Optimizing PaymentsEfficiency, Risk and Incentives

May 21, 2018

Agenda

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• The History – Where Did We Start?

• The Future is Now

• Why is This Important?

• Balancing Your Payment Environment

• Payment Types – Pros and Cons

• Payment Acceptance Costs

• Trends in the Payment Industry

• How to Optimize

• The Future

The StartSpaceship Earth

The History – Where Did We Start?

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The Communication Progression

Carving, Painting, WritingImmovable Papyrus - Transportable Books – Knowledge Consolidation

Printing PressKnowledge for the Masses

Cars Expanding Reasonable Business The Internet

Information herein is considered proprietary and confidential.

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Blockchain Technology

The Future Is Now

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Today’s Technology Focus

– Security– Speed– Savings

Payment Technology Enhances Profits

Abstract or Indirect Profit

– Think of opportunity– Improve the customer relationship and experience– Benefit your suppliers business for B2B payments

Cost Center vs Opportunity Center

Why Is This Important?

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Your accounts payable environment has transitioned away from ‘how you pay’.

RatiosDays Payables = Accounts Payable/COGS x 365Cash Conversion Cycle = Days Inventory + Days Receivable – Days PayableCash Turnover = 365/Cash conversion CycleYou are using your working capital more efficiently

When?Your suppliers’ terms are no longer your terms, to a certain extentYour payment float is increased

Where?AnywhereVirtual CardsPayments via smartphones/tablets Internet Satellites

Why?Challenge the status quoWhy do you have to pay now? Pay laterWhy am I being sold this product?

Thinking Big Picture

Balancing Your Payment Environment

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Liquidity• Timing can be more important than you think• Intraday vs. EOD• Do more with the same - Opportunity Center

mindset• Earnings Credit Rate (ECR)

Example• Starting Balance = 100• Credits = 7• Debits = 7

TotalCredit 1 1 1 1 1 1 1 7Debit 0 0 0 0 0 0 -7 -7Net 1 1 1 1 1 1 -6 0Balance 101 102 103 104 105 106 100 103 Average Balance

Purchasing Card TotalCredit 1 1 1 1 1 1 1 7Debit -1 -1 -1 -1 -1 -1 -1 -7Net 0 0 0 0 0 0 0 0Balance 100 100 100 100 100 100 100 100 Average Balance

No Purchasing Card

Balancing Your Payment Environment

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What is a ‘Payment Environment’?

What are the challenges?

• Complex and confusing terminology

• Many unique products

• Hidden costs

• Sales tactics may drive profit to vendor and not maximize benefit to business

• Understanding how each payment type can affect your business

Payment Types – Pros and Cons

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ChecksPros Cons

Check Float Overall CostCustomization Fraud

Widely Accepted Bounced ChecksPhysical Deposits

ACHPros Cons

Lower Fees Fraud TrendsSpeed Shared Banking Information

Security Over Checks No Funds Guarantee

Purchasing CardsPros Cons

Options Processing FeesSecurity AcceptanceRebate Fraud*

Streamlined AP/ARFloat

Payment Acceptance Costs

Costs to Consider– Maintenance/Labor – Interchange– ACH enrollment and maintenance– Time and financial loss dealing with fraud– Re-associating remittance advice with payments

11*Aite Group’s Q1 2016 survey of 2014 U.S. Healthcare Providers with less than US$50 million in revenue

Example - Checks– Buy, maintain, print, burst/separate and envelope with postage. – AP employee receives invoice– Reconciliation and matching– IT support for internal programs– Mailroom processing– Scanning checks/invoices and keying information if applicable

Payment Method Avg. Amount Transaction Processing Cost

Staff or Labor Costs

Total Costs

Virtual Card 148.92$ 3.48$ 6.39$ 9.87$ ACH 156.11$ 1.68$ 9.42$ 11.10$ Check 146.61$ 2.57$ 12.23$ 14.80$

