Driving Value and Best Practices with Accepting Credit Cards

[0:00] Griff Dudley:

Hey everybody. How’s it going? We’ll get started here now as folks continue to file in, they did not read the part of my contract that demands entrance music and sort of the pro wrestling approach to the start here. So I’ll be doing my intro. I’m Griff Dudley. I work at American Express. I was the first one to just say thanks to all our partners at HighRadius for giving us the opportunity to chat with you guys today. And thank you all for coming and letting me talk to you about credit cards for the next 30 minutes. It is a little surreal for me to be here today presenting in Dallas Cowboys Stadium. I remember back when I was in high school playing football for rich high school, I told my parents that I’d be performing in a national football stadium at some point, maybe not in this format to talk about credit cards. I’m not sure my family understands what I do for a living. So if you see Anne Dudley on the road, just tell her it was sports-related. We’ll do it that way.

[0:58] Griff Dudley:

Just a little preview of what I want. Cover and our agenda today. I’ll first talk a little bit about Amex, how we’re thinking about the B2B space overall in E-invoice payments, and just the space in general. We’re then going to talk about ways that we think about value in accepting credit cards through an E-invoice portal. I’ve broken it down into three use cases that I want to walk you guys through. And then we’ll wrap up with a little bit of Q&A, assuming I don’t blather on and hold you, hostage, for the whole time, we’ll carve out some of that as well. So first things first, who am I? Again, my name is Griff Dudley and I’m the director of our advertising and technology portfolio in what’s called the National client group. And just for the uninitiated, American Express has a little bit of a unique business model in the sense that it is both the network and the issuing banks. So whereas this would maybe be a Visa and MasterCard arrangement, and this would be like a city or a chase. We are both issuing banks and the network. I work in the global merchant and network services business. Again, in the advertising space, its publishers, both national and local in many cases, and with technology, it’s everyone from original equipment manufacturers, to some of the software as a service provider. Now just to wax poetic a little bit about the company that I work for. Historically, this is what we’d call the closed-loop network advantage of working with both buyers and suppliers, which gave us insight into consumer preferences largely for marketing purposes, right? “Hey, Griff, it looks like you just bought a ticket to Bermuda. Here’s an opportunity for you to buy a pair of shorts for your trip.” But I think what we’ve discovered is that this is a unique position when it comes to the B2B space for as many folks that you’ve heard over the course of the past day or so talking about the B2B space, and there’s issuing banks, there are networks, there’s Fintech, trying to sort of capture that share of the market and B2B payments. It’s still a marketplace that has yet to find itself in many ways. And I think at the core of that challenge is that there aren’t a lot of products and services that have truly cracked the nut between delivering real sustainable value for both buyers and suppliers.

So I’m excited about my position in American Express because I think our unique closed-loop advantage that historically has been about data and about marketing is now more than ever, about relationships. And we’ve got some unique insights that I’d love to share with you today about how we’re thinking about the sustainable value on both sides of the house. And that’s the premise of today’s presentation. How can I derive value from accepting credit cards in an E-invoice portal? Now I think when I thought about this time OPIC and in the context of a lot of the other conversations that I’ve heard of today, there are some I think, sort of obvious off the shelf reasons why accepting credit cards and an E-invoice portal is beneficial in a sort of a tactical day to day sense. It’s a way to centralize your ability to manage PCI compliance. It’s an easier manner to get data insights about your receivables business because you’re not accepting credit cards through all these bifurcated channels. You have sort of a one-stop-shop, right? But we wanted to take the conversation kind of up a level today a little bit and think about some more strategic reasons why accepting credit cards through an E-invoice portal makes sense. And I tried to keep it simple, mostly because that’s what I can sort of manage with a man of my intelligence. And I have broken it down to the three buckets.

[4:50] Griff Dudley:

One: controls.

[4:53] Griff Dudley:

The second is adoption.

[4:55] Griff Dudley:

And the third is sustainable growth.

