Why One Bank Opted Out
of Virtual Cards
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Like end-users, providers have faced the question of which type of electronic accounts payable (EAP) solution to adopt and make part of their commercial payment offerings. Some providers focus on Virtual Cards, also known as supplier-initiated payments (SIP), which come in various forms. Others have gone the route of buyer-initiated payments (BIP). There are also providers who make both types available to clients. One bank that is forging a clear EAP path with a particular type shares the rationale for their decision.
Access more resources pertaining to electronic payables, including buyer-initiated payments and Virtual Cards.
The following originated from a 2015 interview that Recharged Education’s Lynn Larson conducted with Diane M. Kush, Sr. Product Manager, MUFG Union Bank N.A. (“Union Bank”).
Union Bank’s View
Fancy checks. This is one way Diane Kush describes supplier-initiated payments. She shares supplier challenges with SIP:
Payments made to suppliers one email at a time
Email requests coming from multiple buyers/customers
Supplier labor costs associated with handling these emails
Missed emails = missed payments, resulting in reconciliation issues for both buyer and supplier
For Union Bank, the key to their electronic accounts payable future is buyer-initiated payments. For others, it might be a different option.
After considering the options, Union Bank decided to offer their commercial clients a BIP solution. Supplier benefits include lower card acceptance costs and lower labor costs. Payments are automatically and electronically deposited into the supplier’s account. Consider Diane’s example of a buying organization who approves three invoices from one supplier, totaling $50,000:
With SIP, the supplier proceeds in trying to process separate transactions, one for each invoice, and gets declined. Then the supplier must contact the buyer to determine what’s going on.
With BIP, the buyer’s approved $50,000 is directly deposited for the supplier. In this way, BIP shares attributes with ACH payments. Plus, the supplier has access to a portal that provides invoice payment detail, if desired.
What Do Suppliers Think?
Are suppliers more receptive to SIP or BIP? I have heard mixed opinions on this. One provider who offers both relayed to me that suppliers lean toward SIP for different reasons; for example, the design of their receivables process, which they might be unwilling or unable to change. Others have told me that, with appropriate education, suppliers see the value of BIP. I agree with the power of education, no matter what payment option you are trying to sell to suppliers, and buyers must ensure suppliers receive benefits, too.
Final Thoughts
There are many successful EAP programs out there, both BIP and SIP. As with any business decision, one size does not fit all. Each party needs to evaluate what will work best for their goals and business.
Access more resources pertaining to electronic payables, including buyer-initiated payments and Virtual Cards.