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Digital receivables to meet changing demand
Hey, thanks for joining. Clearly, the digital move is here. As we discussed last month, there are several converging factors that are really behind this change. Joining me today are Kim Anderson, Lucy Diasio, and Shawn Higginbotham. We really wanted to dive into where these changes are coming from, but also, what are we doing about it to really face those challenges?
Clearly, COVID has played a major role for those of us are now working remotely or in areas that we never thought he would be doing so. For example, my friend yesterday, I was talking to him, he's like, I'm having to work from my truck simply because we're doing home renovations. So that really tells us that many of us have leveraged technology for everything from ordering dinner, groceries, along with home improvements, just as my friend did.
At the center of this move is really the generational change that has occurred with the millennial population now becoming the largest generational force in the workplace. Clearly, this is a huge move. Technology is at the center of everything that we're doing as part of that because we're seeing adoption in areas that, quite frankly, I never thought I would see. With that said, hey, Shawn, I know you and I have talked a lot about what's going on in the millennial population. What are you seeing that is really driving this technology boom with the generational change.?
Thanks for the question there, John, and I am both within the millennial age range, and also, I'm very much so sort of that stereotypical millennial consumer. So as far as the technology aspect goes, I think one big thing is really the mass adoption of smartphones, both domestically and internationally, in just the way that they have really become a method for managing our lives. So when I say managing our lives, I mean 54% of millennials' purchases, or purchases made by millennials, are actually made online. And 63% of millennials make purchases on their smartphones, which makes sense to me because I manage all of my bills through my phone.
I use Instacart for grocery delivery. I use all of these different delivery apps and things. So that makes sense to me.
But it's not just millennials. Gen X is actually the largest adopter of new technologies. They tend to be early adopters for wearables or smart tech. So it's really kind of started with them, but it's really exploded with millennials.
But we also live in a slightly different world now than we used to. I grew up learning education is everything, and credit cards are the devil. Be careful about debt, but also take on debt. And so it's kind of changed, I think, a lot of the perspectives of millennial consumers.
Hey, Shawn, what do you think the preferred payment method is?
So that's a great question, actually. So millennials and Gen Z are the first generations that prefer debit cards, and more than half will use a debit card for a purchase under $5. So being a proud St. Louis native, we get deals on coffee in the city for $0.66 when the St. Louis Cardinals score six runs, and I will use a debit card for my $0.68 coffee. And it's just the preferred way we like to make our purchases.
But a big reason for that is because 66% of millennials have long-term debt of at least one type, and 48% live paycheck to paycheck. And again, that resonates for me. I have student loans. I have car loans. I have long-term debts that I need to take care of.
So things like credit cards don't really appeal to me, but I also don't really-- I don't write checks. It's not as fast, it's not as easy, and I like tools that make my life easy. So generationally has really laid the groundwork. Millennials have really laid the groundwork for this.
But COVID's new normal is really digitization and skyrocketing demand for contactless payments. So contactless has exploded with over 100% growth in 2020, and 60% of merchants have actually adopted contactless at the point of sale. So really that ability to adapt to this new environment has been huge, and we've seen that with a 32% increase in e-commerce and the explosion of delivery apps. So when we look at this, the millennials sort of laid the groundwork. COVID really acted as a catalyst.
But now the thing that's going to keep those trends going is the fact that digitization worked. Many businesses either saved or supplemented their traditional income by moving to more digital avenues. Mostly that means omnichannel and digital payment methods. So these businesses are really the survivors of COVID, and they're going to act as the template for new entrants.
So COVID really ripped off the Band-Aid, but at the end of the day, we've been predicting checks were eventually going to go down. And I think it's really those generational preferences and that acceleration from COVID that has really [AUDIO OUT]. So Kim, what trends are you seeing in the bill pay space, and how are we positioned to meet the needs of these consumers that are more like me, that want those digital options and additional tools to manage their finances?
Yeah, the loss of predictability and disruption from the pandemic thrust e-commerce to the forefront, as you mentioned, because it has become a lifeline for an economy that requires physical distance, and I'm sure all of you have experienced this. In fact, there's a study that actually revealed among the 15.5 billion bills that were paid by US consumers last year, 62% were made online. And there's a percentage of bills paid on a company website, which is also called a biller-direct, grew from 62% in 2010 to 76% in 2020. And transversely, bank bill payments, which is usually, like, a free feature that your bank offers to their customers that have bank accounts with them, these bank bill websites allows you to input your bill provider's information and pay your bills through your savings or your checking account. So payments in these bank bill websites actually declined over the same 10-year period, from 38% to 22%.
So constantly kind of monitoring the bill payment space and how it's shifted furthers the criticality that we deliver products that meet consumer demands as well as our clients with solutions such as the U.S. Bank e-bill service. It's a digital bill presentment, or paperless billing, payment solution that meets consumer demand by providing many options to make bill payments how, where, and when consumers want to. We've actually seen an increase in consumers making bill payments in the biller-direct websites largely because they're able to make just-in-time payments, which typically has them in-- if you look at the bill-- or the bank bill payments website, it's typically a minimum of a one day or more lead time before that payment is made, where in biller-direct websites, they receive confirmation, and they're able to make those payments just in time.
