Now, without further delay, let’s begin today’s event, once again, titled, “Leveraging Embedded Finance to Maximize Experiences for Your Teams and Your Customers.” I’d like to introduce you to Bob May, Senior Vice President, Digital Channels Product Team. Bob, the floor is yours.
Thank you very much, and thank you to everybody who’s joined us today in taking the time to listen in to this – what we think is a very valuable topic and one that we’re really passionate about here at PNC.
My name is Bob May, and I head up our Embedded Finance Product team here. I have with me today a number of speakers that are going to bring this topic to life for us. First off, Dave Enick, and Dave is from our Treasury Solutions Group. He’s a team leader over there. We’re also lucky to have two customers of PNC with us today. One is Stephen Kincaid, he’s a Vice President and Assistant Treasurer at Walker & Dunlop. And also Scott Schnars is with us, and Scott is a Vice President in the treasury area at Erie Insurance. And so we’re really excited to have them bring to life their experiences with embedded finance today also.
So what are we going to cover today? Well, we want to make sure we have a shared understanding of this embedded finance industry landscape that’s out there, and the opportunity that we think exists. So we’ll go over a little bit about the definition there, the market opportunity, and how folks are leveraging that today to transition into how we’re creating great experiences for clients with embedded finance. So we’ll use some examples around how we can create great custom experiences there, and we’ll have Scott talk about how Erie has done that.
And then we’ll talk a little bit about how embedded finance can help you transform your treasury functions, leading to increased operational efficiencies, with the concept of connectors. And we’ll have Stephen help us through how Walker & Dunlop has accomplished some efficiencies there.
So, as we start into this today, before we talk about embedded finance, I want to talk about something that is really driving trends here. And it’s the fact that customers and employees are demanding more of us. They’re demanding integrated, connected experiences, and that is driven by the thing I’m trying to find here, my phone, right. It’s driven by the interfaces that we have that are – that have so many of the different apps and experiences connected together for us on a daily basis.
And 88% of customers expect companies are accelerating their digital initiatives, and that’s really putting a lot of pressure on companies today. Obviously, the COVID-19 pandemic caused us to all have to accelerate different initiatives that may have been planned out for years, that they have – we had to bring them in and get those experiences up and running in months so we could talk and communicate, and transact with our clients. And so at this point, a lot of folks have built things that will need further iteration as time goes on, also.
And so to that end, CEOs are worried – and 80% of CEOs in a Mackenzie study are worried – about disruption in their business today. And so to that end, we’re also look – we see a study out there from Amplify that says that 86% of customers will leave a company after two poor client experiences. So you can see how important these cohesive digital client experiences are for customers today, and they will cause your customers to leave and go and find somebody who is offering those types of experiences.
When we come over to the employee side of the equation, employees are the customers of the company, right. In a Harvard Business Review study, 66% of organizations that make employee experience a high priority see a positive impact on their profitability. So obviously, with the war for talent right now that we’re having, it’s important that we’re making things easy for our customers and having these interconnected experiences.
And again, what’s driving all of this is as we think about our consumer lives, we have experiences that are friction-free. They’re personalized to us, and they’re powered by data, all within the palm of our hands. And so, some examples – and even with our smart watches today, all of our music is available to us. Recommendations on what to listen to, all available friction-free. There’s no CDs to pull out, there’s no – now we’re not even worried about, did we purchase this or not, because we’ve got music services that aggregate it and give all of it to us today.
We have experiences – an example is when we’re working with our pharmacy. We might get a text that says, hey, it’s time for your flu shot. And it’s recommended a time for that flu shot, it’s filled out the forms that are necessary for that flu shot. Removing all of that friction, and so now I just need to walk in and actually get that flu shot into my arm.
So, those types of experiences in our consumer lives, again, are driving what we expect from the business side. And so what do we expect there? We expect to issue a purchase order, and then understand, when is that good going to be delivered? And where is it in the supply chain? And then when it comes in, you know, where’s the invoice? How are we matching that to the purchase order? How are we ensuring that payment is getting made? How are we checking the status of that payment and reconciling it all in our systems? And again, we expect that all just to happen, right? In today’s complex business processes, that doesn’t always seem to be the case.