[4:58] Griff Dudley:

Those are the three things I want you to walk away from our presentation today, control, adoption, and sustainable growth. And sustainable growth is one where all actually use a use case from the advertising space that I cover. And that’s probably the one I think is most underrated about the importance of using credit cards in your invoice portal. But let’s start with control and terms adherence. So as many of you are probably aware, and as we’ve heard a lot at the conference so far, Days Sales Outstanding management is top of the line for almost all suppliers. Whether it’s in the conversations I have with my clients on a regular basis, whether it’s in the consulting efforts that we do with outside firms. The top loud and clear issue that we are hearing is how do I recognize cash sooner? And again, I don’t think that’s surprising to you all considering the kind of industry that you work in and the expertise you come with from your firms. But just to corroborate that there’s a lot of data that supports that. Check some of this out.

So, on average, over 40% of B2B invoices are not paid on time, almost half of invoices that exist aren’t paid on time. So it’s no surprise that when we and other outside firms went to survey merchants, nine in 10 of them said that they report frequent late payments by B2B customers. I’m sure this isn’t news to you, but the data is staggering. And that has a real impact on businesses. Let me start here on the right and how that impacts businesses. I think it’s shocking that one in five of those buyers has purposely postponed payments to suppliers to manage their cash flow. And this number of 17.5% of them lost revenue as a supplier because they were unable to ingest revenue on time, or in some cases at all. But again, I don’t think that’s a surprise to anyone who’s coming to a conference about E-invoice portal acceptance. The statistic here that I think is the most interesting is this one on the top left. 47.2 of those buyers cited insufficient availability of funds, as a part of the reason why they are not making on-time payments, which makes sense. One in five of them is purposely postponing payments to those suppliers. And that’s core to the work that we do both as an issuing bank and as a network working with suppliers. Because our products and services offer that extended line of credit, that extended float too many small and medium businesses who depend on their credit card as a means for cash flow.

[7:41] Griff Dudley:

We’re going to get into that a little bit more later. But I really think that’s only half the story. Because a lot of these best in class suppliers are trying to improve DSL and using credit cards as a means to do so because so many buyers depend on the credit card as a form of financing. Want to open up credit card acceptance as a means to accelerate those payments. The challenges are that when I talk with a lot of those suppliers and the national client group, they’ll say “Griff, I’ve opened up credit card acceptance which is a means to accelerate those payments. But what happens is, I’ve got a customer who’s got 30-day terms, they don’t meet those 30-day terms and end up paying me in 60 days because they fall in that 40.3%. Or maybe they’re in this 20.3%. And at the end of that 60 days, they make a payment with a credit card. So I’ve got 60 days of outstanding payments, and now I’m eating at an interchange rate on top of that.” And that I think, is at the crux of the existential question for suppliers. How do I expand credit card acceptance because I know that the vast majority of my buyers depend on it? And it’s becoming the industry standard and opening up optionality for customers to pay in the means that they want.

But how do I also put myself in the driver’s seat, so I’m not getting my lunch eaten by bad actors who extend DPO for me, and then use my 30 days to extend a 30-day invoice to a 90-day invoice? And in the research we’ve done and in the conversations we’ve had with suppliers, partnerships with HighRadius have been the middle ground of that solution because it gives suppliers the control if you have an invoice portal to accept credit card, and it’s not through all different bifurcated channels across your enterprise, you can set timing controls and requirements as to how you accept different forms of payment. The buyer needs to use a credit card as a means to extend DPO. But I’m accepting those payments through an invoice portal and I need you to make payment within 30 days of that invoice. It also gives you a centralized place to not put not just penalties but also discounts and incentives. So that in a one-stop-shop fashion can say, “Hey buyers, I’m (having maybe I don’t say this publicly, but maybe I’m having cash flow issues.) I’m going to give discounts to any buyer who can pay me within a certain number of days. In the days of yore, where we didn’t have the technology to communicate and manage that at scale. That was a difficult strategy to manage. But now with an invoice portal, you can use a credit card as a tool to not only enable your buyer’s payments but make sure that those buyers’ payments are coming on time. It’s the best of both worlds.

[10:31] Griff Dudley:

So that’s number one- control. The second one I want to talk about today is adoption. So I’ve sat in a lot of these breakout sessions today talking about what it takes to implement any invoice portal. And it can be a pretty substantial undertaking, right? I’ve heard a lot of questions from CFOs in the audience who are way smarter than I am talking about, you know, payback periods and how do I build an ROI around why it’s worthwhile for me to build an invoice portal. But it’s not just the simple nuts and bolts of a return on investment calculation, it’s a cultural change. It’s a process change in the sessions that get to be on the floor with the comfy seats, not the guys up here that got to stand and do these presentations.

