Associated Bank Thought Leadership Podcast

WGN: We're on with Melissa Cooper, director of Treasury Management, Sales and Onboarding at Associated Bank. Melissa, welcome back.

Melissa Cooper: Hi, Steve. Thank you. Nice to talk to you again.

WGN: Yeah, same here. I want to focus on a topic of conversation we've touched on in the past—and it looks like maybe having some new developments in—this is the digital payments sector. Talk to us about some of the trends that are happening in this area.

MC: I'm glad to talk about it. So when we talk about digital payments, we're really talking about the migration from paper-based payments like checks and physical cash into things such as your most common ones like ACH and wires, but even more so, around the use of what we call corporate cards or virtual cards. You're also seeing this new trend around real-time payments. And so if you've heard anything with the Fed, with FedNow and the clearing house with RTP, those are also some trends that are starting to be more used by businesses throughout the country.

WGN: Talk to us a little bit about how AI is involved in this.

MC: Yeah, so AI, really, as business customers really think about how to make their operations more efficient, they're utilizing AI services to help them think about and provide insights into how they're taking in cash and how they're distributing cash to help them sort of figure out where they're sitting from a cash flow position at any point in time. And really just getting insights that it would take, you know, an individual like you or I, many hours to think about and glare through Excel files and all that kind of stuff. They can really use an AI tool that takes a look at their bank accounts and the transactions, and provide some insights such as, Hey, this customer, instead of sending a check, you could improve your payable days by, you know, two or three days if you move it to an ACH versus a check, and you're going to reduce your, you know, your cost of payment by $0.10 or $0.20. And so AI can really help with figuring out and generating some of those ideas and insights for business.

WGN: And when we say this is a trend, there's some data behind that. From one year ago to now, the automation market alone has jumped considerably from about 2.24 billion to 2.61 billion this year. And 96% of commercial banks are rethinking technology and investment in payment modernization. So this is really front and center, isn't it?

MC: Absolutely. It is very much front and center, and as we want to make sure we're providing a thing—services to our businesses—this is something we have to do right. And so we're investing a lot at Associated in terms of looking at how we can offer products and services that allow businesses to be more automated, more efficient as well. And so you're seeing a lot of these new technologies in terms of just smoothing out the payment process, helping businesses to only have to send us one file for all the payments that they might want to do, being able to do real-time payments or the use of cards, frankly, or virtual cards to help with reconciliation and reduce fraud as well. I know we talk about fraud a lot, Steve, but these are types of payments that actually help reduce the incidence of fraud, oftentimes on bank accounts.

WGN: You know, and we've talked in the past too, not only about the fraud part of this, but just generally cash usage. And I know I've asked you before about that, and it looks like there's some numbers now that might give us a sense of where this is heading. There was a prediction that global cash usage would drop by 40% this year alone. So people are really moving away from cash.

MC: Yeah. And I think it's good, right? Like people don't think about the inherent cost of having physical cash and the risk of having physical cash on you, right? So the days of having an employee take a bunch of cash to a branch or something to be deposited, there’s a lot of risk in that today. Frankly, it's very it's actually quite costly and there are hidden costs that people don't think about. But, you know, moving to digital payments is actually more cost efficient and more efficient in general for employees. And this became really evident, Steve, during COVID, right? So when people were forced to stay at home, we had a lot of customers like, oh man, we can't send an employee to a branch to deposit cash, right? Because that's against the rules right now. Or I can't send an employee into the office to write a check to pay someone. And so customers who already had some of these digital capabilities, it really helped them to be able to stay on top of their transactions, to collect accordingly and get money into their accounts. And so being able to use some of these payment types really helps them be more efficient in that and to reduce risk, frankly.

WGN: Yeah. And that risk part of it is just on a consumer level. There are lots, lots of places now that aren't even taking cash at all, and this sort of protects the people that work in those locations. I'm thinking of a donut shop near my house as an example; they stopped taking cash. I mean, you can't go in there and hold up that store anymore for cash.

MC: Correct. Exactly. Absolutely. And that's one of those inherent costs that I was just talking about of having physical cash in, right? So if you're taking a card payment, you are getting that availability right away—it goes right into your account. You're not having to take that cash in and then get it to a branch in order to show in your account it's there. So to your point, not only does it reduce the risk for your employees from theft, but it also speeds up your cash availability as well.

