XTRM White Paper

1. AR/AP Providers
Look to Payments
for New
Revenue
White Paper

3. 23
AR/AP Providers Look to
Payments for New Revenue
If you’re using an AP automation solution or, better yet, if you’re an AP automation software
maker or service provider, then you know the massive amounts of data involved in payables
transactions and the burdensome administrative tasks that can suck resources and invite
opportunities for error. And you’re also aware of the tremendous cost and time savings that
result from implementing AP automation.
But did you know that for most companies there are more opportunities for cost-saving
by taking the primary external output of your work – the Payments file – and using APIs to
address how that file renders payments to individuals and/or companies, globally?
First, a bit of generalizations about the functional aspects of most AP automation tools as a
foundation for the discussion about Payment files. I apologize in advance to AR/AP software
makers if I’ve overlooked a key competitive differentiator that sets your solution apart from
others or for any gross simplifications made in the interest of brevity.
Generally, AP automation is about managing all the details and forms involved in all the
phases of the invoice process, improving visibility for each stakeholder to make it easier and
less costly for companies to manage their invoices: Processing, Verification, Authorization and
Payments, most often by creating a payments file to be used to execute the actual payment.
This paper is focused on Payments, the phase where many AP automation processes end
with the creation of a Payments file. The next step of actually fulfilling Payments via cash
check, ACH or wire transfer, depositing to a single-use or reloadable prepaid card or other
means is both easily embedded or integrated into the AR/AP automation workflows and
an opportunity to reduce costs for nearly any company, providing a potential new product
offering and revenue source for AR/AP automation software maker or service provider.
Incorporating digital wallet architectures with connected accounts into the payment
fulfillment process can create an additional value-added service to an AR/AP solution while
reducing significant costs and complexity for customers using the software.
An XTRM White Paper

4. 4
AR/AP Providers Look to Payments for New Revenue
Making and receiving payments has become much easier with the plethora of new
peer-to-peer payment and digital wallet apps available. Most of these apps, however, have
been aimed squarely at the consumer market and thus have serious drawbacks in terms
of managing receivables and payables. AR/AP software and solution providers should
incorporate digital wallet capabilities to be competitive albeit by adapting the widely adopted
digital wallets concept to meet the specific B2B AR/AP needs of their customers and clients.
The core underlying concept, digital peer-to-peer wallets, however, can have tremendous
application in the B2B marketplace when stripped of some of the social sharing and
proprietary banking aspects found in the consumer peer-to-peer offerings. Moreover,
delivering the core without all the bells and whistles enables service providers to embed these
capabilities fully within their solution architecture and specific branding strategies.
Intelligent Digital Wallets – Connected Accounts
As defined by Investopedia, digital wallets are financial accounts that allow users to store
funds, make transactions, and track payment histories by computer. They may be included in
a bank’s mobile app or within a payments platform.
Intelligent Digital Wallets
Digital wallets are virtual by definition; thus, any number of separate wallets can be provisioned
within an account to meet its unique needs at little or no incremental cost. Their potential for
AR/AP solution providers is limitless assuming the three critical elements of the core concepts
are brought forward:
Intelligent digital wallets can store and exchange funds between wallets
Intelligent wallets can link to external entities such as banks or payment networks
Intelligent wallets store payment transaction history that can be accessed by both
beneficiaries and remitters
Digital Wallet Architecture Can Improve AR/AP
Processes

5. 25
AR/AP Providers Look to Payments for New Revenue
Connected, Actively Managed Accounts
Unlike social sharing accounts found in many peer-to-peer payment platforms, connected accounts
are quite different in that they provide all the information to both remitters and beneficiaries for
transparency, but they do not incorporate social sharing features so all the transaction data remain
private.
Moreover, connected accounts can be managed by system logic or actively through Manager Accounts
which are enabled with administrative privileges that enable limited access and edit capabilities to
provide first-line customer service and reporting. Connected accounts can be multi-tiered to handle
complex B2B use cases like global distribution partner payments, often eliminating the need to for costly
trust account set-ups at multiple banking institutions to handle paying business partners on behalf of a
client company or paying partner company employees directly:

6. 6
AR/AP Providers Look to Payments for New Revenue
Global Payments - Global Receipts
Within an intelligent payments platform, digital wallets can be multi-currency, simplifying global
payments, extending the reach for payments to over 200 countries and more than 140 currencies.
Either the remitter or the recipient can have as many currency-specific wallets as needed, allowing
for currency exchange to be done within the payments platform at lower rates than found elsewhere.
Companies using the platform find this much more streamlined and easier to manage than navigating
myriad banking institutions needed for truly global use cases.
Using Connected Accounts further simplifies the process by enabling each account — remitter or
beneficiary — to have digital wallets in as many currencies as they do business. Making payments then,
can either be generated in one currency, for example, US dollars, and remitted to a beneficiary’s USD
digital wallet. If the beneficiary is not a US-based Company or Individual, they can exchange USD for
their local currency using the platform to transfer from their USD digital wallet to their local currency
digital wallet.
Own the Customer – and the Data
A company’s customer file is often, if not always, its most valuable asset. For example, prior to its merger
with Delta, Northwest Airlines valued its frequency program more than its fleet of jets. Protecting such
a valuable, hard-earned asset is paramount. Ensuring that their customer files aren’t being shared or
hacked, of course, is critical for every AR/AP solution provider.
Many firms in search of lower costs by outsourcing non-strategic workflows may consider outsource
managing their receivables and payables altogether. But they often do so, reluctantly. What’s often
overlooked is that making payments using digital wallets actually increases control of the process,
eliminating the need for third-party banks or service providers to take possession of customer data to
act on their behalf.
However, consumer-oriented peer-to-peer wallets do not fit most B2B use cases as they are often
tethered to a specific bank which creates extra steps and possibly extra fees if the payee is not already
a customer of said bank. Peer-to-peer sharing applications can be attractive for fund-raising efforts or
other payment models leveraging social media, but the vast majority of B2B and B2C transactions are
private and both remitters and
beneficiaries prefer to keep it that way. In either case, the question often arises: are others using your
customer file to conduct your business or to advance their own business?
Embedding digital wallets with APIs enables companies to fully own the customer relationship and
eliminates the need to pass customer files to external entities.