So that’s where the promise of things like embedded finance comes in. Embedded finance connects and causes that connective tissue to be in place. And so a definition that we like to use is, embedded finance refers to the integration of financial services such as banking, payments processing, and lending into non-financial digital experiences with the goal of streamlining processes and placing banking services directly where they’re needed. So, no longer are we going to a financial website or to a bank to make the payment, right. It’s being made in-app. When we’re ordering our groceries, the Instacart experience allows for us to have a payment on file, a tip to be made. It removes all of that friction around the payment side of that equation today, right. So that’s an example of an embedded functionality.
And then when we think about who’s offering this stuff, so obviously, it’s the tech companies that are out there. But you don’t have to be a tech company. We’re seeing a lot of our customers figuring out how to leverage the capabilities we have to offer embedded finance offerings. We’ve seen things like a healthcare staffing company figure out ways to push incentive payments to their employees, to take shifts that are needed in different healthcare settings. So again, there’s so many different ways that we can think about embedding this stuff into experiences that are out there, and again, you don’t have to be a fintech. And the capabilities that are being offered for embedded finance today offer those types of things for you.
So when we look at the market opportunity, it is very large. And this is from a Lightyear Capital study that basically shows that the market is expanding 10X from 2020 to 2025. And payments are really driving that, so a $230 billion market overall for embedded finance. But the payment side of that is about $141 billion by 2025. And there’s different aspects of the market, like wealth management and consumer lending and insurance. All of these things, again, contextual in the flows of what we’re trying to do with our clients, but payments really driving the way there. So what’s critical for folks is to have a strategy for embedded finance, and we’re finding today that a lot of companies still haven’t figured that out. In fact, 84% of companies realize that financial services are an important part of their strategic plan, but less than 50% of companies have figured out how to build any kind of embedded offerings or leverage those financial services into what they’re trying to accomplish with their customers. So that’s where the opportunity really does exist to take advantage of the market that’s out there.
And what’s driving the market? What are some of the enablers that are out there pushing this forward? So the financial institutions like PNC, for example, are seeing this market, seeing these drivers around demand for the integrated experiences. You know, that’s rather obvious today that that frictionless experience that consumers expect is pervasive today in the environment.
The rise of openness – and what I mean by that is, there’s regulation in Europe with PSD2 that’s pushing on open banking, and those regulations and the open banking push has pushed into the US as far as market-driven approaches to open up capabilities beyond the bank. And part of that is due to the fintech threat, where fintechs are finding again, niches of the market where they say, hey, the experience isn’t good here; we could create a better experience maybe for this piece of the market. And they need the banks to help them with that because in a lot of cases, they’re not going to become a bank. They don’t want to take on that overhead so that’s driving some of the capabilities the banks are offering, and partnering them with these fintechs also. It’s all driving new revenue models for financial institutions and also can drive new revenue models for companies out there that leverage this.
And it’s also built upon the new technology that’s now available. Banks are modernizing their technology stack so that they can offer capabilities to be extended out to companies and platforms, and that’s being driven, again, by a lot of the embedded finance market that we’re seeing.
And finally, there’s this growing trust in other financial companies, right. Folks are doing things in apps that they traditionally may have gone to their bank’s online portal or online platform to do, but now they’re comfortable entering their banking credentials, their account number, their routing number, into other apps. This is, again, driving some of these experiences because those things aren’t thought about as risky anymore, because they’re connecting into these frictionless flows for people. And that’s even more important than anything else to them.