WGN: Melissa, on a business-to-business viewpoint of this, what are the potholes? What's slowing some customers from moving over to this area?

MC: That's a great question. So I think oftentimes, you know, a lot of businesses, they create these different workflows in order to collect funds and pay it out and do all the reconciliation. And oftentimes they're not thinking about the inherent costs that are in those workflows. So I mentioned checks earlier—of like someone having to print it off, and the stock, and putting a stamp on that that mail piece—those are all costs. And so oftentimes we hear clients talk about, well, if I use a card to pay, you know, the vendor for this inventory, right, they're going to charge me a surcharge or something. But the studies show that by using a digital payment, that usually it's about $0.50 less per transaction than using like a check as a payment option, as an example. And so oftentimes the hurdle is there's a perception that it costs more to use the card as an example, when really it's less to use the card. In addition, businesses also can tap into—just like we have on consumer cards—they can tap into rewards or rebates with their corporate card programs as well. So we've seen business customers who have been really successful at that—actually, you know, turn some of their AP departments into actually generating revenue for the organizations as well. So it's really just shifting the way a business thinks about it and thinking about all the inherent cost and some of those traditional payment streams and really thinking about the benefits that they can garner from moving to a digital payment stream.

WGN: And it seems like even though, as you say, that I've encountered regularly, companies that will charge me another 3% if I use a credit card. So, I mean, I guess something that has to be brought in into the conversation is, is how do we control those fees and how do we know they're necessary or even appropriate?

MC: Yeah, and that is one of the things. Right. And so, typically they're appropriate. There are regulations in a lot of states around the map that you can charge and stuff for the surcharge for using a card. But what I’ll tell people is, again, if you really add up all the costs that it takes to do some of the traditional payment types versus the surcharge that you're getting, In addition, most card programs have an ability to get a rebate or reward.

Oftentimes that surcharge fee is being offset by the savings of the transaction, the time you're extending out your payables time. So if you put a transaction on your card as an example, you're actually extending out your payables, meaning you actually don't have to pay cash for another month on those transactions. There's also weighing what could I be doing with that cash that I wouldn't have been able to do if I were using physical cash or a check.

So there's all these different pros and cons that you have to net against the surcharge fee, and oftentimes we're seeing from the data that even with the surcharge, you're coming out ahead by using digital payment streams.

WGN: You know, we just celebrated Earth Day, and I have to think that the digital part of this topic is green, right? I mean, there's probably less waste, fewer paper checks, that sort of thing.

MC: Yeah, exactly. So that's another benefit that you bring up, right? So now in addition to like savings with using these payment streams, it is also more green for our planet. There's no checks. You don't have the cars, you know, driving to move this paper around to be transmitted. And so, yeah, there is a lot of green, you know, it being green for the environment as well for these types of payments.

WGN: So for those businesses who are listening—potential clients perhaps of Associated Bank—what would you tell them about what to choose, what to look for when they're looking for a digital service provider?

MC: So you want to really think about when you're looking at a digital provider, always there's going to be an element of how much availability you can get into a card, right? If we're thinking about a corporate card program, you want to see if they have rewards or rebates as a part of it. Because again, that's that cash back, if you want to talk about that.

You'll also want to make sure they have some type of technology to help you reconcile. A lot of programs do. We have certain technology that allows you to take those transactions and put them into your cash, treasury station, their systems and reconcile.

There's also administrative flexibility around actually issuing those cards. So if you have an employee base of tens to hundreds of employees, how easy is it for you to issue those cards? And then do they have an element of a virtual card to their programs as well—a virtual card being a one-time-use card that is easily generated and you can use to pay for some type of transaction on a one-time basis, again, reducing fraud.

So you want to really think about and ask those questions around what are some of the solutions that the card program offers. You know, always things come up, right? So what's their customer care triage look like as well when they're thinking about a card program?

And then outside of that, you know, I mentioned ACH and wires, which are digital type,  electronic payments. Lots of banks have it. What does that look like? Do they have integrated payable solutions where I can just send in one file and the client can send in one file to the bank and they just take care of it. Right? We have a solution called integrated payables that does that.

So just really kind of thinking through your process, what's important to you and really asking those questions of your bank in terms of can you help us satisfy that and reimagine how we do our account payables today.

WGN: Melissa, great conversation as always. How can people get ahold of you and have a one-on-one if they want?

MC: Yeah, so people can reach out to me at Treasury@AssociatedBank. I would be happy to speak to you.