Digital payments have started to disrupt the B2B space, starting with those sectors where clients are relatively small and transaction value is low, and therefore, the customer journey is relatively close to B2C. Gabriel Lucas, Associate Director at Redbridge, examines the frontiers of innovation in B2B payments.
The following article was originally published in the Cross-Border Payments and Ecommerce Report 2023–2024 by The Paypers. To access the full report, you can download it here.
What is the current context in B2B payments?
The current context in B2B payments is shaped by the aim to align more closely with the B2C payment experience.
Indeed, merchant cards and digital payments have been historically focused on B2C – this is particularly true in Europe, while other countries like the US are very used to paying by card even for high-value B2B transactions. The main reason is that B2B payments have been traditionally more complex, involving more extensive onboarding requirements, and usually offering a payment term of several weeks after the invoice is issued.
However, digital payments have started to disrupt the B2B space as well, starting with those sectors where clients are relatively small and transaction value is low, and therefore, the customer journey is relatively close to B2C. Many B2B companies are also launching a direct B2C channel via ecommerce, and they must deal with this new field of expertise that they didn’t use to have.
What are the main payment-related challenges that B2B merchants are facing, and what are their main objectives?
The main objective that most of our clients share is the acceleration of the order-to-cash and pay-out processes. This requires exploring innovative payment solutions to facilitate faster money transfers, as well as implementing automation across various processes, from onboarding and billing to dunning and reconciliation.
Another typical concern for merchants when talking about payments is the cost, which is particularly high when it comes to commercial cards and cross-border payments. Merchants may try to mitigate this challenge by negotiating transaction fees with their payment providers and exploring alternative payment methods and solutions.
In this pursuit of automation and cost reduction, streamlining risk management, including credit and foreign exchange (FX) management, has also become essential to ensure efficient and successful collection and disbursement processes. Lastly, enriching data analytics and prioritising data security have become a must-have to understand the market and adapt rapidly to remain competitive.
What innovative solutions are currently proposed? What trends may we expect to see soon?
As B2B payments are part of a much longer process than B2C transactions, streamlining payments as one of the key components of the order-to-cash process is extremely important, and there are a few solutions that are quite a hot topic at the moment:
- Open Banking (applicable to the European Economic Area – EEA) – leveraging account data and payment initiation through Open Banking provides a smoother and more secure payment experience while improving operational efficiency versus traditional SEPA Credit Transfers (SCT). Coupled with pay-by-link, we expect its adoption to increase significantly once electronic invoices become mandatory in Europe (expected by mid-2024 for companies subject to VAT).
- Instant Payment (SEPA Credit Transfer Inst in the EEA) – instant payment solutions, enabling transactions in as little as ten seconds, are gaining traction as they have been proactively pushed by European institutions.
- Buy Now, Pay Later (BNPL) – this payment option is the combination of payments with credit scoring and insurance services, and it allows merchants to further automate and outsource the risk inherent to offering a payment term.
Pay-out is also an area where we have seen a lot of innovation recently for B2B:
- Virtual cards and purchasing card (P-Card) programmes – these products streamline expense control and transaction analysis, while generating revenues for the merchant out of the interchange.
- Visa B2B Connect and Mastercard Send – partnerships like Visa’s collaboration with Swift aim to enhance international B2B payments, offering more options and end-to-end transaction visibility. Similarly, Mastercard’s partnership with B2B Pay aims to improve the efficiency and cost-effectiveness of international transactions.
- Pay-out platforms – these platforms focus on streamlining processes and managing FX, making cross-border transactions more efficient, both from an operational and a cost standpoint, by aggregating money transfers and therefore reducing the number of transactions – and by limiting or even removing the intermediaries (i.e., correspondent banks).
Another type of solution that has spread significantly in the B2B space is expense management. Easy access to detailed transactions associated with their respective receipts or invoices simplifies expense reporting, replacing slow and inefficient processes like spreadsheets and receipt-filled envelopes.
What do you think are key success factors for B2B merchants implementing new payment solutions?
B2B merchants seeking to implement new payment solutions must consider a few critical success factors. First, integrating these solutions with legacy systems is paramount, ensuring a seamless transition within broader digital transformation initiatives. Second, effective integration with ERPs like SAP or AX and CMS platforms like Magento 2 is crucial in creating an integrated and harmonised system architecture. Lastly, understanding budget constraints and adhering to a well-defined roadmap is essential to ensure its success.
What is your advice for B2B merchants who are still hesitant about embracing payment innovation?
My advice for B2B merchants who are still hesitant about embracing payment innovation is to take a pragmatic and ROI-based approach to assess their payment architecture.
Merchants can start to evaluate their current needs, keeping in mind that sometimes small changes (quick wins) can bring significant benefits. This process should involve all relevant departments in the decision-making process, as payment transformation is usually a transversal topic, while keeping their workload to the minimum required. This collaborative approach ensures that diverse perspectives are considered without overwhelming teams, and without leaving out any potential impact.