So where do I start, if I’m interested in thinking about embedded finance? I would argue there’s two questions that you need to ask: what do my customers want from me; and how can financial services start to remove friction points around that experience, right? Do they want an immediate payout instead of mailing a check or even creating an ACH to them? Those are the types of the questions that you need to ask as far as, you know, where can you gain a competitive foothold in the marketplace where your company competes? And there’s all kinds of digital platforms where we can integrate these embedded experiences like e-commerce and cloud-based accounting, and buy-now, pay-later solutions, and lending solutions. All of these things, all of these platforms are places where embedded finance applications can help. But it’s also, you know, we have seen customers think about custom applications they’ve built themselves, where they can figure out, hey, if I build in a payment aspect to this or I can digitize taking a check here. I remove friction from a client and make the transaction easier, leading to better experiences and better loyalty, essentially, for those particular customers working with that organization.
So, when you think about how your bank and your financial institution can help with the challenge of building embedded finance capabilities, financial institutions usually have sort of a two-pronged approach. So the approach that we think about is, first API. So we hear a lot about APIs. Well, what are APIs? Essentially, they’re pieces of code that let systems talk to each other. They simplify that transaction flow where if I’m submitting something through a payments API, I might have five data elements that are necessary to make that payment. I know what those are. They come in a standard format. I submit them. I then receive a response back from that API that tells me, hey, that was successful. Maybe here’s a transaction routing – or a transaction tracking number for that payment, etc.
But it makes these transactions easy and smaller and more bite-sized, to make these connections between systems. So it really facilitates the creation of these custom solutions that our customers can then create within their own apps and their own environments. And that’s really what the API toolkit allows for. I like to think of them as different building blocks, because we have capabilities across receivables and payables, and account verification services, and transaction imbalance reporting. And all of these can be stitched together to create unique solutions that you can then offer out to your customers.
When it comes to providing benefit internally, and in your treasury operations, for example, connectors are another way to go. And financial institutions are building connectors into ERPs and treasury workstations, and accounting systems. And also, industry-specific software to solve industry-specific solutions, and the connectors are all about creating essentially what is a drop-in – I like to think about it also as kind of like an app. Like, you can go to an app store, and maybe your financial institution has an app that allows you to do a certain set of functions, like payments and reporting, right there within your platform. Again, taking away that need to go to the bank’s online system because it’s right there in your ERP or your treasury workstation where you work every day.
And also, the promise of this is easy integration. These plugins are much simpler to set up than some of the other integration methods we’ve used in the past, like file transfers.
So, I’m going to turn it over now to Dave, and Dave’s going to talk about how we bring this home into actually creating these great customer experiences, and some more examples about how customers have been able to leverage, again, that API toolkit to do that.
All right. Thank you, Bob. So, just sort of a high-level explanation of what APIs are, but let’s dive a little bit deeper into defining APIs, talking about the benefits of APIs. And then we can walk through some specific use cases of how you can use bank APIs to transform your customer’s experiences.
So first, API is an acronym for Application Programming Interface. Bob briefly described this, but it’s basically a software interface or connection that allows two applications or computers to talk to each other. APIs aren’t necessarily intended to be used directly by an end person or and user of a user interface, whether that’s a website or an app. Instead, APIs can be incorporated into a user interface behind the scenes.
So, for example, each time you use an app on your phone to check social media, check the weather, or even navigate during the trip, APIs are being used in the background to facilitate the connection and data exchange between multiple applications needed to provide you the experience or interface you need to see within those apps.
So, let’s talk a little bit about the benefits. Number one, they’re highly reliable. Once an API is exposed or published by an organization, it’s available for many to integrate with versus having to build a new integration for every client that wants to connect via APIs which can accelerate your ability to actually integrate and take advantage of these types of services.
They’re built on open standards, meaning they can be programmed in your preferred development tools which allows for greater interoperability across various systems. APIs also have clear specifications. API specification documentation provides a framework for cleared inputs and outputs, which can allow your developers to efficiently code to different scenarios. A key benefit of this is really having predictable outcomes. One of the things that is documented very well with API specifications is not only the API calls, but specifically the responses that are returned, which allows – and that predictability essentially allows for a programmatic approach by developers to make the systems handle those responses in different ways.