There's some additional research out there that shows 28% of consumers pay on or near the pay date. So this further suggests the need for faster payment capabilities and the migration to biller-direct websites. And this is really where e-bill service meets consumer demands, by allowing billers like yourself the ability to deliver the means for consumers, your customers, to make those just-in-time payments.
Hey, Kim, I know a number of our listeners have consumers that demand simplicity. I know me, personally, I love making bills-- or paying bills in the most simplest manner possible. How does e-bill service really meet this demand for simplicity?
Simply put, consumers have choice with e-bill service, choice to make bill payments simply, easily, and securely by being able to make multiple-- make payments in multiple payment channels. So they can pay online. They can pay leveraging a mobile or tablet device that uses responsive design, so it's optimized. Or they can use more traditional methods like Interactive Voice Response, also known as kind of IVR.
These are ubiquitous payment channels in the bill payment space, so e-bill has additional channels such as the ability to pay by text. And some compelling research recently released revealed that 35% of consumers want to pay by text, yet only 4% of billers actually offer it as an option. And if we look at consumers under the age of 35, 62% frequently pay by text for businesses that accept text payments. So clearly, there's a shift.
E-bill also provides consumers the ability to make payments leveraging artificial intelligence to facilitate seamless interaction through messaging platforms such as conversational online chat bots, which are 24/7, virtual assistants like Amazon Alexa, or even Facebook Messenger. Shawn, you had talked about how we saw a surge in mobile wallet this past year, and we know it's largely due to the pandemic. And beginning in July of this year, consumers that use e-bill service will be able to make payments leveraging Apple Pay and Google Pay. And later this year, real-time payments will be enabled for consumers to make bill payments that are initiated and settled almost instantaneously, again for those consumers that rely on just-in-time payments. So you know, the e-bill service solution will continue to deliver merging payment channels and forward-thinking technologies to meet constant changing demands of consumers in an effort to really further simplify the bill pay experience.
So like I mentioned earlier, I mean, those are exactly the kind of ways that I like to make payments. I don't feel comfortable having a check floating in the mail, not sure if they've got it yet, did they receive it, has my account balance been updated. This managing my finances is really important to me and a lot of other people my age. So does e-bill actually provide consumers any tools to help with managing their finances or to help make sure that their bills are paid on time?
Shawn, yes, we do. Consumers are able to enroll in timely email and/or text payment due alerts, or reminders, as we also call them, which works exceptionally well for consumers who, like yourself, like to manage your finances using these timely reminders. In fact, research has shown that 83% of consumers find these email or text alerts about due dates very helpful, and 75% of consumers felt they'd be likely, if they started receiving payment due alerts, that they would make payments on time more often.
There is a use case or two worth referencing. A company called Nuance, which is a collections provider, and they send proactive notifications to consumers on behalf of their clients. There was an East Coast utility company that was able to increase collections by 188% by leveraging email payment due reminders. And another client was a credit card issuer that increased their account for collection ratio by 67% by sending timely messages to early stage accounts. So clearly, timely text or email reminders or alerts can help increase payment rates and reduce late payments for consumers that really need assistance in managing their finances.
Hey, Kim, what about-- you had a lot of good information here on services that consumers can use to pay our business clients. Are there other solutions out there that are available in this bill payment space?
Yeah, Lucy, we also have a solution called click pay. It allows consumers the ability to submit, and we talked about contactless payments, so contactless digital payments by sending a picture of a check via their mobile device. The consumer simply would log into a mobile app, take a photo of the front and back of the check, and the app actually reads the routing and account information from the check and automatically populates the banking information.
So imagine a consumer who just realizes that if he mails his check in as he normally would, he would incur a late fee because he kind of forgot it. And mail takes, as we know, three to five days or more, even, with the pandemic. So this consumer has a mobile phone and likes to pay by check, so he's actually able to take that picture, make a contactless payment to ensure his payment is on time, and he doesn't incur a late fee. I mean, we here at U.S. Bank are committed to continually delivering C2B bill payment channel technologies to ensure we meet the changing dynamic needs of consumers in the marketplace and our clients, all in an effort to simplify bill pay. Lucy, what types of changes have you seen in the B2B market and receivables resulting from recent economic changes?
Well, unfortunately, there have been many businesses that have had to close their doors, close their offices, require their workers to be remote, and even more unfortunate, lower staff levels. So it's made it really difficult for them to manage their receipts, and it's really highlighted the need to automate. So technically, receivables can generally be paper-heavy, and they're difficult to reconcile in some instances because businesses are reliant upon their customers and how their customers pay them on what types of payments they get. And the pandemic really made this so much more worse because the businesses that lost access to their company systems, they lost staff. Those tools and those people were the ones managing those receipts, and without them, it's caused delays in processing, increases in day sales outstanding, which is a fundamental way of measuring receivables efficiency for a business.
