Catch Up To Your Customers
Paper checks fail the security test; upgrade to electronic supplier payments
When it comes to splitting restaurant checks, financing your college student’s Friday night pizza runs or paying for your gym membership, all you need is your phone and a Venmo, PayPal or Apple/Android pay app.
When it comes to paying your suppliers? Not so much.
In this instance, consumers are way ahead of corporations because electronic payments are significantly more secure than checks and even ACH payments.
As we detailed in a recent blog post, more than half of B2B payments are still made by paper check.
Ironically, a major reason for corporate and supplier reluctance to switch from paper checks to electronic payments is security.
Today’s blog post explains why your faith in paper checks is severely misplaced and the reasons why you can improve security, cut costs and improve cash flow with electronic payments.
Reason #1: Paper checks are a fraud magnet
Unlike other payment methods, checks are vulnerable to fraud in multiple points in their lifecycle. Some common instances of check fraud include:
• Changing the name of a check payee
• Stealing checks out of mailboxes
• Creating bad paper checks with stolen account and routing numbers
• Obtaining checks from a corporate mailroom or payroll
• Using bad checks to make payments
55% of organizations have been targets of attempted or actual check fraudi
Reason #2: ACH hasn’t adapted
Automated clearinghouse (ACH) payments turned 40 in 2018. However, they haven’t aged well. Because ACH payments require the exchange of banking information, many organizations are reluctant to participate.
25 to 30%: Increase in ACH debit fraud from 2014 to 2016ii
Because the ACH network doesn’t allow organizations to identify the recipient of a payment, fraud can occur on the receiving end of payments. For example, if a business was given an account number to make a payment to, there is no way to verify the identity of the payee – it could be an employee up to a nefarious activity rather than the actual company the payment is destined for.
Reason #3: Card networks offer superior security
The credit and debit card networks that process card payments provide a number of inherent safeguards over checks and ACH networks. These security features include:
1. Federal Know Your Customer (KYC) regulations require participants in the card payment processing network to undergo underwriting and due diligence, eliminating the anonymity that plagues ACH and check networks
2. Participants don’t have to exchange banking information, eliminating two critical fraud entry points
Reason #4: Virtual cards are unique and customizable
Virtual, one-use and personalized cards transform card security even further. Distinctive features that electronic payment networks can utilize include:
• Date restriction: Card dates are restricted to the shortest period of time possible to get to the supplier and get consumed
• Amount lock: Cards are locked to a very specific amount, which provides a greater deal of control
• Supplier industry and name restriction: Cards are restricted to a specific industry and merchant
• Direct deposit: Cards are directly deposited in the designated merchant’s account, instead of being sent via email or fax
• Payments are pre-funded: Funds are removed when the payee gives permission and are held by third-party banks or can be sent to the card payment network
• Dispute resolution: Payments can be clawed back through a card network in a way that is impossible with checks or ACH
Compare checks, ACH and card network payment methods
Payment Methods Security Features
|Requires Exchange of Banking Info||Yes||Yes||No|
|Amount, Payee & Date Restrictions||No||No||No|
|KYC Underwriting & Due Diligence||No||No||Yes|
Electronic payments – specifically electronic card payments – are designed to solve the challenges of both large corporate organizations and their suppliers, all within an extremely secure virtual environment.
The ongoing benefits?
• For CFOs and corporate treasurers: generating revenue through rebates and discounts, streamlining your payments process and saving valuable company resources and time.
• For suppliers: speeding up the payments processes, increasing cash flow and providing choice of payment modality and timing.
If you’d like to learn more, please contact us. We’re experts at analyzing your spend and determining the value hidden in your check payments.
i “2017 AFP Payments Fraud and Control Survey,” Association for Financial Professionals,” March 2017, https://commercial.jpmorganchase.com/jpmpdf/1320732417358.pdf
ii“2017 AFP Payments Fraud and Control Survey,” Association for Financial Professionals,” March 2017, https://commercial.jpmorganchase.com/jpmpdf/1320732417358.pdf