A simple example: if an API call was sent to check the status of a specific payment, each of those potential responses that are provided in that API response would be known, and that developer can essentially plan for and code to how each response will be handled within that user interface or application. These are really some of the benefits, or key reasons, why over 80% of companies consider APIs to be a critical part of their business strategy.
So next, we want to talk about some example use cases. So in contrast to an API that connects applications or computers, a user interface connects a computer to a person. So let’s talk through some examples of how APIs can be used behind the scenes for that user interface, and let’s talk through a specific example like a customer payment platform.
So, picture a payment platform that your customers are logging into where they want to be able to make payments. So, part of that is creating an experience for them to be able to store their payment methods and then for them to subsequently be able to initiate payments against those payment methods. Via APIs, you can control and maintain that user interface, as well as that user experience, and leverage APIs to facilitate making those services available to your customers.
So, for example, if we start in the middle we can talk about the concept of an electronic wallet, or a bi-directional wallet, meaning that this wallet can be used to store payment instructions to facilitate both incoming as well as potentially outgoing payments. So if you think about it from a customer experience perspective, a customer logs into your payment platform. They click a button that says, you know, I want to store my payment method. And then when they go to enter that payment information, APIs can also be used to verify their bank account information, if that is what they’re storing.
And as an example, that can help reduce risk associated with improper information being added, but it can also be used to authenticate the ownership of that bank account to make sure it’s not a fraudulent bank account that’s being stored by a customer.
APIs can also be used for a second and probably more important aspect of storing payment instructions, and it’s allowing your bank to securely store not only bank account details, but even credit card or debit card details. Through APIs, we can facilitate basically the collection, storage, and subsequent tokenization of those payment details so that while the bank is storing the information you don’t necessarily want to store in your system, you’re provided with a token. And that token can then subsequently be used to initiate payments against.
So as we move towards the bottom of the slide, we’ll talk a little bit about incoming and outgoing payments. Utilizing that token, whether a customer wants to initiate a payment right after they store their payment method, or at a later point in time, that token can be used to facilitate incoming payments which could come in the form of an ACH debit, credit or debit cards, or even PayPal.
On the outgoing payment side, those same tokens could potentially be used to initiate ACH credits back to your customers, real-time payments. Can leverage that same debit card information to push funds back to their debit card. It could also facilitate payments via wire, Zelle, or PayPal as well.
If utilizing APIs sound like something that’s interesting to you, and you want to explore it further, getting started can be rather easy as many banks offer external-facing API developer portals where you can do a number of different things.
So, for example, one of the main things that you can do is you can explore what products are actually available. As you can see on the screen, this is an example of listing different products that are available, what the brief overview or description of those products, or the subsequent ability to actually drive into the details, where you can see everything that you need as a programmer or as a business to understand what that product is, how that API works, and enable you to move to the next step. So, once the potential APIs that are applicable have been identified, you can then leverage these portals for a number of other things. Number one, you can potentially connect to them. You can build apps within them. And in a sandbox or playground environment, you can actually test API calls and view responses associated with those APIs.
Once you’re ready to move into a production environment, you can typically take everything that’s been built, transition that into production, and launch your apps right from there. Now, this of course assumes that you’ve already worked with your bank to open necessary bank accounts or set up their respective services as applicable.
So in summary, the developer portal allows you to learn about, test, deploy your solutions, using APIs.
And what we’re going to do next, is we’re going to hear from Scott Schnars from Erie Insurance so he can talk about how they leverage the APIs to transform their customer experiences. So with that, I’m going to turn it over to you, Scott.
Thanks, Dave. Appreciate the introduction.
Hello. My name is Scott Schnars, and I’m a Vice President of Treasury at Erie Insurance. First, I’d like to thank PNC bank for allowing me to be here today and to share a portion of our payments journey with you.
To provide a little background, Erie Insurance is a property and casualty insurance company which serves 13 states plus the District of Columbia. In 2021, Erie had close to $8 billion in direct written premium.
