How Technology is Changing the B2B Payments Landscape

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Thursday, April 9, 2020

Optimizing B2B payment processes can have huge benefits for businesses. What potential does technology offer to boost efficiency and cut costs in this space?

Article 4 Minutes

It's difficult to succeed as a business if you're not getting paid properly, or if your relationships with suppliers and partners are suffering because of inefficiencies in your outgoing payment processes.

Research on B2B payment technologies by Mastercard and Optal highlights a number of common issues in this space:

  • 49% of organizations surveyed had misdirected or duplicated payments to suppliers
  • 60% received no financial reward from their bank or credit card provider on payments they made, which equated to a lost revenue opportunity of $16.3m (£13m)
  • Businesses admitted to $49bn (£40bn) in late outgoing payments

The study also explores the biggest challenges facing B2B payments, such as:

  • Reducing errors, misdirected payments and supplier enquiries
  • Using automation to improve reconciliation
  • Cutting account data complexity to enable safer payments

Modern technology has the power and the potential to help businesses optimize their payment processes and overcome some of these challenges.

Here are some of the most exciting areas of innovation:

Automation

Automation is a big consideration for many organizations at the moment, offering potential benefits such as reduced resourcing time and a lower risk of errors in regular tasks and processes.

There are many possible applications of automation in B2B payments, such as the automatic generation of unique virtual account numbers (VANs) valid for specific transactions. These numbers expire after a single use, eliminating the possibility of them being used for future fraudulent transactions if they fall into the wrong hands.

VANs are used by major financial services groups like Mastercard and American Express.

Automation can also remove the manual element from routine but vital processes like payment reconciliation, helping to increase accuracy and reduce the risk of mistakes that could come back to bite you in the future.

Electronic payments

Using electronic methods to pay for goods is very much the norm in the consumer world, but statistics suggest the B2B segment is lagging behind.

In the US, for example, paper checks are still the most popular way for businesses to pay each other. The country's small business market is expected to reach a value of $9 trillion in 2020, but 80% of smaller firms still rely on checks to make payments.

Alongside electronic payment options like bank transfers, innovations like mobile wallets - while perhaps more often associated with consumers - can offer advantages in the B2B environment.

If you rely on accepting off-site payments - when delivering goods or services to companies at building sites or trade shows, for example - mobile wallets can make it easier to complete electronic transactions on the go.

Enhanced security

It's estimated that fraud losses totaled $4.2 trillion in 2018, so as a business you clearly have a lot to gain from ensuring your payment processes are as secure as possible.

However, it's also important to balance the need for security with your customers' desire for smooth, frictionless transactions. Having too many barriers to overcome and checks to go through at the checkout stage, for example, could put some buyers off.

The accelerating evolution of technology could come to the rescue once again, thanks to projects such as the collaboration between data analytics company Equifax and identity verification solutions provider GIACT Systems. These firms are working together to see how customer identity and behavioral data can be combined with cutting-edge technology and analytics to combat various types of fraud.

The cloud

The growth of cloud computing has impacted many areas and aspects of business, including B2B payments.

Evolution and acceleration in cloud technology has been cited as a key driver of growth in US B2B payments, which are set to reach a value of more than $23 trillion in 2020, according to Deloitte.

Shifting financial processes to the cloud can help companies achieve the sort of speed, agility, and responsiveness that consumers have become accustomed to in B2C payments within the B2B space.

Nadav Sharir, vice-president of engineering at business finance provider Behalf, told Finextra that cloud-based organizations can achieve a speed of experimentation with new channels and capabilities that firms using legacy technologies will struggle to match.

Blockchain

Blockchain - the technology behind cryptocurrencies like Bitcoin - has been a common talking point in the payments industry for several years. It offers speed and efficiency benefits that are seen as particularly valuable for businesses that frequently make and receive cross-border payments.

While forecasts have suggested the market will be worth $30 million by the end of 2020 and more than $560 million by 2025, blockchain has yet to transform the payments sector. But that could change in the future.

"There's still a lack of consensus around things like the right platform and the right interface that are keeping [blockchain] from becoming more mainstream. But, that's not to say its impact will be lessened once those questions are resolved." - AvidXchange CEO and co-founder Michael Praeger.

 

The pace of development and adoption will vary between technologies, but there's no doubt that new services, innovations, and methods will continue to transform B2B payments in the years to come.

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