Most every state in the U.S. this week is starting to walk the road to recovery. Mandatory stay-at-home orders are easing and businesses are beginning to reopen, albeit in very different ways than at the start of the year.
As Deluxe CEO and President Barry C. McCarthy told Karen Webster for the latest edition of The Week In Payments, merchants are experiencing sales and cash flow challenges as reticent consumers proceed with caution – and the added capacity constraints are heightening their concerns. And then there are other SMBs that are delaying their reopenings, waiting for a market that is friendlier to their offerings – in an era of social distancing, McCarthy noted, nail salons, restaurants and even hairdressers fail to see a profitable way to render their services while following social distancing rules.
“So though the economy’s open, I don’t think there’s much reason to celebrate – we’ve got a long way to go before we get back to anything that looks normal,” McCarthy told Webster.
Beyond reopenings alone, what happened in the news this week to push the market more solidly onto the road with recovery?
Finding the Opportunity In Fixing Net Terms Payments
In a world where cash flow concerns have reached critical levels, McCarthy noted, waiting on a payment is just about the last thing any supplier wants to do. And yet, waiting has become an endemic bad habit across the B2B payments world, he said – suppliers offering goods and services are looking for a normal term that might be 30 days long, but are almost never getting that.
“Some of these are extended to 60, 90 or 180 days. And that really jeopardizes the small business’ ability to survive,” McCarthy explained. SMBs are increasingly concerned not just about cash on hand, but about the ability to collect on accounts receivable (AR). The cycle that all businesses have grown accustomed to has become very exaggerated, he noted, which has put additional pressure on SMBs, which have seen their revenue plummet in recent weeks.
That is creating a greater demand for digital payments – a faster, cleaner and more transparent way of sending and receiving funds, provided that buyers also play along.
“There’s always a market clearing price. So if a supplier and a buyer can agree on a 5 percent discount for paying today rather than in the standard 60-day or 30-day term, that transaction will happen,” he predicted – provided the buyer and supplier can arrange for the transactions to happen easily and seamlessly.
In fact, McCarthy noted, the big, rising opportunity in the world of business recovery is for a platform to clear those payments in a way that makes it easier for buyers and sellers to negotiate payment terms.
The Future of Voice Authentication
Speaking of platforms that will lead the future: McCarthy pointed out the news that Google is running a pilot for voice-authenticated payment via the Google Assistant platform, which theoretically represents a big step forward in the potential for voice as a commerce platform, as consumers are demanding contactless, touchless transactions.
Beyond health and safety, as consumers increasingly demand easy, seamless identification, voice offers a streamlined mechanism via hardware that is already nearly ubiquitous. If a person has a speaker on their phone, PC or smart speaker, they can use that for voice commerce, with no new add-ons or training, noted McCarthy.
It has the potential to be a game-changer, he said – but there is a big “if” around whether voice biometrics can be consistently reliable, which poses a big tech challenge and likely won’t be checked off with a single project.
“There are still some significant issues to resolve around security, because simply recording voices and increasing the ability for artificial intelligence to recognize those voices could potentially create risks,” said McCarthy. “But that doesn’t mean that the technology isn’t promising.”
Promising, but likely still in need of quite a bit of polishing before it can live up to its game-changing potential.
And speaking of games that are about to change, Webster and McCarthy turned to the last hot topic of the week: banking and the role that digital challengers will play in the future landscape.
The Opportunity for Digital Banks
The drama around the Paycheck Protection Program (PPP), McCarthy noted, exposed SMBs’ dissatisfaction with their traditional banking relationships, and showed how out of touch with their business clients’ needs those banks can be. Between the slow application process to a lack of short-term support, Deluxe is continually hearing complaints from small business owners about their relationships with their financial institutions (FIs).
“We think some of the larger banks are actually aware of that challenge” and are trying to figure out how they can address it, noted McCarthy, because “they think this dissatisfaction is going to lead to a significant opportunity to change institutions.”
And large banks have good reason to get clued into this issue, he pointed out, as dissatisfaction levels at community banks and credit unions (CUs) aren’t approaching the same levels.
But banks’ growing interest in finding a solution that is easier, more intuitive and more widely accessible is creating a sizable market opportunity for the right challenger bank to step in, post-pandemic, and seize it.
But, said McCarthy, the right bank has to show up with more than a debit card or a slick digital interface.
“I don’t think that is enough of a real challenge,” he said. “I mean, a debit card is a debit card. I think the notion of who will win here, especially targeting small businesses, is who can offer integrated cash management and the ability to manage their cash from sale to collection – through that whole life cycle.”
That fully integrated solution, designed around SMBs’ actual management needs, could be the winning alternative – because it goes beyond the traditional banking offering instead of simply offering a quickly digitized version of it.