[11:18] Griff Dudley:

There was a conversation about how you need senior sponsorship to sort of motivate that change across all the bifurcated business units that are around the payments and customer management process. And even if you’ve done the ROI calculation, and it makes sense to implement any invoice portal, and you’ve gotten sort of the senior-level sponsorship, to create that change, you’ve also got to figure out a way to train everybody around the process, right? That is a massive undertaking. But despite the fact that that’s a pretty substantial undertaking. To me, it’s only half the battle. Because in many cases, if you build it, they might not necessarily come. This is the feedback I get from suppliers that have implemented invoice portals across the board. How do I not only go through the process of implementing this portal but convincing my buyers to change their behavior? And it makes sense, right? Like a lot of buyers, I think for two reasons may not want to change their behavior. One reason is just a reluctance to change. I’ve worked in accounts payable for three decades, I have mailed the check every month to this location. And that is how I have managed the process since the dawn of time. And you’ve got to give me some incentive to change that behavior.

Now, I think there’s another side of this too. Maybe it’s not just reluctance to change, but maybe the buyers kind of like the fact that there’s a manual process. I mean, just ask my landlord. There’s plenty of ways that you can extend DPO with a manual process of a check- Oh, hey, the checks in the mail. It’ll get there on time. I’m reluctant to change my process either because of the inertia of the historical process, or I’m getting some kind of benefit from a day’s payable outstanding process because the process is purposely manual. But think about the ability to enable credit card as a means to proactively drive that change, credit cards across the board, not just American Express, give a lot of value to those buyers, right? Leverage the fact that credit card companies and issuing banks give a reason for those buyers to change their behavior as a means to drive the behavior that you want as a supplier. You want to make a credit card payment, make it through this portal that I’ve implemented because I want to realize all these benefits of process improvement. Rewards, I think, are too myopic of a way to think about the value of a credit card to those buyers. And I’m going to get a little deeper on that and in a sort of part three of this presentation to quote the philosopher Fergie like rewards are so 2000 and late. Like, it’s when we talk to buyers in this space. Rewards are great, but it’s what everybody’s got. What I need is a way to automate my payables process. What I need is a way to extend floats and frankly open to buy so that I can make larger payments upfront, and realize an on-time payment discount. Realize economies of scale when I’m purchasing large inventory. These three components of a credit card line carb rewards and card float, become a supplier go-to-market strategy and how I’m going to get customers to adopt my e-invoice portal.

[14:40] Griff Dudley:

Control adoption.

[14:44] Griff Dudley:

The last piece I want to talk about is very near and dear to my heart. And this is something that I’ve already sort of referenced here a little bit. It’s about sustainable growth. It’s surprising to me and frankly was shocking to me early in this process of having this role. International client groups of how many small and medium businesses truly depend on a credit card as a form of financing. But don’t take my cute little quotes as the reason why you believe that, let’s look at the actual research. 50% of firms borrow on their small business credit card, one in four do so regularly. They’re not using the card as a means to generate points for the proverbial trip to Disneyland for the CEO. It’s a means and mission-critical means of managing their business. 78% of business card holders say a generous credit line is important and often used to help run their business. Now, why does that matter? I think for me, it’s all about how I grow sustainably with my buyers. Let’s bring that to life with the use case in advertising. So not sure how many of you are suppliers in the advertising space, but there’s a lot of change going on in this industry. And a lot of it is driven by the changes in the channel, so check this out. Back in 2014, you can see that this blue, 25% was digital. The remaining 75% was bifurcated between TV radio print out of the home. As time went on, all the way up to 2019, that more than doubled in terms of digital channels. Now, this wasn’t because digital was eating the lunch of these more traditional channels. It’s because the pie was growing. More and more customers had the availability of making advertising payments in the digital space.

