What Key’s fintech investments say about commercial payments

Commercial payments are an area overdue for innovation, one where it's frustratingly hard to break old habits. KeyCorp is one of a handful of banks that have spotted the opportunity.

Last week the Cleveland-based bank announced it had taken an equity stake in the fintech firm Billtrust, which provides digitized and automated accounts receivable capabilities for companies. The investment is one of a series the $134 billion-asset Key has made in the space in the last two years.

“Accounts receivable is a big pain point for many of our clients; they want less paper-based processes and more automation,” said Matt Miller, head of product innovation for Key’s commercial and enterprise payments division. To soothe that pain, Billtrust will power the bank’s new KeyTotal AR service, designed to give corporate clients improved operational efficiency and cloud-based digital invoicing and payments capability.

Other banks are also making an effort to enhance commercial payments capabilities. Wells Fargo, for example, in June announced that receipt imaging would be available for commercial card customers who use the bank’s commercial card expense reporting service, which allows them to upload and manage receipts directly on mobile devices. U.S. Bank also began offering corporate clients a virtual payments service, for employees who need to make a one-off work-related payment or who make purchases rarely enough that they don't need a physical plastic corporate card.

“Over the last couple of years, I’m having more conversations [with bank executives] about commercial payments than the previous ten years combined,” said Peter Olynick, senior practice lead for retail banking at NTT Data Consulting. “It’s a big focus for banks. Key seems to be a bit more aggressive than most in ramping up their solution set, but it’s something everybody is thinking about now.”

Key is hoping that B-to-B payment solutions will make it stand out in the competitive landscape of commercial banking. Business customers are demanding technology that's as good as what they use in their personal lives.

“Commercial clients are increasingly expecting innovative technology capabilities from their bank,” Miller said. “We listen to them and get feedback from them on what their pain points are and try to solve those.”

Billtrust’s technology solves several problem areas corporate clients have with accounts receivable, he said. For one, it offers a standardized, digital invoice template. This is helpful because many companies, through acquisitions or expansion, “can have 50 different invoice templates,” Miller said. “There’s often a lot of different systems bolted together.”

The Billtrust technology also uses machine learning to automate much of the repetitive work associated with cash application so businesses can focus on the few exceptions that need human analysis, Miller said.

Building such a solution “would take a lot of time and be a big tech project” for a company to do itself, he said.

Technological advancements on the retail side of the business have opened the eyes of commercial clients, Olynick said.

“Consumer payments innovation has been going on for several years now,” he said. “A corporate treasurer uses this [technology] in their daily lives; they’re consumers too and they’re saying, Why can’t we have this on the commercial side? Banks’ commercial clients are really starting to become insightful users of the art of the possible.”

Olynick said he expects more banks to follow Key’s lead, if they haven’t already.

“Frankly, if you are not doing anything in commercial payments you are falling behind,” he said.

The partnerships with Billtrust and other companies in this space are born of a careful scouring of the market, Miller said.

“We’re not rushing into [partnerships] for the sake of it,” he said. Accounts receivable “has been on our radar for a while, and we’ve been patiently trying to find the right partner. We look for a quality management team that has a good plan for where they’re taking the company.”

In 2015 the bank announced a partnership with Aptexx, which provides software enabling property management companies to accept mobile and digital payments. That same year, it invested in Philadelphia-based InstaMed, a health care payments provider, and Charlotte, N.C.-based AvidXchange, whose software digitizes paper accounts payable documents.

Investing in fintechs like Billtrust “is part of our road map for years to come,” Miller said.

In general, the industry can expect to see more bank-fintech acquisitions and partnerships, according to an investor’s note Monday from Keefe, Bruyette & Woods.

“We expect that bank M&A will shift over time to bank/fintech M&A with the largest banks looking to acquire successful fintech firms,” the firm writes. “This will be pushed by the limitations on bank acquisitions by the largest banks, and by the need of fintech firms to partner with banks to expand their operations. While regulators are looking at a new fintech bank charter, we expect that to be limited in scope.”

Terms of Key’s deal with Billtrust were not disclosed, except that Key has an observer’s seat on Billtrust’s board. The partnership is Billtrust’s first with a bank.

In general, many companies are now looking to AR automation to replace what have long been manual, paper-based and time-intensive efforts, said Flint Lane, CEO and founder of Billtrust.

“Automating your AR processes is one of the simplest ways a business can reclaim operational costs, improve efficiency and accelerate cash flow,” Lane said.