Embedded Payments Can Be The Proverbial Edge To Scaling A Business
Many companies struggle to manage payment processing and reconcile transactions, clinging to traditional payment methods that can be both inefficient and error-prone.
A hearty welcome to the 73rd edition of The Logistics Rundown, a weekly digest that aims to put some perspective on what’s brewing within the logistics industry. This is a space where we religiously dissect market trends, chat with industry thought leaders, highlight supply chain innovation, celebrate startups, and share news nuggets.
While freight service levels across the linehaul have progressively improved over the last few quarters, supply chains are still tense. If you're a shipper within this ecosystem, falling freight rates might be a sign of cheer. That said, there's much more to hope for to get better.
Take a look at inventory issues, for instance. With retail now in its typical low season, stakeholders need to take tough calls with their inventory strength, resulting in companies liquidating bloated inventory and sacrificing margins to improve inventory turn.
Unlike freight costs, operational costs have refused to return to pre-pandemic levels, as labor, energy, and material prices have remained high. Interestingly, the 'technology cost' has also crept up over the years. While companies digitalize processes and adopt new tech solutions to reduce operational costs, it inevitably results in hiring and training employees to leverage these technologies.
While companies digitalize processes and adopt new tech solutions to reduce operational costs, it inevitably results in hiring and training employees to leverage these technologies.
This obviously spikes costs. With so many technologies in the market promising many benefits, companies have to pick and choose solutions that can 'really' make a difference. And when the management does pick its solutions, there's an implicit expectation for disparate technologies to interact with each other — which, in most cases, is a letdown.
The lack of interaction is a major irk. Technology that isn't interoperable can only go so far, as companies running multiple solutions will eventually need them to interact to make a real, tangible difference to operations. This is especially true of SMBs, which do not have the wherewithal to maintain teams to build operational context out of distinct data streams.
Integration issues aren't just within an organization; they also elbow into payment processes. Expectations around B2B interactions have predictably been impacted by the 'Amazon Effect,' pushing the customer experience yardstick on par with B2C fulfillment experiences powered by e-commerce. Since payment ease is a major metric defining customer experience, traditional payment processes might need revamping.
Expectations around B2B interactions have predictably been impacted by the 'Amazon Effect,' pushing the customer experience yardstick on par with B2C fulfillment experiences powered by e-commerce.
See how buying on Amazon today is much easier than a few years ago? Checkouts and payments happen in a click or two today, all within the Amazon site. A few years ago, we'd be redirected to an external window, where we entered our payment details (and probably filled out an OTP) before checking out.
Enter embedded payments. By integrating the payment process directly into its website, Amazon enables customers to complete transactions entirely on its platform, improving user experience and the possibilities of completing a sale.
However, Amazon isn't the status quo in the industry. Businesses largely continue to run external payment systems that aren't integrated into their ERPs, making interactions harder.
For supply chain businesses that work with various stakeholders, non-integrated and non-embedded payment systems entail them to make individual transactions with vendors and service providers. This is often done manually, making it time-consuming, frustrating, and conducive to errors.
The woes don't end there. "Payments are fine, until something breaks," said Ralph Dangelmaier, the CEO of BlueSnap, a global payment orchestration platform. "Consider you're a US logistics company, and you're moving freight from the US to Canada. The merchant's bank account is in the US and can't process Canadian dollars. This is a classic issue — companies can have problems processing foreign currencies, impacting their business."
“Payments are fine, until something breaks”
Fraud is another concern. "How do you know if it's a fraudulent transaction or not?" questioned Dangelmaier. "As a business, it's hard to identify people who buy something that's shipped to a different region that's not on the address of their credit card."
"Given all the complicated rules governing payments, companies feel cracks in the system when scaling their business — especially in international waters," said Dangelmaier. "For instance, a need to refund payments internationally can create an operational break in the system."
Dangelmaier contended that this is causing company management to raise their brows and fish for a global payments provider that can handle cross-border transactions seamlessly, reducing processing times and providing transparency to end-to-end transactions.
The answer to this is embedded payments — especially in cross-border trade. For one, with embedded payments, the tediousness of currency conversions is taken out of the equation. It also reduces costs from added fees and exchange rates, eliminating the need for third-party payment processing platforms.
While the industry is trending towards embedded payments, it still hasn't caught on to the desired extent. Dangelmaier mentioned that over 90% of all business transactions are via non-embedded payment gateways. The primary reason for this is the lack of perception. "I'm on the phone daily talking to people, and I realize there's no place to go and learn about this. There's no central repository of information — in fact, many of us in the industry can't even agree on the terminology."
"And so, companies continue to plow ahead, believing they have payment processes in control, until they expand to a different country and it blows up on them," said Dangelmaier. "If you can't move money back and forth smoothly, it's hard to scale." By adding embedded payments, companies can adhere to compliance better, as all relevant regulatory compliance checks are integrated into the payment processing system.
"If you can't move money back and forth smoothly, it's hard to scale."
Ultimately, controlling payments is a core metric to scaling a business as it's directly related to cash flow. Embedded payments, while making transactions easier, also help customers stick as a smoother payment process enhances customer satisfaction. Being high-volume, low-margin businesses that supply chains usually are, every inch of possible efficiency gain will warrant careful consideration.
The Weekly Roundup
According to the U.S. Trade Representatives 2023, the Biden Administration has announced that it will continue to focus on “re-aligning” the United States trade relationship with China. In addition to continuing Trump-era trade tariffs and offering incentives to American manufacturing, the current administration will also take a closer look at sustainability and workers’ rights.
Customer revenge is on the rise as American consumer dissatisfaction continues to climb. With access to computers and social media outlets, consumers that have had problematic experiences with companies are venting their frustrations to the general public, which is creating a serious financial burden for the company in question.
Transportation rates set a record-breaking decline through February. The Logistics Managers’ Index (LMI) indicated a 5.9 percent drop from January. There are extenuating factors to consider, including severe winter weather and the annual lull between the holiday seasons, which skews the math slightly. Analysts believe that the freight is getting close to the bottom of the market.
A third Norfolk Southern train has derailed in the course of a month, prompting the rail company to push for new safety standards and regulations. Of the new safety standards, Norfolk Southern will be limiting train lengths, capping at 10,000 ft for all train types, and utilizing a distributed power system which should improve control. The rail company will also be considering other safety regulations for the future.
…said who?
“To be blunt, I think they were in the pocket of carriers for many, many years. That has vastly changed. They are now looking out for the interests of the U.S.A. shipper.”
- Alison Leavitt, managing director of the Wine and Spirits Shippers Association, while commenting on FMC’s new shipping regulations to fight late fees
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