Cost of Acceptance for a Single Commercial Reimbursement Transaction

Trends in the Payment Industry

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70% of businesses will shift majority of payments to electronic payments

21% are already significantly using electronic payments (e-payments)

51% of B2B payments were made by check in 2017

*2016 AFP Electronic Payments Survey

Trends in the Payment Industry

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*2018 AFP Payments Fraud and Control Survey

Trends in the Payment Industry

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*2017 & 2018 AFP Payments Fraud and Control Survey

In 2016, 74% of organizations were victims of payment fraud and over 60% of those victims experienced losses in excess of $25,000

85%87%

82%

77%

71%75% 74%

5%

11%14%

27%

48%46%

48%

20%

43%

34%

39% 32%30%

23%

29%

22%

27%25%

30%28%

5%8% 9% 10% 11% 11%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 2017

Trends in Payment Fraud Activity(Percent of Organizations that Experienced Attempted and/or Actual Payments Fraud)

Checks Wire Transfers Corporate Credit Cards ACH Debits ACH Credits

How to Optimize

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Optimize by Understanding• The available products• Your environment• Your customers• How each option will affect your business• ROI

Funds and Program Consolidation

Payment Type• Checks• ACH• Purchasing Cards• Virtual Card

– Ghost Card/Account– Single-Use-Account (SUA)

Optimize RiskOptimize Cost

Optimize RelationshipsOptimize Processes

Optimize AR/AP

Optimize Profits

How to Optimize – Healthcare Example

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Current - Complex Payment Scenario

Purchasing Cards• Physical cards for office supplies, travel & entertainment (T&E) and

employee events and servicesACH • In-network claims reimbursements, payroll and a small portion of

out-of-network claimsChecks• Majority of out-of-network claims reimbursements

Opportunity - Virtual Cards & ACH

Benefits• Rebate potential, streamline AP, increased floatConcerns• Interchange costs, provider relationships

Conclusion - Give Options and Communicate

*InstaMed – Trends in Healthcare Payments Seventh Annual Report: 2016

How do providers receive payer payments?

Optimizing Payments - Inbound

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Provide your customers with a better experience while driving internal efficiencies• Security• Speed• Savings

CategoriesIn-PersonE-PaymentsMobile PaymentsIn-AppInternet-of-Things (IoT)Connected Cars

Payment TypesCredit CardsDebit CardsACHChecksMobile WalletsPayPalCryptocurrency

What you know about outbound payments can have a significant impact on how you manage inbound payments.

How to Optimize – Inbound Example

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Provide your customers with a better experience while driving internal efficiencies• Security• Speed• Savings

Declining Balance Pre-Paid• Reduced # of Transactions• Faster Customer Experience• Reward Opportunities

Options Driving Value• 43% of businesses offer 3+ payment options• 4% offer 10+ payment options

What you know about outbound payments can have a significant impact on how you manage inbound payments.

*IBM, August 2016; Global Online Payment Methods: Second Half 2016

How Does the Future Solve Today’s Issues?

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Blockchain• Security

– Most secure technology

• Speed– Fastest settlement time – 4 Seconds

• Savings– Cheapest transaction type – no middleman

Beyond the Transfer of Money• Smart Contracts• Customized platform• Trusting the system - not the person• Public vs. Private Blockchain

Examples• Healthcare• Finance• Music Records/Licensing• Diamond Business

The Future

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Moore’s Law – Transistors per Microprocessor1971 – 2,000 2017 – 19,000,000,000

Mobile Technology Trend• Games• Social media• Texting• Email• Internet

• Business

Costly multi-day settlement processes

Instant international B2B payments – Secure and Low

Cost

The Future

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New Understanding

• Know what to ask and why

• Positives and Investment rather than Burden and Cost

• Offering payment types can improve supplier and customer relationships

• Communication can enhance profits

• Lifecycle Costs vs. Immediate Costs

• Preparing for the future

• No solution is “one size fits all”

Your Payments Your Environment Your Opportunity

Thank you!Q & A