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AR/AP Providers Look to Payments for New Revenue
Meeting Payment Challenges Doesn’t Stop at the Payment File
Creating a Payments file and sending it back to the client for executing the actual finishes the AP tasks –
but does it really?
In fact, it opens up a whole new set of problems. Payments made by banks often offer cryptic details
and may not reference all the critical information a recipient needs to understand the reason for
payments. Non-receipt of payment – the most common customer complaint – often requires multiple
points of contact and unsatisfying responses to customer inquiries, e.g., the check’s in the mail.
Rendering payment via intelligent digital wallets, puts the recipient in control through self-serve tools
to determine how they are paid. ACH deposits are made directly to their bank using the details they
provided. Error rates are much lower using self-serve tools and eliminates the payor and any of its
agents being at fault.
Navigating myriad submission formats for multiple financial institutions, complying with regulatory
requirements in each country introduces a level of complexity that is challenging.
Using an intelligent payments platform that addresses regulatory AML (Anti-Money Laundering) and
KYC (Know Your Customer) compliance as well as providing tax reporting details globally. Meanwhile,
digital wallet architectures bypass the need for using multiple financial institutions to remit payments.
Digital Wallets Can Turn Receivables Into A Profit Center
Receivables can also take advantage of the wallet-to-wallet payment capabilities to create digital
wallets tied to their invoicing bypassing the ACH and credit card networks to streamline global
payments. Here are but a few examples:
Example 1: US-based company receiving payment from a European partner in Euros
Companies can simply transfer the funds from the Euros wallet where they were deposited to the USD
wallet. The currency exchange fees aren’t completely eliminated but they are much lower than when
done through banks or traditional FX. Since there’s no bank or intermediary banks involved there’s no
banking fees. From the USD wallet funds can then be sent directly to the company’s bank via ACH or it
can choose other options including check and Visa Debit or Credit.

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AR/AP Providers Look to Payments for New Revenue
Example 2: Company with a global product but limited global infrastructure
Begin to eliminate many foreign banking expenses by paying partners and suppliers using digital wallets
whenever possible. At a minimum, lowering banking fees and simplifying cross-border payments will deliver
cost savings. Partners prefer to receive payments faster
Initially, not all suppliers may accommodate but many will particularly when they recognize there are no
merchant fees
Example 3: Company generating MRR with subscription billing
Most monthly subscription billing is processed via the card payment networks creating MRR (Monthly
Retained Revenue) for the provider and the card network. Building a subscription billing process on top of a
digital wallet architecture automates the process and eliminates the need for using card networks and their
associated fees on an ongoing basis leaving more retained revenue with the provider.
Cross-Border Payments: Complexity Creates Opportunity
The number of use cases where intelligent digital wallet architecture is expanding exponentially based on
the ability to manage, store and exchange funds between and within connected multi-currency accounts.
Intelligent digital wallet architectures offer particularly robust solutions to the challenges of cross-border
payments.
Dus to the high fees often associated with cross-border payments, it is proving to be a fertile market for
payments innovation and digital wallets have become ubiquitous, their application in B2B global payment
use cases is still a very small percentage of the rapidly growing payments revenue market projected to grow
to nearly $3 trillion by 2023 by McKinsey & Company.
Providing manager access complemented with multi-currency self-serve user accounts where users can
find much lower currency exchange (FX) fees, creates greater flexibility in balancing the needs of remitters,
beneficiaries and service providers to optimize cross-border payments.
4
A Vision for the Future-of-Cross-Border-Payments, SWIFT and McKinsey & Company
of external global
B2B payment costs
attributed
to transaction fees and
currency exchange (FX)
83%

9. 29
AR/AP Providers Look to Payments for New Revenue
Summary
Given the high costs of completing transnational transactions, cross-border use cases may stand out.
However, they are by no means the only payment use case that can benefit from enhanced automation using
digital wallets that create new revenue opportunities. AR/AP software and service firms can use them to offer
their customers lower operating cost, greater control of the customer relationship as well offering choice and
a better customer experience.
Managing connected digital accounts is made simpler and more transparent in many B2B payment
applications. Using APIs to embed intelligent digital wallets to store and exchange funds between wallets as
well as transfer funds externally provide AP/AR software makers and service providers a potential new source
of revenue as well as another opportunity to improve customer retention.
For AR/AP software makers and solution providers adding Payments to their solution portfolio can provide a
new source of revenue from existing customers while significantly reducing the customer’s total cost of making
payments. And it can be a compelling new offering to attract new customers looking turnkey AR/AP solutions.

10. © 2020 XTRM Inc.