Maybe, if I’m Griff’s cupcake shop, which sounds awesome. If I’m Grif cupcake shop, I’m not going to do a big billboard advertisement. A digital advertisement is local enough to be relevant to me. And this change and channel translated into a change in who the average shopper was in the advertising space in a way that is truly transformational for the industry. The comparison of 2018 versus estimates for 2022 small businesses will make up nearly 60 billion of the total. And they are growing at a rate faster than national advertisers, this 20% versus that 17%. On top of that, the type of customer, the person pulling the lever for that purchase is changing too and changing in ways that matter. From a financing perspective. When you’re making transactions or making advertising purchases that are more than $50,000, 61% of those people making those transactions are millennials. Now, that’s probably terrifying for a lot of reasons. But I think to me, it means that those buyers expect and depend on the credit cards in a way that’s similar to their e-commerce experiences. But why does all this matter in terms of accepting credit cards in an E-invoice portal? American Express is not in the business of making economic predictions. We don’t have a crystal ball on what the economy is going to do. And even if there is a room somewhere back in New York that has that crystal ball, I definitely do not have access to that room.

[18:39] Griff Dudley:

But look, I think we can all agree that there are elements of economic uncertainty. Economic uncertainty is somewhat inevitable. And the advertising space suffers from economic uncertainty. Let’s take a look at the last time this was the case. So this is a graph from our buddies over at Moffett Nathanson. Moffett, Nathanson is an external research firm that covers the technology telecom and advertising space. And what this graph is essentially demonstrating is the percent of ad sales growth year over year. And these areas in gray, this is roughly the end of 2000 into 2001. This over here is the end of 2008 into 2009. And not surprisingly, advertising, sales growth reversed hockey sticks when there was a recession when there were times of economic uncertainty, but it’s not just that the sales growth declined. It’s that advertising was uniquely impacted by how bad the economy was. This graph instead of a year over year growth rate is ad spend as a percent of national GDP right back before 2000. It was about one and a half percent of 148 basis points. Fast-forwarding declined substantially in that first recession. And then from 2008 to 2009, it dropped all the way down to less than 100 basis points at about 99. And frankly, never recovered. It only got to about 103 basis points by the end of 2018. Now, why does this matter? Think about the first graph that we looked at, back in 2014, which is well beyond either of these small businesses did not make up the majority of the percentage in those digital channels. It was TV, it was out of the home. It was all the customers that had large transactions in traditional advertising channels.
Like many industries, the new norm in terms of growth is small business. Small businesses are now using those digital channels to make up more than 50% of the total. They are growing faster than the National Space. My concern is and what I’m working on with best in class suppliers right now is how do I use a credit card as a means to make my business more recession resilient? Because of look, when the majority of buyers were Ford and Pepsi and major blue-chip companies that are way more resilient to recessionary pressure and have extremely deep pockets and relationships with major international banks. This is what happened in terms of spend from a percentage perspective. What happens in times of economic uncertainty when the majority of the spend is driven by the super small corner shop that doesn’t have access to traditional banking that is not recession resilient? They depend on credit cards as a means for financing their business.

[21:56] Griff Dudley:

And that’s why E-invoice portal acceptance with a credit card isn’t just about how do I centralize my PCI compliance, or how do I drive efficiency in terms of data. It’s a strategy that best in class suppliers use to make their business more resilient, despite economic uncertainty. And those to me are the three reasons to enable credit. First, knowing that buyers depend on the credit cards as a form of payment. You want to open up that option so that they can make large on-time payments. Don’t limit what they can spend on, what’s in their checking account because they have to pay with a check or an ACH payment, but make that acceptance through an E-invoice portal, so that you can apply some controls on DSO, so you’re not eating an interchange rate you know 60 days after a payment is due. Put yourself in the driver’s seat to create value between buyer and supplier. The second is adoption. If you’re going to go through the effort, you’re going to go through the change management process of making this invoice portal process, a mission-critical part of how you bring your business into the 21st century.

Make sure you’ve got to go to market strategy. Because if you put in all that effort and customers don’t adopt that new technology, you’re going to be left with your brand spanking new process that some customers use, and you’re still managing the legacy process that the old customers use who are resistant to change their behavior. And that’s not going to drive efficiency, that’s going to create two separate bifurcated processes, use a credit card as a means to drive adoption of what you want customers to do. And the third and final piece that I’ll share is all about sustainable growth, use a credit card and open to buy and provide those buyers as a means to make your accounts receivables business more recession resilient. Those small businesses that make payments by cheque and ACH can only do so with the cash flow that they have in there, in their actual checking account. If you enable credit cards you enable that sustainable growth. So I know we have a couple of minutes left here today and I tried to cover a lot of territories. So I did want to use my remaining time to do a little bit of Q&A.