One of the primary obligations of an insurance company like ours is to reimburse our policy holders for their losses, and of course, to pay our vendor partners for services provided. A few years ago, we knew we wanted to move away from paper check disbursements as our primary settlement mechanism and we were in search of other electronic payment solutions. To achieve this goal, our treasury and sourcing and lender management teams were tasked with completing an RFP to our banking partners to identify technology enhancements to bring to our organization. And today, I’m happy to share our experience partnering with PNC on embedded finance solutions which have benefited our business.
There are two current use cases that I’m going to address today. The first is our use of the Zelle Lookup API to validate the social token provided by a claimant to ensure it is part of the Zelle network prior to issuing a payment.
And the second use case that I'll share with you is that of the account verification service functionality, which allows us to verify and validate bank account routing numbers and account ownership prior to issuing an ACH payment. Both of these solutions have enhanced the experience of not only our customers, but our employees as well.
First off, the challenge with Zelle, social tokens that we are receiving from our customers didn’t always correlate to an active, valid bank account on the other side of that transaction. We were seeing a 60% to 70% success rate, and obviously that caused some rework that was needed, some extra time and effort from our internal staff to reach back out to the customer, understand what went wrong in that transaction, and then of course customer experienced suffered because we were not able to complete that transaction as desired by the claimant.
The last bullet there, under “challenge,” really speaks to the second tool on the account validation of wanting to eliminate the need for pre-notes, account validation, and the cycle time and the cost involved in that. When we looked and moved the solutions, we were able to work with PNC and they exposed a Zelle API lookup to us that provided immediate feedback on bank accounts and enrollment status for clients. This helped tremendously. Our experience, as you can see down below, went from 60% to 70%, to 95% as soon as we implemented the tool. The other 5% were not due to bad email addresses; they were probably due to other factors. So, very pleased with the actual performance of the tool, and again, allows us to validate those in real-time, often with a client on the phone. We do use a call center approach for some of these things, but there’s also other functionality where the APIs can be integrated directly with a mobile app that your business might have as explained on some of the previous slides.
As far as the process we went through, we really went through a process with PNC after that initial RFP just like any other project, to lay out our requirements, our goals, what our expectations were. The team was great in coming in working with us, really trying to understand what those customer satisfaction points are that we were trying to achieve. And they offered that Zelle lookup API to solve this issue.
Once that Zelle API was exposed to Erie, Dave spoke about the developer portal on the previous slide. That developer portal gave our team everything they needed to understand the APIs, use the APIs, code them to our needs, and then go through a testing process with PNC’s assistance and then roll it out to production.
So, in both cases, I would say it was a matter of weeks from desired functionality until we rolled it out into production and have been very pleased with the service ever since.
What’s next for Erie? So again, on a previous chart, talked about tokenization, account tokenizations and multi-directional wallets. We believe that that is a part of our roadmap, a very important part of our roadmap going forward, and that that type of service will produce capabilities and functionality that will be very beneficial to our customers and our internal stakeholders.
We feel these solutions have directly addressed the questions which was posed a few slides back. This is, what the customers want, and how can financial services help remove that friction? For us, what they wanted was reliable electronic payments, and partnering with PNC allowed us to deliver upon that request.
Thanks for the time today.
Thank you, Scott. I appreciate you spending time walking through that overview and enabling clients out there to hear directly how you’re able to deploy that within your organization. So, while the API discussion today so far has really been focused on transforming customer experiences, as Bob mentioned a little bit earlier, APIs can also be leveraged internally within your own applications to transform other treasury and payment-related processes. So what I want to do next, is talk through a little bit more detail, in more detail, around some of the topics on the screen that Bob introduced a little bit earlier.
So the first is receivables. From a receivables perspective, I’m going to walk through this overview as well as some of these other topics and just give you a different perspective in how APIs can be leveraged in different environments. So the first one we’re going to talk about is billing. So if you’re leveraging, for example, a bank-hosted electronic bill presentment and payment portal, APIs can be leveraged to pull in invoice data that’s actually needed to generate PDF bills or system-generated bills that can be presented to customers. And that data can be pulled directly from an ERP system or your billing application.
