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For Visa's Kevin Phalen, comparisons between the pandemic's economic impact and the 2008-2009 financial crisis aren't fair. The current situation is far more wide-reaching. But so, too, he says, are the opportunities to overhaul the B2B payments space.
Phalen, the head of global business solutions at the financial services giant, works with businesses of all sizes to expand Visa's network through both card and non-card transactions. In the wake of the pandemic, he's seen the ecosystem for the slow-to-change payments infrastructure soften toward modernization efforts and views 2021 as a year where the company can keep extending its reach.
"Fifty percent of corporate payables were still being done by checks," he said of the pre-pandemic landscape. When the pandemic hit, "We saw this rapid acceleration of digital accounts payable and digital accounts received."
In an interview with Protocol, Phalen described how the pandemic helped suppliers embrace their card business, how technology is bringing together accounts payable and accounts receivable operations, and how Visa's network can work alongside the open banking trend.
This interview has been edited and condensed for clarity.
What kinds of behavioral shifts have you seen in terms of how businesses are adapting B2B payments to the pandemic?
There were two things that really emerged, and let's think about it both from a small business perspective and then a middle market, large corporate perspective.
If you think about small businesses, some didn't have an ecommerce infrastructure, and literally overnight, they had to rethink and go out and build out their presence. We saw this massive ask and need to build out their social media presence, their ecommerce presence to help them on their digital journey. The other thing was that the consumer dynamic dramatically changed, and [consumers] were very focused on the safety of their transactions. When it came to payments, all of a sudden, businesses moved from [being] a cash, check environment to [needing] to be a card environment to [needing] to be contactless. People were uncomfortable handing over their plastics, so they wanted mobile payments. The small businesses had to reimagine their business while also reengineering their payment infrastructure and rethinking things like payroll and accounts payable for their own organizations.
That's where the similarities then are when you think about middle market and large corporate clients. Unlike small businesses, most of them already had their ecommerce presence. They were omnichannel in the way they thought about payments. But all of their back-office accounts payable and accounts receivable required one thing that nobody really ever thought would be different: people going into the office to either look at their desktop, to write checks, to collect checks, to book entry checks, to go to a bank to deposit checks. Fifty percent of corporate payables were still being done by checks, so we saw this rapid acceleration of digital accounts payable and digital accounts received.
A lot of governments were trying to distribute to their constituents, and, unlike we have here in the U.S. through unemployment cards and benefit cards, they had no way of doing that distribution. But a lot of people have Visa cards, and we could push payments through Visa Direct so that those consumers, small businesses could get their PPP.
Historically, payments infrastructure change has been slow, but through the pandemic, we've seen modernization happen rapidly. Does that speak to adoption lagging in the past, or has there been a tech advancement that's played into it?
I'd say it was a little bit of both. We drew a lot of analogies to 2008 and 2009, because, in a similar manner, there was a crisis. But it was very different. It was a crisis of confidence in financial institutions. It was a liquidity crunch. But it forced corporates to really understand their accounts payable and their accounts receivable. At that point, within the payments world we saw virtual solutions starting to accelerate.
Fast forward now to this pandemic, the implications were significantly larger because it wasn't narrow in that it was impacting financial institutions. It was really across supply chains. The good thing was that fintechs were already on the rise in our world for accounts payable and accounts receivable. They had the solution set, and it drove immediate adoption, which is a little bit different. We needed a forcing factor to drive it to the digital environment, and quite honestly, the pandemic helped to drive that.
If companies have adjusted to accounts receivable and accounts payable teams working outside the office environment, to what extent will we see the pendulum swing back to normal once workers return to offices in full force?
I fundamentally believe the vast majority of it will stick because you can be much more efficient in a digital environment than in a manual, paper-based environment. We needed the forcing factor. Being a network, acceptance is important to us. We offer a service to go out to suppliers and say, please accept Visa cards. Since the pandemic began impacting us, we saw a 17% increase of suppliers saying they're going to take card that historically said [they] weren't going to take card.
