Digitizing the payment process

Organizations often have plenty of ideas and plans with regard to digitization. However, in practice, you see that these plans end up in the proverbial fridge over time. Do you have an explanation for that?

Dennis: “POM focuses its activities mainly on corporates and large SMEs. Every year, budgets for digitizing the payment process are made available, but the realization of projects is sometimes omitted. During the budget year, you will see priorities or attention shift at the expense of digitization. The lack of knowledge and resources in organizations can also play a role. The result is that digitization is falling into the background and people are quickly shouting that it can still be done next year. Organizations focus their (digitization) arrows (and budgets) mainly on the front end of the process, such as (digital) marketing and sales. But if you get to the back of the process, such as payments, the urgency to digitize seems to be fading away. For example, it is still possible that a customer is fully connected digitally and then receives an old-fashioned giro. As an organization, you then run the risk that customers find this too cumbersome or time-consuming and may prefer organizations that have adapted their payment processes to the (digital) needs of the customer.”

The phasing out of giro payments has been talked about for years, but despite the high costs, this cumbersome and time-consuming payment method remains available in the market. What is organizations' argument for not (yet) switching to digital payment methods?

Dennis: “One argument that is often used is that this is what customers want. Nevertheless, this is remarkable, because in 2019, a customer increasingly expects that payments can be made easily, quickly, securely and online (with a mobile phone). In addition, some reluctance is sometimes detected to invest in digital payment methods. However, when only the cost aspect is considered, it appears that digital payment only involves a tenth of the cost of the giro. This reluctance is also difficult to explain when you consider that you will have to invest in a few years, because the giro card will really disappear.”

Of course, the wishes of the customer are always an important starting point, even when it comes to payment. In your opinion, what is the risk if, as an organization, you do not make the switch to digital payments or do not make the switch on time?

Dennis: “If you don't digitize, you run the risk that the relationship with the customer will be under pressure. The customer has been highly digitized in recent years, which has also changed the expectations. Various studies show that digital payment (via a payment link or QR code) is not only appreciated by many customers, but is also very efficient for both the customer and the organization. A product such as the giro no longer fits in with this in several ways. By continuously delaying digitization, organizations can also fall significantly behind in the digital world or even end up in a 'tech gap'.”

Tech gap?

Dennis: “Organizations end up in a 'tech gap' if sufficient investments are not made in digitization and the gap between the current situation and market demand widens. The longer investments are delayed, the more difficult it becomes for organizations to bridge the gap — financially and in terms of implementation in their own organization. A 'tech gap' can therefore be fatal for organizations, because at some point they are forced to invest by the market, but now they no longer have the resources or the time to do so. As a result, you can lose customers to competitors who are able to meet their digital payment wishes and needs.”

Can you indicate how much time it takes on average to transform as an organization to a fully digital way of paying?

Dennis: “Based on POM's experience, you can fully digitize the entire billing process and debtor management in a period of four to six months. In principle, it could be even faster, but you should keep in mind that customer data must be enriched. This includes missing email addresses and phone numbers. In practice, collecting missing data takes one to two months.”

What about the payback period for a transformation to digital payments?

Dennis: “Financially, the payback period is quite short, because the costs per invoice can fall by up to 90 percent. In addition, it has also been shown that a digital payment request contributes to customers paying faster. When sending a letter or giro, you are quickly delayed by one to two weeks due to physical actions. Ultimately, you can also compare the payback period with a better customer experience of the payment process. This may be a little more difficult to make concrete, but it is a factor to consider when considering digitizing the payment process. So in addition to a sharp drop in costs and a better customer experience, digital payment has proven to have a beneficial effect on DSO and cash flow.”

How does POM differ from other payment solutions in the market?

