Beyond the virtual card: How bank rails drive cross-border payments

E-commerce is now a quotidian thread in the fabric of our lives. The great majority of objects and services we buy can be found online, from appliances at Lowes.com to the work of artisans and craftspeople on sites like Etsy, it’s all there for the taking. In a recent Forbes article, Ilker Koksal shared that in a one-year period, the global population increased spending on e-commerce by $610 billion, rising from $2.92 trillion in sales in 2018 to close to $3.53 trillion in 2019. Koksal writes that “global e-commerce is expected to rise to $5.69 trillion” by 2022. In other words, over the course of three years, we can expect a tremendous growth of around 61%. To meet the demands of these rapid changes to the structure of the world economy, companies must adapt in order to succeed. One essential way to evolve in the coming months and years will be to pay close attention to the digital transformation of the B2B marketplace.

History of Payments: shift in focus from Consumer payments to B2B

WEX’s Jay Dearborn, President of Corporate Payments, provided a little history lesson in payments when he spoke with Oliver Renick as a recent guest on TD Ameritrade’s network. He described the recent shift in priorities in the payments industry, away from what had been a period of consumer-focused change, and towards a period of development in  B2B payments. “In payments, consumer payments have been the name of the game for 70 years with Visa and Mastercard. And what really has happened over the past 20 years is in the B2B segment: businesses paying businesses and that’s the business of AP, it could be cross-border, it could be a T&E card, it could be a PCard: that is kind of the hot place in the payments market today. And we at WEX are right on the leading edge of that with our fleet products, our health products, our travel products, and our corporate payments products.” 

Dearborn describes how WEX is embracing the wave of digital transformation and providing a one-stop shop for all payments needs for businesses all around the world. The size of the business doesn’t matter–WEX products and services are flexible enough to be the solution for small businesses on Main Street and Fortune 100 companies alike. WEX can fulfill any payment need, help businesses monetize that process, and help them digitize their payments. By doing so, WEX takes what was typically powered by a human-driven activity within an accounts payable department, and makes it more efficient and cost-effective. 

What does a payments company do?

We WEXers sometimes laugh about how hard it is, at a cocktail party or at a kid’s baseball game, to explain what we do. Some of us like to say, “We are Venmo for companies.” Another good one is “WEX provides a customized payment technology solution for businesses,” or “We help businesses pay other businesses.” Dearborn has a succinct answer as well. “At the end of the day, every single corporate here in the United States and elsewhere is a potential customer for WEX either directly or through our partners.” It’s an exciting time to be in payments at WEX.

Payments companies can work directly with businesses or through partners

It makes sense that it’s hard to explain what WEX does: our work is complex. For example, one aspect of WEX’s role is helping companies manage their payments by automating the accounts payable processes for corporations.  However, this poses a question about whether or not WEX should act as a partner with existing fintechs in providing payments solutions, or work directly with the businesses that need help, and provide WEX’s back end technology directly. While other fintech companies go it alone, WEX works with partners, including Emburse and AvidXchange to power the payments for their clients by providing the necessary back end technology to these partners. 

What is white labeling?

Another way payments partnerships work is through white labeling. A “white label” product is a product or service that’s fully supported and made by one company (company A) but sold by another company (company B). These products or services are purchased by company B without any accompanying branding. Without being branded, the product can be customized by company B with their own logo and branding. As a result, customers see the product and experience it as having been brought to market by company B instead of company A. Meanwhile, company A can focus on things like streamlining production and bringing product enhancements to market instead of on costly and onerous functions like marketing and sales. A partner like American Express white labels WEX technology and uses it to do AP automation for its customers.

How has the digitization of payments impacted the way we pay?

There are many ways a company can pay its suppliers. It can be done via credit card, bank transfer, wire transfer, or by paper check. With the digitization of payments there’s been an acceleration in the use of both bank transfers and virtual cards. Both of those digitized payments methods allow for payments to happen most efficiently and cost-effectively. As Dearborn puts it, “Virtual card is great for corporates and all of those that serve corporates because it generates interchange and rebate.” 

How do we surpass the limits of various digital payment methods?

Fintechs have learned that there are limits to the use of virtual cards. This is where companies like TransferMate become useful, and why a company like WEX would want to partner with other companies in the industry. “What we’ve been able to do is complement our tech stack by putting TransferMate right in the middle of the technology. This allows us to take those payments that we can’t put on virtual card and move them over a bank rail.” Companies like WEX have found ways to complement their virtual card offering and fill in the gaps by using the bank rail.

What are bank rails?

To understand what WEX brings to the marketplace in their partnership with TransferMate, it’s helpful to understand what moving money “over bank rails” means. When a payment is initiated, be it in person or online, a flow of data is shared between necessary parties. This information might include things like customer account information, merchant IDs, and instructions for banks and FIs. The bank rails are established networks supporting this passage of information. These bank rails are responsible for making sure the correct amount of funds is securely, quickly, and accurately passed between businesses. Three payment rails commonly used for payment transactions in the U.S. are the ACH network, card networks, and The Clearing House’s RTP® network.

2021: an exciting year for payments

2021 has been a time of excitement and change in corporate payments. WEX has adopted a payments complement to the virtual card, expanding its products and services to include new and innovative ways to pay. In Dearborn’s interview with TD Ameritrade, he discusses these changes and the role partnerships have in allowing WEX to continue to build out the services it can provide to its customers. 

TD Ameritrade host, Oliver Renick, followed the money trail, noting how WEX’s stock had changed over the last year, “WEX has seen a big boom off the lows from last year, almost tripling in price.” Dearborn attributes the growth WEX has recently experienced as a natural result of partnerships. 

Payments fintechs need to complement virtual card technology with electronic funds transfer

In his conversation with Renick, Dearborn talks about how WEX’s partnership with TransferMate in particular has helped accelerate growth for WEX. “There’s a macrotrend going on here, which is just the fire behind B2B payments that’s particularly been accelerated by COVID. In relation to TransferMate what WEX has been doing is complementing its virtual card technology. WEX is complementing that with electronic funds transfer. And that’s not just ACH here in the United States but it’s the ability to move money cross-border, all over the world. And as good as we are in virtual card, TransferMate is the best at moving money over bank rails.” 

What is ACH?

Automated Clearing House (ACH) is a network used for electronically moving money between bank accounts across the United States and, in some cases, globally. It’s estimated that over $40 Trillion US dollars flows through the ACH network every year. ACH was set up in the 1970s and has gradually developed into the high powered engine that it is today. 

When a company needs to pay a service provider in another country, fintechs like TransferMate provide the most efficient services. TransferMate has built a global payments technology and is connected with a secure and established international banking network, allowing for cost-effective, efficient over the rails payments to be made between countries spanning the globe.

How can businesses stop the bleed caused by cross-border payments?

A partnership such as WEX’s partnership with TransferMate can expand a fintech’s offering by creating opportunities that are faster, easier, and less expensive, particularly with payments that are made across borders. Dearborn says, “Let me bring it to life for a customer. So let’s take a corporate that’s moving a couple hundred wire transfers cross-border every month. That was costing $45 or $50 dollars to transfer that money over the border, per transfer. With our partnership with TransferMate, we can do two things. One is we can reduce that cost to absolutely nil. And then the other is we can automate that so that there’s no human interaction of initiating that wire transfer. Do the multiplication and really quickly you see there’s a hundred thousand dollars worth of savings for the corporate.” Through WEX’s partnership with TransferMate, WEX customers can realize savings, efficiency and security in the digital payments they make to vendors globally.

Why send data along with payments?

As Dearborn put it, “The name of the game in B2B payments is being able to facilitate the payment across the transaction, which means the buyer puts payment in the hands of the seller in a way that’s completely reliable and there all the time, and the second piece to the game is that data has to go along with it. The reason data has to go along with it is so that you can tie out and reconcile all of the payments. That’s what our software does.” WEX’s software is what allows the data to ride alongside the payments, and it does so across all of its lines of business. Whether you’re a fleet manager, healthcare consultant, a corporate, or a travel booking service, really any type of business, WEX can reliably take your payments across the bank rails and securely and efficiently pay your partners, vendors, and service providers. It’s important to tie related data to any processed payments for multiple reasons. Tying data to payments allows the reduction of fraud, the acceptance of cross-channel returns, stock maintenance, the tracking of payments to and from the source, availability of real-time transaction-related data, and AP and AR digital bookkeeping.

Do payments fintechs tend to specialize?

In the world of corporate payments, given the nature of the technology, the tech stack is pretty versatile. Take WEX for example–WEX services a broad spectrum of industries with fleet products, benefits products, travel products, and corporate payments products. It’s important to WEX that customers hold the reins. Dearborn says, “At the end of the day what we’re trying to do is automate control, create rebate economics, and make the business of conducting your business as facile as possible. And frankly, as lucrative as possible.” 

How does a “technology first” approach help the bottom line?

One way a fintech company can put control in the hands of its customers is by taking a technology-first approach to its work by removing human error, and removing outside forces. Running AP departments, AR departments, fleet management programs and health programs has traditionally been a human-powered activity. Many of these processes can become digitized and automated. Companies like WEX have a “technology first” approach, which translates to automation whenever and wherever possible. The way Dearborn sees it, this automation amounts to an increased bottom line for WEX customers. The revenue comes in the form of rebates and other tertiary gains. And the beauty of this approach is that it puts the decision-making and power back into the hands of the customer, right where it should be because the technology and systems can be streamlined and run from within.

Learn more about how WEX payment solutions can be tailored to your business, so you can operate easier and faster while creating lasting growth and success.

Watch the TD Ameritrade interview with WEX’s Jay Dearborn here. 

Resources:
Forbes
Alacriti
Payment Rails
Due