What they did was readily admitted [that they] needed the best way, the most transparent way, the fastest way to get paid. And card-based transactions helped them to do that. Our goal will be to make sure that that sticks, but we also have to make sure that both the buyer and the supplier get value out of that electronic or digital payment infrastructure that we've built.
We've heard about pandemic-related disruptions to international supply chains from the logistics side of the house. How is Visa thinking about cross-border payments?
Where we've invested a ton of money across Visa is both in what we call high-value payments and low-value payments. In low value payments … we've developed a solution site called Visa Direct. It manages P2P, account-to-account, low-value payments, both cross-border and domestic. Everything from paying a gig worker to that small business [wanting] to pull down [a] merchant settlement in the middle of [the] day, we facilitate through Visa Direct.
We also took a tack a few years ago that high-value payments needed to be done differently. It was basically one solution that has been around for 40 to 50 years with Swift, and though they've done some great things to improve the infrastructure, we reimagined high-value payments and built out B2B Connect. That allows us to connect a bank in Kansas City to a bank in Ghana in Africa and do it directly versus [having] multiple correspondences [and] everybody touching the transaction with a lack of transparency.
Kevin Phalen views the pandemic as the forcing factor toward the digitalization. Photo: Visa
On the idea of collaborative commerce — bringing suppliers and buyers closer together — how close are you to an actual unification of the different silos?
What we do well is build networks. VisaNet is our core card network. B2B Connect is our high-value network. Visa Direct has a network. We connect all of those networks together. When we think about domestic accounts payable and accounts receivable, what traditionally has happened is organizations — whether they're financial institutions, whether they're fintechs — grew up on one side or the other. Fundamentally within business solutions, we believe we can connect accounts payable and accounts receivable providers together to build out that collaborative commerce environment.
[Look at] the work we're doing with a company called Billtrust, where we've built a Business Payments Network. It was built out of the concept of accounts receivable, but a key component of it is how we work with accounts payable people to make it easier for their buyers to pay their suppliers and take out the friction.
Where does open banking fall into that equation of reducing friction between accounts payable and accounts receivable?
If you think about the European model of open banking, it is very much access, exchange of data and information and payment infrastructure, so I think open banking itself probably accelerated things. We're here to look at how somebody wants to originate that payment, but also be able to handle it from a disbursement perspective. Whether it's account-to-account, card-to-card, card-to-account or account-to-card, we can sit in the middle between our networks, which is very much some of the concepts behind open banking.
And then obviously the other is the availability and exchange of data associated with open banking. Within business solutions, that exchange of data is critical because you need it for reconciliation, you need it for invoicing and the like. Our belief is we should be sitting in the middle of that.
Do you then worry at all about open banking facilitating a circumvention of your network, or do you think Visa's network still plays a role as open banking evolves?
I think it absolutely does.
I think the beautiful thing about open banking is it creates the ability for fintechs to work with financial institutions, to accelerate how they're thinking about payments as well. Look at the great things that have emerged out of Europe. Now, here in North America. Singapore is another example. The fintechs are embracing this new environment; they're bringing these new features and functions into financial institutions and helping to facilitate those payments appropriately. I think competition's a good thing. It challenges us all to innovate. Visa is fundamentally a technology company based on innovation, and we're going to continue to do that.
Continuing on innovation, as you're looking toward 2021, where are you focusing your efforts?
I think in the card space, with some of the small businesses, it's all about virtual and expansion acceptance, especially outside of North America. Everything that we can do for contactless and mobile payments, we're going to continue to accelerate those. We're going to continue to drive Visa Direct connectivity around the world. When I think about high-value, non-card-based transactions, it's all going to be about expanding the network and expanding the use cases in which we're operating. And then lastly, the third component is this idea of collaborative commerce between buyers and suppliers.