As another example, if you generated your own PDFs, APIs could be used to pull those exact PDFs directly into a bill presentment application so that the customers can see the exact same thing that you might otherwise be emailing or mailing to a customer.
We’ve already slightly addressed the payment capture options there, but I'll just reiterate a couple key points, here. From a payment capture perspective, on the receivables side, not only can you leverage APIs to initiate ACH debits, credit/debit card payments, leverage PayPal to collect funds, but if you wanted to build your own application to receive, deposit and image checks, you could leverage APIs for something like that as well.
From a payables perspective, if you’re leveraging your bank to centralize the collection of your invoices, to image and capture data off of those invoices which ultimately reduces any manual imaging and data entry on your side, APIs can also be leveraged to pull those invoice images and that invoice data directly into your ERP or your invoice approval workflow solution for subsequent general ledger coding and approvals.
Similar to the receivables side, APIs can also be leveraged to initiate payments, to pay for those very same invoices. And there’s a number of different payment methods that could include ACH credits; wire, could be US or international wires; you can leverage real-time payment credits; virtual credit card payments; leverage the same debit card on the receivables side to push funds directly to customers; and also Zelle as Scott just talked about; leverage PayPal; and even as something as simple as check issue and print outsourcing.
From a verification perspective, as I spoke about earlier, APIs can be used for a number of functions during the customer or payee onboarding process to do things such as just looking up a bank routing number. They can be used to verify a bank account number. They can be used to authenticate ownership of that bank account. Like Scott highlighted, if making a payment with Zelle, being able to do that registration status lookup to make sure that they actually are registered before trying to initiate a payment. And lastly, the ability to verify if a credit or debit card is valid maybe before storing it or initiating a payment.
APIs can also be leveraged to do things like verifying not only the account information that we just talked about, but also verifying your customers or payees to make sure that they are who they say they are before they even get to the point of providing payment instructions.
Electronic wallets, or e-wallets, can typically bring these services together including the ability to also tokenize that account information so that you don’t have to store it in your system.
And lastly, from our reporting perspective, companies have been using APIs to access bank reporting and pull information directly into their applications. For things such as listings of bank accounts, viewing account balance details, viewing account transactions, payment statuses and even retrieving clear check images. All of these things can be utilized within your own environment, enabling you to create your own embedded finance environment.
So in summary, APIs allow clients to create customer experiences for their teams and customers.
Next, I’m going to transition back to Bob and he’s going to take you through a little bit more detail in how connectors can be leveraged to accomplish similar objectives. So with that, Bob, I will pass it back to you.
Thanks, Dave. So as we promised, we also want to talk about how this technology can help with your treasury functions, creating operational efficiencies. And so we’ve heard a lot about the APIs and how we can use those APIs to create more custom capabilities, but the other aspect here is we can also leverage platform connectors. And when I talk about platform connectors, I’m talking about utilizing things that integrate into the systems that you’re using, so back to talking about ERPs and treasury workstations and things like that that you’re using within your treasury organization.
So, today what’s driving the trends there? Well, ERPs are increasingly moving to the cloud, right. So back in 2009, about 20% were in the cloud. Now, estimates are that 60% to 80% of clients are now selecting cloud ERPs and the legacy base is on ERPs that are on-premise, is less than 50% now. So every year, more and more folks are moving to the cloud.
Cloud-based ERPs and software work well with this connection functionality. And again, as I said earlier, I like to think about the connectors as essentially a plugin or an app that you can place into your ERP. And with that, it’s a reusable integration, so it’s offering a defined set of functions. One example is different types of payment capabilities, balances, transaction reporting, all leading to reconciliation capabilities within your platforms. All of that, you know, creating more of those contextual places to find this information instead or – work with this information instead of having to go into the bank’s online experience. Connectors are quick and easy to implement and truly, we have seen them implemented within days.
