Deluxe CEO: B2B Payments Will See Resurgence In Paper Checks
Much innovation in B2B has been focused on getting rid of paper checks.
But as Barry McCarthy, president and CEO of Deluxe, said in an interview with Karen Webster as part of the ongoing series on B2B payments, it’s going to take a while. After all, $20 trillion in paper payments is a lot to get rid of overnight.
At least for now, companies are not writing as many checks, but that’s not due to any wholesale shift to digital channels, according to McCarthy. Stretching back to March and April, as the pandemic hit, the decline has been evident in daily, monthly and quarterly check order volumes. But, as he noted, the data show (as does Deluxe’s own customer base trend) that new businesses — as they incorporate — are signing up to order checks in order to pay vendors.
What Happens In A Recession
The waning is simply — at least for now — a function of demand, and what we’re seeing is typical of a recession.
“Think about the fact that the use case for a restaurant to accept provisions is unchanged,” McCarthy said — even with the pandemic. The only thing that has changed is how many provisions that restaurants may need to buy — if they will buy provisions at all.
Lower business volumes translate, naturally, into lower check volumes. A temporary lull.
“This is not a catastrophic cliff,” he said of check ordering trends, noting that what’s been seen amid the pandemic is “what we have seen in every previous recession.”
The resilience will translate into a recovery in the demand for paper checks, McCarthy predicted, likening the upswing, in visual terms, to the famed Nike “swoosh” — up and to the right.
But incrementally, the digital shift is making headway.
“I’m not here to say checks are a growth business forever,” he told Webster, even as some verticals such as restaurants will continue to pay their vendors and workers with checks, simply because they’ve been around for so long.
Deluxe is in a unique position from which to view corporates’ preferences in how they pay, as it has a legacy check printing unit (which McCarthy said accounts for less than 40 percent of its business). The company already has what he termed a “material footprint” in digital payments and cloud-delivered services.
The B2B space has had to adapt, too, he said — and that points to a longer trend where checks will hang on and co-exist with digital payments for a good long while.
The digital payments are right now akin to “nibbles around the edges,” noted McCarthy. But the friction inherent in paper check production, dissemination and use is palpable — and eventually will give way to a tipping point.
“I have not heard a single institution that hasn’t said, ‘bring me more ideas, more opportunities. I want to be in the game, bring me something that can change the game.’ I think everyone has the same interest,” he said.
After all, it takes manual labor, machines and envelopes to get it all together — order the checks, and get them printed, signed, sent and cashed. The various touchpoints are viewed warily in an age where contact may carry COVID-19 (or at least fears of it).
In order to spur digital payments to make greater inroads, McCarthy noted that automating back-end processes, particularly in accounts receivable (AR), is critical — and so is ubiquity.
He pointed to Deluxe’s own AR solution that can be embedded in enterprise resource planning (ERP) systems, where modules can be added to manage lockbox or other solutions.
“That software platform today, on an outsourced basis or with people using that software themselves, is processing about $2.8 trillion a year — that’s 10 percent to 15 percent of the U.S. economy. Not bad for what a lot of people think of as a sleepy check company,” he noted.
In another example, pointing to healthcare as a vertical that is sorely in need of digitization, McCarthy said Deluxe has partnered with ECHO Health to launch the Medical Payment Exchange Platform, which established a cloud-based payment process to help payers migrate away from paper checks.
McCarthy maintained that the platform digitizes the claims and payout process end to end. Deluxe will digitize real-time deposits into ACH or into any number of other payments acceptance mechanisms that the hospital might want — across prepaid cards, PayPal, Venmo, etc.
“You completely remove that paper. And it doesn’t require anybody to get involved,” he said. A similar effort across the Deluxe Payment Exchange addresses non-recurring payments for property and insurance and other verticals. Such online platforms, he added, can eventually revolutionize B2B payments, and even B2C and C2B transactions. After all, there are still billions of checks that are being written every month to pay everything from utility to credit card bills.
On The Path To Digitization
To get scale (Deluxe has connections to 4,000 financial institutions) and acceptance on the path to digitization in B2B, said McCarthy, it’s important to take stock of what corporates need. They want deep integration, and payment solutions must be easy to use.
All stakeholders must be on board and committed to using digital payments, he maintained. Increasingly, banks are seeking to give their corporate clients payables solutions — “but you’ve got to make sure it’s acceptable for those who are receiving,” he cautioned Webster.
Though checks are proving stickier and more durable than conventional wisdom would have caused us to expect, making the digital experience useful for both sides of the transaction will shift us to a new, paperless paradigm.
In B2B, said McCarthy, “we’ve started on a rapid journey to the new frontier of digital. I think we’ve always been on it, but COVID put a massive accelerant on all of it.”