31 Jul Payments: Friction-free Value Exchange
We care about value. A lot. And we believe that value is created in the relationships between businesses and their clients. It is the product or service that is deliver that creates value for the client. The payments are the value to the supplier because they can be turned into other valuable good or services.
The actual payments are not creating value. It is just a bookkeeping process. If I pay you, my bank has to reduce my balance while your bank has to increase the balance of your account. It is just a little bit of data being exchanged.
If we use the convenience of credit cards for this bookkeeping process, up to 3% is charged for it. 3% might not seem a lot. But if you assume a net profit of 15%, then this charge eats up 20% of any possible profit. It is huge!
$15 net profit before the credit card fee
$3 credit card fee
$12 net profit after the credit card fee
20% reduction in profit
While credit card payments are great for smaller amounts (they are fast and work instantly), they are just too expensive for large amounts.
It was therefore clear that we had to integrate the ability to pay from your bank account. True to our first concept: “Whatever data exists digitally should not have to be re-entered anywhere else.”, we wanted to keep the single click (and full automation) for payments from bank accounts.
Payments from Bank Accounts
The Australian payment system is quite fast and sophisticated. Technically it has the ability to make payments on anyone’s behalf (using direct debit). But due to security and risk management, the process is quite cumbersome and involves a three day wait until the funds are cleared.
There is so much movement in the banking industry (world-wide and also Australia) towards open banking. It is just a matter of time before direct payments will be possible from authorised applications. In fact, NAB has already published the capability and Promis is integrated with it. We are just waiting for them to complete the authorisation process that allows account holders to authorise Promis to send payment information.
We have of course looked at blockchain solutions and other alternative payments methods (including the NPP). But none of quite ready for our usecase. So for now, we have implemented a direct debit process, where you authorise us to debit the amount for a bill payment from your bank account and we then pay the supplier.
It is not the fastest, but one of the cheapest ways to handle this. And we further reduce the costs by aggregating where we can. So if you pay 10 suppliers on the same day, only a single payment comes out of your bank account (meaning your actual bank fees will be lower).
On the supplier side, we only aggregate by client. So if one client pays multiple invoices on a single day, you receive one aggregated payment. It is pretty much the same as clients paying on statement. Expect, we fully automate the process for the client.
In addition, the payer doesn’t have to log into the bank portal to enter any of the necessary details (BSB and account number of the supplier, amount, reference). It means that these details can never be wrong as no human touches them.
It is still one of the major points of focus for our research & development team. And we will get more sophisticated. But for now, we are pretty happy with the solution.
“More convenience means faster payments.”
Several studies has found that online invoices have resulted in faster payments. However, online invoices only go half the way. They still require the payer to enter details (be it credit card or bank account details). They do simplify reconciliation for the supplier, but do very little for the payer.
Promis closes that gap for the payers. All the convenience ultimately leads to faster payments for suppliers. The automated reminders with actionable steps. Well actually a single actionable step: “Pay Now” or “Pay When Due”.
And ultimately, the automation rules for payments make it even more likely to get paid on time.
“Minimise changes to existing processes.”
Change is always an investment and usually painful. We have been conscious of that and tried hard to minimise any negative impact. This is especially true for suppliers who might get invited to use Promis to deliver invoices but otherwise don’t want to interact with it.
Our aim was that suppliers would have a really quick and easy onboarding process and after that not have to think about Promis at all any more.
For anyone using Xero, MYOB, QBO or Reckon, we have certainly achieved that. After the initial setup, you can just continue creating invoices in the same way as you have before. Promis will automatically pick up the relevant invoices that are sent to Promis users and ignore all others.
Naturally, we also looked at the reconciliation process. In many cases, it is still a manual process. It relies on the payers to enter the correct payment references when making the payment. When credit card fees are taken out or multiple payments aggregated, the bank feeds don’t automatically match the invoices.
Promis not only facilitates the payments, it automates the reconciliation process. Every single payment is booked into the accounting system (on the payer and payee side). It means, your books are up to date in real time and you have an accurate view of who owes you and who has paid. Promis itself gives you a detailed history of which payments you received.
Updating Contact Details
A small but useful other automation focuses on contact details. If you are like most small businesses, you only enter minimal client contact details into your accounting system. Supplier contact details are probably non-existent.
Promis updates all your connected client and supplier details. This includes addresses, phone, ABN and bank details. So your accounting system is always up to date.
This also means if you change your address, all your suppliers’ and clients’ accounting systems will be updated with the latest details. New bank account? All updated and any future payments flow into that as Promis manages it. New phone number? You change it in Promis and it flows through to all your active contacts.
What Is Still Missing?
We’d love to hear from you. What else is part of your invoicing or payment process? What is still painful? Do we need to consider anything else? We are building Promis to make your life easier. To free your time for what really matters.