Navigating The Choppy Waters Of Payout

The simple act of Business A providing a service to Business B and Business B paying for that service seems like it should be pretty straightforward. And for many businesses, paying out those funds, even though it may be a bit time-consuming, and still rely on “old-fashioned” payments methods such as checks, it is.

Now multiply that task by the hundreds or even thousands of businesses that need to be paid who are part of a marketplace or platform that matches buyers with sellers or excess supply with demand. That seemingly simple task of one business paying out funds to another becomes nightmarishly complicated.

And, as Karen Webster and Hyperwallet CEO Brent Warrington discussed recently, if buyers aren’t making that happen efficiently, then they are doomed – it’s typically not a great idea not to pay your best suppliers in a timely fashion.  It’s bad enough when that happens for “ordinary” businesses. When the business is a platform where buyers having access to great suppliers is critical, and who – when they can’t get paid properly abandon that platform – it could be the start of a dangerous death spiral.

It’s a “doom” that Warrington says businesses are now feeling, pointing to the many “911 type” calls he now receives almost daily from a variety of marketplaces trying to pay other businesses. The problem, he points out, may start with payment, but it soon extends into many critical risk and compliance activities, including KYC.

“That’s always the biggest one that jumps out in front of people,” Warrington said. “I think people completely underestimate just how fragmented this can be across businesses. Throw in geography and the various payments preferences that are inherent in those geographies, and it gets complicated real fast.”

Warrington spoke to the several “gotchas” that most people just don’t see coming when pursuing “payout.”

One of the biggest gotchas, he says, is risk compliance and KYC, especially for those that try to build an in-house solution from the ground up. While they may believe all they need to do is create the solution, and crack the code on sending international wires, Warrington says, “the next thing you know [a business] is paying out $100 and the supplier is eaten alive with a ton of fees – so they don’t get to put $100 in their bank account.”

Something that Warrington says becomes even more of a pain point when there are a lot of high frequency/low dollar volume transactions. “That’s when I think that these marketplaces have a realization that it’s difficult,” he stated.

Managing an in-house payout solution is a path Warrington said many marketplaces explore but abandon when they hit “a brick wall” after realizing that the act of payment is only as good as the act of managing the risk and compliance of those payments.

HAPPY PAYEE, HAPPY PROCESS

Much like consumers appreciate the convenience that comes with being able to pay with whatever payment method suits their needs best at the time of purchase, payees also want to be able to receive payments in the manner that they would like to be paid.

That gets rough, Webster pointed out, inside of marketplaces that have to accommodate a variety of payments preferences on the part of the supplier that doesn’t compromise their economic preferences.

“You can’t just assume that you can force feed a payout, especially when we start thinking about some of these more complex countries,” Warrington said. “Being able to accommodate a variety of payout solutions – whether it’s virtual cards, direct to card, direct to its issued debit card, the payee’s debit card, to the payee’s bank account, or even check or cash, is pretty important.”

It’s a friction that Warrington says that the Hyperwallet solution hopes it can solve for its customers. He says that the platform aims to take the “guessing work” out of how a business’ workers, contractors or freelancers want to get paid, as well as help payees manage taxes and their expenses.

Warrington also touched on the importance of speed and managing the cost and fees with getting payments out quickly.

“We are not in the business of playing games with foreign exchange with our clients’ payees, which seems to have been a pretty prevalent practice in past,” Warrington said. “It’s really about transparency, at the end of the day.”

MAKING A FRAGMENTED MARKET COHESIVE

“It truly is a very fragmented payout ecosystem out there and the more these marketplaces push globally, the more that fragmentation is exposed,” Warrington explained.

Hyperwallet is able to take on much of the risk for their clients as they try to navigate the ecosystem and ensure their payout solutions are optimized.

“These funds sit in a corporate wallet available to the payee for them to do as they choose, so it also creates some great economics that we can plow back into the ecosystem because all of the transactions are essentially ‘on us’” Warrington said.

Though the company has nearly 9 million payees in its ecosystem today, Warrington said that the number is expected to more than double by year end, with a volume of $15 billion payouts and close to 80 million transactions predicted by the end of 2016.

Partnerships with Western Union and Money Gram have also allowed Hyperwallet to bring its payout services to thousands of physical access points around the world, providing yet another layer of optionality for payees.

“We are in a unique position where we have more independent workers in our ecosystem than any other company that I know of, so we have leverage and buying power across millions and millions of independent workers that we are going to look to leverage, without a doubt,” Warrington said.