Thomas Priore: Mitigating Risk in Banking for Businesses: Differentiating Between Real vs. Perceived Risk

Against a backdrop of fast-changing technology and emerging platforms, the banking industry is in a state of flux. Much of this change is being driven by private and corporate customers looking beyond outdated payment methods for more efficient, robust solutions. Thomas Priore, Executive Chairman & CEO of Priority, is a key figure in navigating the challenges of differentiating between real and perceived risks in the banking industry. For small to medium-sized businesses, payment solutions are part of the bigger operating picture that includes making smart choices on where to best invest resources.

Spending money to make money is a risk that every SMB must face, but how do you know which risk is worth banking on? As defined by Jon Danielsson, director of the Systemic Risk Centre at the London School of Economics and Political Science, “Perceived risk is risk predicted by models and actual risk is the fundamental underlying risk. We measure perceived risk and care about actual risk.” Perhaps no one is better positioned to understand the perceived risk versus real risk conundrum than Thomas Priore, who as Executive Chairman & CEO of Priority, has successfully navigated those waters himself.

How Digital Payment Solutions Taught Thomas Priore to Categorize Risks

Thomas Priore’s career began in investment banking and management. He went on to eventually begin his entrepreneurial journey, first in structured finance, then into venture equity and Priority Technology Holding’s beginnings as a payments processing company.

Priore wanted to provide merchants and business owners with electronic payment solutions and offer emerging payment solutions - “particularly the conversion from non-digital to digital payments” — for businesses of all sizes and to help speed up cash flow, which is essential for business operations.

“From an investment standpoint, we built an organization in the middle markets of payments that focused on the dynamic growth and common necessities of electronic payments. It had the wind at its back,” Priore recalls. Additionally, Priore shares that while his company started as a payments processor, it has evolved to unify a technology platform that contains embedded finance and commerce solutions as a single digital experience for payments, banking, and better customer insights for businesses.

“We aimed to accelerate a digital and modern experience for small businesses to manage their business better than what they’d receive just through their banking interactions,” said Priore.

Today, Priority is currently the fourth-largest non-bank payments business in the U.S., encompassing multiple segments including SMB, B2B, and enterprise, and offering technology, devices, and software solutions for payments and embedded finance banking solutions for business.

Understanding What Sets Consumer Banking Apart from Business Banking

With an ever-growing demand for speedy transactions, increased flexibility in payment options, and expectations for better security as well as more rewarding benefits, it’s no wonder traditional banking solutions no longer fit the bill for many small to medium-sized businesses. The next generation of payment solutions, embedded finance, incorporates all of these benefits and more but it’s taking time for some SMBs to catch up.

Priore explains that “whether they realize it or not, for consumers, the embedded finance experience of going to a phone, buying something via an app — be it a meal, a service, or a retail item is already a firmly established precedent and buy now, pay later is the latest emerging trend to get more consumer use.” In ‘buy now, pay later’ transactions, the merchant gets paid immediately by a third party providing the money in financing terms that the consumer will then owe.

Thanks to the instant gratification factor, consumers have adopted embedded finance solutions with ease. However, unlike businesses, they’re not the ones burdened with investing in the new tech and upgrading older payment systems required to make embedded finance work. To take advantage of the latest technology and financial offerings, SMB stakeholders have to weigh the perceived risks (upfront expenditures) versus the potential rewards (accelerated cash flow and increased revenue).

By understanding the entire value chain, from the point of purchase to the eventual dissemination of funds. However, Thomas Priore warns that’s only half of the puzzle. “What happens after that transaction occurs for the seller, for the merchant? How does reordering happen? Maybe there’s an introducing party that led my consumer to that retail site. I need to pay him a commission. How do all those things happen? And there’s a host of industries where money needs to be collected, but then distributed. It’s that modern commerce experience we’re talking about.”

To implement embedded finance, Priore says SMBs need to have “a treasury ledger, some type of way of calculating what everybody is owed in that value chain. How do I move it out? Maybe one person wants their money sent to their bank account, but someone else says, ‘You know what? Just load up this debit card because I’m out in the field and I just need to buy more stuff to effect the next transaction.”

“… All these new business models are emerging in industries like healthcare, or construction, where I’ve got multiple subcontractors, and I’ve got a project manager, a lender, and also an equity holder. Money needs to come in from my lender and equity holder and move out to a host of subcontractors, all doing different things that have to deliver on a different experience to get paid.”

“These are complex environments, and that’s what payments now are expected to support. You cannot do that without a banking treasury function, often a finance function, and that’s where this whole notion of embedded finance is taking root in the modernization of how money moves.”

When Bad Things Happen: Takeaways for Mitigating Risk in Business Banking

For small and medium-sized businesses, Thomas Priore says the choice of a sound payment strategy can be a tricky proposition — albeit a potentially rewarding one. For SMB owners or financial decision-makers, Priore believes knowing the difference between real risk and perceived risk will be the key to continued business growth and future success. Relying on the wrong risk profile and the wrong partners for your business can lead to disaster.

What does Thomas Priore think the biggest lesson is in all of this? Macroeconomic environments and macroeconomic events matter — a lot. “As a business operator, I don’t care what your size, you have to pay attention to it,” Priore affirms. “You have to pay attention to what your partners are doing because there can be a lot of indirect impact due to a bad partner. So, we’re trying to make certain at Priority Business. We're very thoughtful about that, so our partners know they can depend on us.

“I’ve always had a unique ability to understand real risk from perceived risk, and doing that has allowed me to maybe make bets that others wouldn’t,” Priore admits. “But also, to take certain risks in business that customers or partners would participate in that enabled me and the companies that I was running to get outsized rewards relative to our partners because we took a greater risk that they perceived was there than we knew was there. That helped us grow fast. And also, it helped us build great partnerships.

In summary, with the rise of emerging technologies and changing customer expectations, businesses need to be strategic in mitigating risks and making smart investments in their payment solutions. By understanding the difference between real and perceived risks, businesses can make informed decisions that will ultimately contribute to their success.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes