Advances in Financial/Payment Systems—Technology Enabled

By Diane M. Calabrese / Published April 2023

Faster, simpler—the definition of expeditious. Safer too? (Perhaps not.)

     Technology enables financial and payment systems so streamlined an electronic charge gets posted before the account holder manages a few keystrokes to verify the payment. On the seller’s side, streamlined digital ledger-keeping couples speed with integrated business functions.

     Safer merits a qualifier. Use “not necessarily.” Leakage in identity verification exists everywhere in virtual and real-world spheres. That’s a given. Yet the shakiness of virtual-world security causes many individuals and businesses to hesitate about taking everything digital. 

     With business to business (B2B), however, security is quite good. That’s a recruitment tool for those still holding back.

     “I can only speak to B2B payments,” says Troy Jaros, president of Lease Con-sultants in Des Moines, IA. “Significant advances in online security and privacy are improving payment systems.”

     Jaros cites the important role played by artificial intelligence (AI). “One of the most significant financial/
payment advancements is machine learning and AI.” 

     The AI can quickly ferret out discrepancies and assure consistency. “AI can be programmed to review payment and behavior and determine payment experience,” explains Jaros. (AI algorithms flag purchases wildly out of line with buying history, for instance.)

     Moreover, AI simultaneously protects and propels. “It allows for fewer employees, minimizes human error, and handles numerous transactions quickly,” says Jaros. 

     The downsides in advanced financial/payment systems are somewhat in the eye of the beholder. While businesses and creditors benefit from the speed and accuracy of the technology, delinquent buyers and borrowers might be slowed because they will be known to the system.

     “Late payers will find it difficult to obtain credit, or it will be obtained at a much higher rate,” says Jaros. Those who fall into such categories might not be as sanguine about the capabilities of technology-enabled financial systems.

     With so much moving so fast toward digital only, we wondered about thoughts on a digital currency. Jaros takes a pragmatic view.

     “A United States Central Bank Digital Currency, CBDC, is still hypothetical,” explains Jaros. “And if the government decides to create one, it will be expensive…”

     Jaros also suggests that with the extended sorts of debates notable among legislators, agreement on a CBDC will be difficult. Of course, as physical cash, checks, and cards are supplanted by digital exchange, a transition is underway in a subdued manner.

Efficiency

     Take all the functions a business must perform—from accounting and human resources to operations and tax reporting—and integrate them to the fullest extent possible. That’s efficiency. 

     Technology makes such integration possible. David Presley, president of Hydro-Chem Systems Inc. in Caledonia, MI, shares an example.

     “This may not be new; however, some may not be aware of Avalara^®,” says Presley. “Because we sell over state lines, this integration to our ERP [enterprise resource planning] is a necessity.”

     Avalara^® specializes in tax compliance software and automated solutions and is designed to assist across states and more than 190 countries. “It is used by our company to figure and pay sales and use taxes to various states automatically,” explains Presley. “Without this product, we would need additional employees to handle these payments.”

     Assistance with sales tax payments to other states has become a huge issue for businesses in recent years. Few states do not require sales taxes to be collected on their residents’ purchases. 

     And it’s about more than collection and distribution to the appropriate state. Sales taxes vary by percentage and in how they are computed. Some states put a levy only on the purchase price. 

     Other states put a levy on the total of the purchase price and shipping and handling. There are also states that add a fee—a tax by another name—to out-of-state shipments. Complicated, yes, and software that manages it all while tracking and updating percentages in real time is a huge boon delivered by technology. 

     Presley does not see an immediate or quick move to a digital system of ex-change that replaces other methods. “While in some cases digital/crypto currency exchanges are becoming more prevalent, the hesitancy of many people will cause this to be a payment that will take a long time to become commonplace.”

     Over time, there are many logistical and preference obstacles that must be considered and worked across. “Adopting digital currency as a widely accepted form of payment seems quite an arduous task, as there are so many individuals who won’t use a credit card and many businesses who won’t do ACH [Automated Clearing House] payments,” explains Presley.

     Looking at the caution attached to the use of electronic fund transfers (EFT) such as ACH, Presley anticipates it will take time for many to embrace digital exchange. “It seems inconceivable that in the next few years people will be comfortable with a form of currency they can’t even put their hands on,” he says.

     Then, there’s the issue of safety, which gets touted as a benefit of cash-free transactions. The reduced risk is supposed to be realized because no one is storing or moving around with cash, checks, and plastic cards. They need only use a password or a fingerprint. (Notably, some credit card companies tried voice recognition a few years ago in lieu of a password and soon eliminated it as an option.)

     “As is the case today with so much sensitive information, digital currency seems to be the clear next step in the world of cybercrime,” says Presley. “The sophistication of these criminals continues to grow, and having a whole new world in which to take advantage of people is sure to only increase the dangers to consumers and businesses alike.”

     There is no 100 percent guarantee against someone breaking into a system. No matter how many layers of security, eventually it will be breached. This is one area where financial/payment systems, however technologically sophisticated, still share a trait with the oldest record keeping. Just like a ledger or even an abacus, an individual with a nefarious intent can find a way to alter things.

Reach

     Not all business-to-business transactions take place with the seller anchored in the same spot day after day. Sales representatives take to the road to visit existing and prospective clients. And tradeshows are an important way to connect with new buyers.

     Extended reach is a very big plus in financial/payment thanks to technology. “Mobile point of sale, allowing businesses to visit various shows and locations and process sales is a significant benefit,” says Claudia Hirschochs, president of Vector Chemicals in Youngstown, OH.

     Everyone who has been in our in-dustry more than just two or three years knows the speed at which changes in financial/payment systems have occurred. With cloud-based storage of company data either under consideration or already deployed and internet connections that link businesses to the world, security is as much a concern as keeping receivables current. 

     Security looms large in any discussion of digital exchange. Even as that discussion and incremental movement takes place, other issues abound.

     “As the entire world is currently experiencing a recession and the dollar is weakening, at some point in the near future, countries are going to move away from the dollar,” says Hirschochs. “Whether it is digital or another form of currency remains to be seen, although more countries are discussing going digital.”

     It’s difficult to contemplate the ramifications of a move away from the dollar, and we will leave the possibilities aside here. But the pace at which many are adopting digital exchange causes concern.

     “The faster we move towards technological financial systems, the more opportunities for hackings, scams, and technical issues,” says Hirschochs. As a result, there will be more risks that a business owner must mitigate.

     The unintended consequences of a digital currency will be fully known only as they emerge one by one. Theft—easy and with few clues to apprehend the thief—is the most obvious. 

     “Are people concerned about a digital currency system?” says Hir-schochs. “My answer is, absolutely. Look at what happened in Canada with the Freedom Convoy last year.” 

     Indeed, the financial aspect of the story north of the U.S. border became one of how easy digital mode makes it for exchange to be blocked. “The Canadian government froze people’s bank accounts leaving them with no way to purchase groceries or anything else,” explains Hirschochs.

     Abrupt loss of access to units of exchange is a concern whether it is the result of stolen cash, checks, credit cards, or—unthinkable until recently—a freeze on digital exchange. Such a freeze is just one “small concern,” says Hirschochs.

     “What if someone hacks into your account and withdraws all your money?” says Hirschochs. No one got a picture, a signature, or any other indication of who it was. And with virtual cloaking systems, it might take a long while (and ultimately prove futile) to find the true location of the hacker.

     “There are a great many concerns with going fully digital,” says Hirschochs. No doubt they will be addressed eventually, but they should not be ignored now.