How is that different than an API? It could use API technology in the background. It could use file technology in the background. But all of that complication kind of goes away, because it’s just – it’s just the implementation of that connector instead of having to worry about the code that’s happening in the API or the transaction information in those files.
So just a deeper look here, connectors can offer ways to manage your payment methods, that they’re selected to different vendors. Also, submit and track payments right from the connectors, and all of the payment types that you think about are available to do this type of stuff. See real-time balances, and transactions, and also take all of that information and allow for easy reconciliation. The integration, I should say, of these things, again, easier. File transfer integrations, which are really the way a lot of this stuff has been done in the past, could take weeks to months. We have seen clients take these connectors into their test environment or sandbox or implement them within days. No need for understanding file formats and establishing connections for transmissions and network connections and things like that. It’s all embedded in the connectors, so it really is minimal technical resources to deploy and we can add additional capability to these connectors when it becomes available easily. And you can leverage those.
So to that end, just showing you quickly what that experience looks like. Example within NetSuite, you would have your invoices. You’d be able to choose a dropdown on different payment methods that you would like to choose here on the right side of the screen. Once you do that, you push the button and those payments come over to your financial institution.
Balance reporting is real-time by real-time APIs, again, happening in the background of these connectors that are pulling in current-day position balances right there within your ERP, and then also broader transaction pulling for all of your transaction data that can be then reconciled back to your general ledger.
So, thinking a little bit about how this type of technology can be leveraged, I want to have Stephen talk about what Walker & Dunlop did to automate processes with one of our connectors for NetSuite.
Thank you, Bob, and thank you for allowing me to share our experience in implementing one of PNC’s embedded finance solutions.
My name is Stephen Kincaid, and I’m the Vice President and assistant Treasurer here at Walker & Dunlop. Walker & Dunlop specializes in providing customized financing solutions to owners and operators of commercial real estate properties across the United States. Today, we are the largest provider of capital to the multi-family industry in the country, and the fourth largest lender of all commercial real estate including industrial, office, retail, and hospitality.
Walker & Dunlop just recently implemented a new invoice software solution to process our expense reports and invoices. We also utilized a third-party payment processor to process digital payments, such as ACH and V-cards. However, we still needed a solution to process checks.
Prior to this implementation, we were utilizing another third-party processor to process our checks. Our old solution involved us sending a flat file via SFTP from our ERP that had all payments on it, and that system would parse out the payments into ACH, V-card, and check. We’d go through various screens and multiple clicks to process those payments. The next day, we then had to log back into that solution and download reports, and then upload those reports into both our ERP and TMS.
Now that we are moving to our new AP solution, that option for processing would no longer be viable, as our new payment processor doesn’t offer the option to print physical checks. We didn’t want to bring check processing back in-house. Enter PNC’s Pinnacle Connect.
Pinnacle Connect was an excellent solution as it interfaces with our new ERP, NetSuite. Within the Pinnacle Connect application in NetSuite, we call the approved invoices from AP solution and then select the invoices we’d like to pay via check, and click a button to send to PNC Integrated Payables.
PNC Integrated Payables then prints the checks, sends the positive pay file to ERP, and then sends a message back to NetSuite showing the check number and the status, such as, did the check process successfully or was there an issue.
The next step is that I receive an email from PNC stating the integrated payables has received the file. I then log into Pinnacle to approve the file in the integrated payables module.
Pinnacle Connect also offers other payment methods such as ACH and wire; however, we are only utilizing check. You can also check your balances by doing a call to Pinnacle Information Reporting. But since we utilize its EMS, we are not using that balance option.
PNC provided information to us and we logged into NetSuite to install the self-guided plugin. From there, I signed paperwork with PNC and they began the setup on the back end, including the creation of sender IDs, as you need one sender ID per bank account.