Past due invoices in the past year rose by 10%, and that led to more concerns over cash flow. And those concerns actually increased by 20% in that same frame. So businesses are really concerned about this problem, and DSO is actually expected to increase by 29% in the next year, which is a really significant rise.
So Lucy, obviously, I mean, that's some pretty-- there's a lot going on there. How are businesses coping with these changes, and how is U.S. Bank helping to alleviate some of those concerns?
Well, businesses are finding that traditional receivables that worked for them in the past are just not working as well as they used to. Receipt chan-- new receipt channels are emerging. Electronic payments are emerging. The workforce is becoming younger. People are retiring.
And the younger workforce is coming in where they don't have that experience with paper, like you were saying earlier, Shawn. They just-- that's foreign to them. So something like a lockbox, which is a traditional receipt channel for businesses, it's still really easy to post, but it's slow and it's paper-heavy, inefficient. So electronic payments, right? The way to go.
And you would think they would be faster to post, but the only thing faster about electronic payments, in a lot of instances, is that they come to you faster. So they're in your bank account, but they're not relieving a receivable, which is really what a receivables person is really-- finds the most important thing. The other thing that's going on is emerging channels for receipt of those receivables. You get an electronic payment. You don't always get the remittance that goes with that electronic payment.
It's in an email. It's in a portal. Your customers are making you go find that receipt as opposed to sending it to you in a nice little package. So there's been a shift, and the emphasis is really on collecting and reducing days sales outstanding because they're expecting it to increase. And 70% of firms are actually planning to digitize their AR processes in the next three years, which is really welcome news, given all of the changes that are happening now.
Hey, Lucy, you talked a lot about this whole digital shift and move. I know a lot of our listeners have a lot of the same challenges you're talking about with now working remotely and paper really creating a lot of fiction-- friction, excuse me. Obviously, U.S. Bank has a robust receivables solution. How can we help businesses digitize those receivables?
Well, we've got a lot of tools that we can offer our clients. Our U.S. Bank receivables is pretty robust, and it offers businesses a lot of different collection options, and it offers them flexibility as well to target a solution to whatever receivables challenge that they face because everybody is different. And our VantagePoint service, which is the U.S. Bank receivables center, not only presents a collective view of all of your receivables in one place, but it also reviews that data and identifies inaccuracies, alerts our clients when there's a discrepancy in a payment or a remittance. The goal really there is to simplify the process for our customers and save them time and effort that they would normally be using on manual efforts and research and trying to find these discrepancies manually.
Lucy, you said earlier that electronic payments are increasing, but so are day sales outstanding levels. So how can businesses manage the influx of these payments while trying to maintain or keep the day sales outstanding at efficient levels?
Yeah, that's correct, Kim, that electronic payments continue to grow, and they're just going to get more and more and more. And in theory, they should be-- businesses should be able to post those as quickly as they are received, but as I said before, the remit doesn't always go along with that payment, so it takes them longer to post, and in turn, that increases their DSO. So our solution helps them manage these types of payments and especially the disparate remittances because it makes them-- it makes it easier to post them.
We can decipher data with those electronic payments that's not something they can understand. We can extract it. We can match it up to remittances.
We can receive those remittances that are received elsewhere, and we can match all of that up to a client's open AR, open invoices. So it will help them to be more efficient and give them a more accurate picture of their receivables. It really frees up their time and their staff's time.
Matter of fact, we had one client that had seven staff members posting cash. And when they-- after they implemented our matching service, they took four of those seven and redeployed them to more strategic tasks. So they actually reduced their weekly FTE hours spent on posting cash by 54%.
So Lucy, I mean, that's-- I mean, anyone who's able to move four of seven staff members to do something more productive, I mean, obviously, they're going to want something like this. But how does a company know if this is the right fit for them? They're all unique. They all have their own kind of ways of processing and associating and posting, and so how do they know if this is right for them?
Yeah. What we found is that more and more businesses are looking for ways to improve their posting process and become more efficient, more efficient. Everybody wants that nirvana state, that straight-through processing where there is no manual effort or at least the lowest amount of manual effort needed. But like you said, every business is different, and they have varied levels of complexity.
So our receivable center is really flexible, and it meets our clients wherever they are in their receivables process. So whether it be something simple like just consolidating their receivables into one view or using tools to help them manage exceptions and solve posting problems, we can run the gamut and help our clients wherever they need it. So John, we talked about a lot of different options today that help our clients do business. What next steps should our audience consider when they're applying some of these solutions to their business?
Absolutely, Lucy. Hey, if paper is creating friction in your receivables process, digitization is really the answer. Obviously, many of you have already taken initial steps to do that. We'd love for you to take that next step with us through a conversation with one of your relationship managers or your treasury management consultant.
Should you also seek additional information, we do have information available through our usbank.com/receivables. Once again, that's usbank.com/receivables for additional information on all the products that you heard about today. Hey, join us next month as we talk about digital connectivity. Thanks for joining. Have a great day.
Our product managers discuss why payer behavior has changed, challenges it’s created and what solutions U.S. Bank provides to meet C2B and B2B receivable needs.