Payments and Digitization Trends: Insights from Deluxe
As a first timer to the Deluxe Exchange Conference in Phoenix this year, I was unsure of what to expect. The conference overall provided excellent content about anything from fintech collaboration to leadership and so much more. The highlight of the conference for me was sitting down with Barry McCarthy, President and CEO of Deluxe, and Michael Reed, Division President of Payments about how Deluxe is positioning themselves as a key player in the payments industry.
The world of payments is constantly evolving, and with the rise of new technologies and changing consumer behaviors, businesses must adapt to stay ahead. With the rise of electronic payments, the use of lockboxes has declined in recent years, with businesses opting instead for more efficient and cost-effective payment processing solutions. Even though lockbox payments can take days or even weeks to process due to the manual labor involved, many companies still rely heavily on them; approximately ten billion paper checks are processed annually valued at over $20 trillion dollars. With those numbers, it’s clear that there is plenty of room for innovation at scale for a company like Deluxe. As Barry pointed out early in our conversation, “Lockbox is a fine business, but it’s not a future business.”
Deluxe has spent the last several years positioning itself as an innovator in the world of payments. Not only have they winnowed their portfolio to focus on core competencies (see this and this), they are investing in technology to unify their existing print business with future – focused initiatives. As Michael Reed explained, “Data is the underlying currency of everything… The next generation of payments is data.” Payments generate a wealth of data, including information about the payer, payee, payment amount, payment method, and more. To fully leverage this data, businesses must have a robust data infrastructure and data architecture in place. Considering the legacy from which Deluxe operates, they are uniquely positioned to offer this service to their clients.
There are still skeptics in the market as it relates to innovation around payments data, but both Barry and Michael know that the use cases are already here. Aside from the friction involved with reconciling payments, resolving the tension in payer/payee relationships is key. For example, a payer may be hesitant to release payment until they have received confirmation that the product or service has been delivered, while a payee may be hesitant to release the product or service until payment has been received. These friction points can cause delays and may even lead to disputes and lost revenue. Deluxe plans to bridge these gaps by “creating the life cycle of accounts payable and account receivable via [synergistic] data infrastructure.” Michael Reed also pointed out that the data architecture they’re investing in will build out use cases for the future, including insights into payment trends, identifying areas for improvement, and optimizing the payment process for maximum efficiency.
As with most conversations around payments innovation, Barry and Michael also touched on electronic payment methods. With the release of FedNow looming, I asked if there was concern about the “death of the check” for the Deluxe client base. According to Barry, “It’s just another rail… They’re all pathways to solve the same problem.” Michael also pointed out that one potential limitation for instant payments rails is irrevocability, how and who is going to adjudicate chargebacks.
From what I can see, the myriad problems facing the payments industry are a “green fields” opportunity, requiring legacy financial services companies to adapt to client needs. Deluxe has taken that challenge head on, proving that collaboration and innovation are imperative to creating organic growth. Moving forward, Barry stated, “We want to be a payments company,” and based on what I learned from the conference and this interview, Deluxe is uniquely situated to do so.
Special thanks to Barry McCarthy, Michael Reed, Marla Ellerman, and Kayla Mackenzie for their time contributing to this article.
About the Author
Dr. Angela Murphy has experience in artificial intelligence, financial technology, and the global payments industry, building on her skills as a storyteller and rhetorician. She engages at the intersection of strategy and insight to drive results for her clients. In her current role as Vice President of Business Development at Photon Commerce, she helps run a team that uses artificial intelligence and machine learning to solve complex problems in the payments industry. Dr. Murphy received her Ph.D. from the University of Kansas and currently resides in Kansas City with her husband, Brock, and German Shepherd rescue, Roscoe.