[24:05] Griff Dudley:

And again, I’ve got some of my colleagues in the audience so if we don’t have questions they’re happy to pitch me some softballs.

[24:15] Griff Dudley:

Yeah, sure. We got a mic coming I think to just make sure everybody can hear you.

[24:17] Questioner:

So rent could vary anywhere from 5000 to make $50,000 a month. We had tenants asking us about credit card, the one issue we’re facing is when they’re thinking of credit card they’re just thinking of the amount to pay is the amount of the lease, the rent and operations is not going to cover the cost because given the size of the rent, the amount of fairly costly, given the rate for the credit cards. So all I wanted to mention is, sports will begin something in the present and looking at people using your credit card is something a credit card company would look into. If it’s a very large amount such as rent to have a different maybe credit card companies could use instead of the regular percentage if it’s a $500 transaction.

[25:02] Griff Dudley:

And that’s good feedback. I’m sure many of those payments are super low in some cases low margin too so eating interchange on those large transactions is challenging. Right. And I think there’s a couple of ways that I would think about that. One is, there are a certain sort of payment schemes or pricing, whether it’s in terms of like level two data to enable a CPC discount rate that’s a little bit lower from like a Visa and MasterCard, I would look at what data, am I transacting between issuing banks and networks and myself to make sure that I’m optimizing my interchange rate in the first place. American Express also in certain industry categories where there is larger margin pressure, I’ve implemented certain discounts based on transaction size. So when you’re getting lower margin on those larger dollar transactions you’re ingesting at a lower interchange rate. I would also think too though, I will try to get outside of the thinking of, like, what’s the margin on an individual transaction, but more about what’s the customer lifetime value of my relationship with this customer. Now maybe there’s some inherent stickiness in rent, but I think in advertising and some of these other spaces, we’ve been able to say, “Okay, even if I’m eating an interchange rate on these particular transactions, a credit card is a means to extend the loyalty of that customer, so that I’ve got them on the hook for payments.” We did some research in the telecom space. Some of those churn rates between an Amex customer and an Amex payment are sometimes half of the national average and use a tool to increase customer lifetime value, instead of just the individual payment. But that feedback is well taken.

[26:34] Questioner:

Yeah, because if it’s specialty leasing, for example, it’s a very small amount and we didn’t take a credit card on the side but for the larger ones that they’re looking for, that’s what I wanted to write.

[26:45] Griff Dudley:

And I think the good news about any invoice portal is that if you’re going to establish a policy about how you accept that credit card payments, at least in the invoice portals give you a centralized place to make that decision. It’s not up to the manual process of communicating that policy to all these different teams that are making payments by phone or by mail, credit card invoicing portals is the way to sort of applying that control from that first piece we talked about. That’s a great question. Thanks.

[27:10] Griff Dudley:

I think I have time for one more.

[27:14] Questioner:

Have you found any regional or cultural challenges and acceptance of this method of transacting business in Asia, Europe, different parts of the world, have you found acceptance challenges and implementation challenges in different parts of the world.

[27:34] Griff Dudley:

Yeah, I think the United States is a place where a lot of buyers have come to depend on the credit card. I think in Europe, there’s a lot more sort of, and we talked about this in a session earlier. There are a lot more options out there for how buyers sort of finance and manage their payables business, which means that I don’t think credit has been as ubiquitous in those spaces. I think Latin America is a place where a credit card is playing a larger emerging role in driving larger sales. It’s especially true with my original equipment manufacturers. They want to drive sales in Latin America and there are not necessarily the same credit score or customer evaluation processes you have in like Europe or the United States and credit card sort of serves as that underwriting tool. But I would love to put you in touch with some of the folks that we have in our sort of sister team of B2B development because that international process is something we’re focused on, I’d love to trade contact information we can take that offline right now. Thank you. Leave me my card. Awesome. Thank you.

[28:31] Griff Dudley:

Okay, I think we’re all out of time but the beautiful pieces are that you now know where I live. So come and ask me questions, there’s a lot of Amex people here in the audience as well and we’re more than happy to help you with any questions so I appreciate the time today guys. Thank you very much.