Dennis: “There are a number of things where POM stands out. The layout of the payment requests is entirely in the client's corporate identity. So the client decides what the payment requests look like, the customers don't see POM anywhere. In addition, POM does not use a so-called third-party account, so that the customer pays directly to his or her supplier. Furthermore, the method of reminding is unique, it is based on algorithms. For example, it is possible to build in logic based on specific invoice and customer data that makes dynamic billing processes possible. POM completely relieves clients of following up on unpaid invoices. In addition to providing a complete recruitment process, external parties are also managed. Examples include using an external call center, having home visits carried out and a transfer to a collection agency or bailiff. ”

You advocate adding the payment process to the customer journey. Can you explain that in more detail?

Dennis: “It is important to link the entire customer journey to customer satisfaction and customer loyalty. By knowing who your customers are and what characteristics they have, you can use algorithms to determine the best method and tone of voice to communicate with a customer in an almost customized way. Not only at the front end of the process, but also at the back of the process. With the help of machine learning, a personal appointment process can even be applied. In this way, a consistent customer experience can be created that contributes to higher customer satisfaction and customer loyalty.”

Machine learning, as a subset of AI, is regularly mentioned in the media. What are your experiences in this area?

Dennis: “Wherever machine learning is used, it beats the traditional (old) process with ease. In principle, every new customer who wants to use machine learning has two choices: a model based on private machine learning or a model based on collaborative machine learning. In the latter case, the customer can start machine learning based on the available data from POM. POM almost always advises its clients to opt for the joint model, because the application of machine learning is more effective the more data is available. Then you're talking about processing millions of payment experiences. The big advantage of this approach is that smaller organizations can also make use of machine learning.”

What about customer data privacy?

Dennis: “This technique is characterized by the fact that the data of individual customers is not stored. Simply put, it's about effectively matching actions (payment method, channel, text) to the customer's situation. Based on a customer's experiences and characteristics, such as location, neighborhood, age, etc., the most effective action for a customer can be determined, so that the chance of payment is greatest. The process of continuously improving (the algorithm) can be done with the help of machine learning in a thorough and fully automatic way, while safeguarding customer privacy.”

However, machine learning is still a somewhat abstract concept for many people. Can you give a practical example of the application of machine learning?

Dennis: “Sure. For this, a reference to the Nationale Nederlanden (NN) customer case, which is also on the POM website, is best. In this customer case, the results achieved with machine learning are discussed by their credit manager Cor Möller. In short: the use of machine learning has reduced the number of withdrawals due to default by as much as 52 percent. Preventing royements is not only financially advantageous, but also beneficial in terms of customer retention. On balance, this significantly increases the return on your marketing efforts. It is therefore recommended to organize the customer journey efficiently and in a customer-oriented way, not only at the front, but also at the back of the process.”

You also talk about “microsegmentation”. What do you mean by that?

Dennis: “Microsegmentation is actually made possible by the application of machine learning. Customer segmentation often takes place at a number of stages. The starting point is general customer segmentation. This can be further refined by applying personas, including the behavior of the customer group in customer communication. You then know from a customer that he prefers to pay with a payment link via SMS, but not yet at what time to send this payment request. Microsegmentation uses machine learning, which includes all aspects related to the customer's payment behavior at an individual level. This makes the recruitment process unique for each customer. This way, you can optimize the customer experience of the payment process by tailoring it to the wishes and behaviors of the individual (unique) customer.”

Digitization is also often associated with change and it can be difficult to get people involved. How do you look at that?

Dennis: “Changes in methods or practices are generally seen as somewhat scary. However, in daily practice, the opposite often appears. Indeed, digitization makes much more possible (such as analysis, process optimization and more personal contact with the customer), which actually increases the quality and pleasure of the work. This is because repetitive, often administrative, actions are canceled due to automation and digitization, which are exactly the activities that many people are usually not eager to do. By digitizing (payment) processes, more time can be freed up, which can then be used for the previously mentioned things. Digitization contributes to the development of allowing working people to become human again. The robot can perform all tasks that are boring or repetitive, while humans can focus on more complex issues and, of course, the customer. As such, digitization can add extra value for all stakeholders.”