The fintech industry has a golden opportunity to revolutionise B2B payments
Stavros Stratas, VP & Head of Merchant Strategy at APEXX Global
Fintech has disrupted the traditional financial industry for years now, but one area that remains woefully underdeveloped and ripe for transformation is B2B payments. The current system for B2B payments relies heavily on interbank networks, which can be costly and slow. By revolutionising these archaic processes, the fintech industry can help companies to increase operational efficiencies, reduce costs and improve end-to-end AP&AR automation. While B2C payments have already disintermediated clearing houses and become near instantaneous, the same is not yet true for B2B payments. With all the progress that’s been made in B2C payments, there is a huge opportunity for the fintech industry to disrupt B2B payments. What are the remaining obstacles and why isn’t this happening now?
To understand why B2B payments have been slow to transform, we must first understand the current landscape. B2B payments typically involve larger sums of money than B2C payments and the process is more complicated. For example, a business may need to pay a supplier in another country for a shipment of goods. The payment must go through multiple intermediaries, including banks and clearing houses, before reaching the supplier’s bank account. The process can take several days, fees add up quickly and suppliers see impairment in Days Sales Oustanding.
One solution to this problem is to develop faster and more efficient payment networks. Regulators and Fintechs alike are working on new payment networks that are faster, cheaper, and more secure than traditional methods. For example, blockchain technology is being used to create new payment networks that can transfer funds in real-time, with lower fees than traditional methods. Some fintech companies are also using artificial intelligence (AI) and machine learning to streamline the B2B payment process.
B2B payments are often complicated, and many companies still use outdated systems that are difficult to use. Improving the user experience via the development of mobile apps that allow businesses to make payments from their smartphones or web-based platforms that simplify the payment process and provide real-time tracking for both parties would have great benefits for businesses.
One of the biggest obstacles is the ability to scale. Many of the new payment networks being developed are still in the early stages, and it is not clear whether they can handle the volume of transactions that traditional B2B payment networks can. And, while realtime networks are maturing with the help of regulator interventions they typically serve domestic markets or align to corridors of political alliance rather than being truly globally interoperable In addition, many businesses are hesitant to switch to new payment methods because they are unfamiliar with them and may be concerned about security.
Another barrier is the adoption curve. While many consumers quickly adopt new payment methods, businesses are often much slower. This is particularly true for large scale, regulated businesses, which may be less comfortable with new technologies. B2B payments also involve more stakeholders than B2C payments and getting all parties to agree to a new payment system can be challenging and time-consuming. Businesses need to convince suppliers and customers to switch to a new payment network and they can also be reluctant to switch if they have invested heavily in their existing systems.
The lack of interoperability between payment systems is another challenge. B2B payments involve a wide range of stakeholders, including banks, payment processors, and corporate entities. The lack of interoperability between these systems means that businesses may be limited in the payment options available to them, which can lead to delays in payments and increased transaction costs. Additionally, large companies need greater regulatory clarity to reduce uncertainty.
Despite these obstacles, we know that companies of all sizes would benefit from faster and cheaper payment options. Small and medium-sized businesses (SMBs) have to operate on tight budgets and cannot afford the fees associated with traditional payment networks let alone incurred late payment penalties from suppliers. Faster payment options would also help them manage their cash flow more effectively. Meanwhile, multinational corporations need to make cross border payments and would save millions of dollars in fees with more efficient payment systems, while instantaneous B2B payments would also help them manage their supply chains more effectively.
There is a significant opportunity for the fintech industry to overhaul the B2B payments system. By leveraging technology such as blockchain, AI, and ML, fintech companies can automate payment processes, provide a seamless user experience, and streamline payment reconciliation. Additionally, the integration of payments with other financial services can increase customer retention and satisfaction. While the adoption curve for B2B payments may be slower, the potential for growth and innovation is significant, and companies such as TransferWise, Bill.com, and Stripe are already making significant strides in this space. There is a golden opportunity here and we should expect significant innovation and disruption from the fintech industry in this space.