection point that starkly illustrated the immediate need to lower costs, reduce risk exposure, and solidify relationships with both internal stakeholders and 3rd-party suppliers and vendors.
Added to that is the fact that a remote workforce saddled with manual, paper-based payment processes is a recipe for inefficiency, bottlenecked cash flow, and potential errors. Hardly transformative.
Digital payments improves balance sheet health
Just as many pandemic locked-down folks were experiencing their “hey, I can make sourdough bread” epiphanies, CFOs saw the opportunity to focus on and fine tune their control over cash flow and working capital management to make a bigger positive impact on balance sheet health. Naturally, digital payments is a requisite for achieving the necessary real-time visibility of payment status and transaction activity inherent in effective cash flow management and forecasting, another reason for its spike at bigger companies.
61% of CFOs from the largest companies surveyed say their sources of working capital are “very” or “extremely” important for healthy balance sheets, according to the PYMNTS.com report.
A healthy balance sheet is a marker not only of company strength and efficiency, but it shows that a company is using resources to focus on sustainable growth. Large company CFOs in the report indicated that they are using the resultant efficiency gains of payments digitization to fuel strategic initiatives. That thinking echoes the transformation goal mentioned above—it’s not just about a healthy balance sheet for its own sake, but what it can be used for.
If the pandemic-induced economic downturn spurred big companies towards digital payments, the current inflationary environment, lingering supply chain issues, and geopolitical unrest are combining to push smaller companies to catch up. When times are volatile, those with healthy balance sheets are in a much better position to weather any eventualities and seize growth and/or market opportunities when they arise.
Digital payments fights fraud risk
If cutting costs is a primary goal for a business, then the lower costs achieved in digital payments process efficiency is just one side of that coin. The other side is preventing the possibility of fraudulent payments. According to a survey report from the Association for Financial Professionals (AFP), nearly 75 percent of organizations were targets of a payments fraud attack in 2020.1
That’s why the PYMNTS.com results show that 67% of large company respondents say their fraud reduction efforts benefited from digitization. Integrating fraud detection systems as part of a digitized payments implementation, in addition to the digital payments process itself, is an effective front-line tool to mitigate fraud risk. This is especially true considering the move to remote workforces mentioned earlier. The 2021 Treasury Technology Analyst Report from Strategic Treasurer lays out the stark reality:
“It is, however, becoming increasingly difficult to properly secure payment processes in a fully manual environment. Especially during the abrupt shift to work from home (WFH) in 2020, manual processes became not only unworkable but frequently impossible to secure.”
Their survey numbers bear this out: In the past 12 months 15% of respondents experienced payment diversion fraud, up from just 6% in 2019.2
As the PYMNTS.com survey illustrates, big companies are outpacing all others in adopting digital payments, but the realm is by no means theirs alone. And not every industry or type of business model is at equal strength – for instance, financial services and health care are ahead of the curve in all revenue levels.
What those bigger organizations do serve to show is that moving to payments digitization brings real benefits across a range of business-critical areas, and leaves companies better positioned to continue or accelerate growth plans — benefits that are just as applicable across the board. The pandemic accelerated the move for big companies; now it’s up to others to learn – and act – from those examples of speed and agility.
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- 2021 AFP® PAYMENTS FRAUD AND CONTROL SURVEY REPORT.
- 2021 Treasury Technology Analyst Report, Strategic Treasurer.
To learn more about digital payments and our approach contact us or email us at [email protected].