We met weekly for updates and then began initial testing, followed by end-to-end testing in our sandbox environment. We did run into a few issues with testing, where the invoices wouldn’t show up in NetSuite. But in working with PNC, we discovered the issue was a result of us not yet doing the end-to-end testing.
When you click the invoice to pay, if you’re not set up to do the end-to-end testing, the invoice basically gets stuck in queue and needs to be released before you can proceed with additional testing.
We had a few issues when moving to production, but again, we worked with PNC to resolve, and then we were live. The process was seamless overall, but again, there’s always a few issues, as no implementation is ever truly easy and perfect. I will mention that as a backup, as it’s always good to have a backup, we have additional sender IDs in the Pinnacle Integrated Payables module that we can upload our file there if needed. Just to let you know, we haven’t needed this backup plan yet, but again, it’s there if we need it.
Thank you for your time today and for listening to my experience with Pinnacle Connect.
Thank you for that, Stephen. Appreciate that overview and it’s great to hear a real-life example of how a connector was able to quickly integrate and give you access to capabilities you needed right within NetSuite. And also, thanks for sharing your honest feedback on how that went. You’re right, not every implementation is always 100% seamless. But hopefully, the quick integration enabled you to stand that up a lot quicker than setting up a file transmission, for example.
So, something that we want to wrap up with is talking about whether there’s an opportunity to reduce processing costs when you’re actually utilizing connectors. So based on an IOFM study, if we look at the average processing cost per payment in a non-automated processing environment of $3.78 versus an automated environment of $2.62, there may be a potential payment automation savings of $1.16 per payment. So just as a simple example of what this can translate into, if you were to initiate 10,000 payments a year, that could potentially result in savings of $11,600 or 30% over the current costs.
While that’s a high-level example, I want to walk through another way to look at this, which could be focused on the potential savings based on the value of taking advantage of new payment methods and outsourcing others. So, based on the 2022 AFP Payments Cost Benchmarking Survey, if we estimate that the cost to print a check in-house is about $3.00 versus maybe an estimated cost of $1.75 to outsource the printing and mailing of your checks, like Walker & Dunlop took advantage of, you could potentially save $1.25 per check.
So in a quick example, if you were to cut 5,000 checks per year, that could result in a potential savings of about $6,000 or 41% improvement over your current costs.
I want to look at another example. Let’s say that through the connector this enabled you to take advantage of paying vendors with a virtual credit card. Based on paying one vendor $5,000 at a conservative rebate of 1%, you could actually generate a positive return of $50 plus $3.00 that would be eliminated by essentially converting that vendor from a check to a virtual card payment.
So, a quick example here. If we assume that we’re saving $53 per payment, and we assume that we could make 200 payments per year, that could potentially result in a savings of over $10,000 or an improvement of over 1700% compared to the cost of sending those same 200 payments via check.
So while these are just meant to be examples, hopefully this gives you a few ideas on how to think about potential benefits or savings related to leveraging connectors within your organization.
So, as we wrap up, I want to recap a few final thoughts from the presentation today. The market potential for embedded finance opportunities is enormous. As Bob talked about, Lightyear Capital estimates that the embedded finance market will reach just under $230 billion in terms of new revenue volume by 2025 in the US versus $22.5 billion in 2020, which is essentially an increase of over 900%.
This growing trend, as Bob mentioned earlier as well, is not only being pursued by large technology companies or financial institutions. Companies of all sizes now have the opportunity to incorporate embedded financial experiences within their environments. These have the potential to attract new customers, retain existing customers, and could even help offer opportunities for additional revenue streams.
And lastly, embedded finance can also help improve operational efficiencies internally, helping organizations better manage their working capital position; eliminate non-value-added steps in daily financial activities; as well as enable you to take advantage of new capabilities in the market as they become available, all within your existing ERP, treasury management system, or accounting software.
So in closing, we recommend speaking to your banking provider about how they can assist you as you embark on your digital transformation journey and how embedded finance can potentially add value to your organization.
I want to close out by thanking each of the presenters today, Bob, Scott and Stephen, and thank you for listening in to our session.