Jay Dearborn, president of corporate payments for WEX, discusses how 2020 triggered the transformation of the payments industry that had been slowly building up over time. Now that we’ve reached what he terms the “digital tipping point,” he shares three key trends to consider when thinking through the payments opportunities that will emerge in 2021. Read more in “A Look Forward: What Executives Wish for America and the World in 2021.”
In many ways, the unforeseen events of 2020 accelerated the digitization of outdated, manual processes for companies around the world. For the payments industry specifically, the pandemic catalyzed transformation that was slowly building up over time but is now viewed as critical to economic recovery — we’ve reached the digital tipping point. As we head into 2021, there are three key trends to consider when thinking through opportunities within the payments sector:
Payments Digitization Will Maintain Momentum
2020 was the year that put digitizing payments on the map. What was once a low-priority, major overhaul quickly became an urgent shift critical to enabling remote working, boosting cash flow, and enabling commerce. We’re expecting organizations to continue to invest in their need for modernizing payments processes across the board. With economic recovery at top of mind, businesses will adapt at record speed and modernize wherever they need to in order to cut expenses, improve productivity, and maintain revenue streams. Our new research reinforces this assumption and underpins the digital payments tipping point as a top priority for U.S. executives, with 81 percent of executives from the financial services sector agreeing that technology and innovation in the supplier payments space can help generate new revenue. Respondents from the FinTech subsector see payments as a catalyst to a new era for the industry. Over three-quarters (78 percent) agree that “Payments transformation will define the next chapter for FinTechs and their customers.”
Acquisitions May Continue, But Collaboration Will Thrive
Today’s global companies are placing high value on the partners that can help them improve the procurement of goods and services through modern technology. For some entities, a partnership is just the beginning, and the end result is a high-profile acquisition. Corporations are attempting to scale these novel solution providers via M&A, but this has propelled the FinTech industry toward exceedingly high multiples and growth at negative returns. Instead of consolidation, a long-term solution that should be considered is white-labeling via a partnership. At WEX, we’re seeing continued interest in white labeling among the traditional financial institution space, and we think this will be the key to sustaining healthy momentum, innovation and a competitive peer set within the payments sector. On the FinTech side, some new market entrants have built outstanding software, but possess no entry point into the FIs that could truly benefit from it. For that reason, we’re also expecting FinTechs to track down partners that can help bridge their world with that of the larger institutions.
AR and AP Will See the Value in Building a Data Bridge
The AR/AP world will experience a long-overdue shift and data will sit at the center of this shift. Current AR and AP programs speak different system languages and they need a translator. The profound changes in workplace and business models resulting from the pandemic, however, have made this challenging to accomplish internally. We’ll see more corporations turn to their trusted FI and technology relationships for support and guidance. They’ll lean on them even more in 2021 to figure out the integration, administration and compliance around payments. In order to fully digitize back offices in the B2B space, businesses will see that you need to couple data with the payment itself and be able to pass that between different AR and AP workflows. In many ways, the payment coupled with the data becomes the passport to bridge the two. Full optimization of the B2B payments process is still years away, but more investment in digitization will create a major milestone in connectivity between AR and AP.
In 2021, WEX is well-positioned to take advantage of these trends. As the needs of our partners and customers evolve, we continue to innovate and introduce new industry-leading solutions. Given WEX’s existing broad set of products and capabilities, we are confident in the future and taking advantage of the changes in our industry.