The consumer payments industry is thriving. Last year, consumers adopted more payment methods than ever before, a behavior companies like Stripe (now valued at $ 95 billion before a much-anticipated Wall Street debut) are banking on in a post-Covid world.
In fact, a recent report from Deloitte tells us that despite the decline in business activity from the pandemic, the US consumer payments industry has been “resilient in supporting consumers in these difficult times” with “the show. contactless cards, the promotion of digital wallets, and the installation of point-of-sale terminals with contactless functionalities. If you’ve paid a friend with Venmo or Zelle in the past year, which you probably have, you’re part of this digital payments trend.
Meanwhile, business-to-business payments in the United States are fundamentally halted, with around half of payments still made by paper check.
It’s no secret that checks can be costly to process and slow to arrive with increasing mailing delays, hurting cash flow. And having a room full of people processing checks just doesn’t fit the new mindset of working from anywhere. Indeed, despite their still widespread use, checks are the least preferred payment method for accounts receivable professionals, according to a recent Billtrust survey.
The bottom line is that B2B organizations are hampered to achieve their full growth until they adopt solutions to accept digital payments.
Some millennials and older millennials may never even have written a check, so why are the B2B payment methods used by the companies they work for so late? There are a lot of reasons besides a good old-fashioned resistance to change. One of the most important is that there is no easy way for a business that wants to make an electronic payment to learn how to pay another business electronically.
Without a central repository of bank credentials and email addresses, businesses resort to the extremely inefficient practice of calling their suppliers and requesting their bank information. A better solution is to hire an Accounts Payable partner who does this as part of their business model, although they are essentially doing the same thing, so the complicated process ends up just being handed off to someone else. .
Of course, that’s not how it works in person-to-person payments. If you want to pay someone you know electronically, you can use a service like Venmo. You don’t call the person to ask for banking information. Venmo is both a directory of people who can be paid and a tool for moving money.
So what can B2B learn from the world of consumer payments? In short, interoperability. Hundreds of enterprise resource planning systems, along with thousands of banks and even more companies all investing in a variety of customer payment portals, make B2B payments far more complex than consumer payments. This makes interoperability the key to the wide use and acceptance of B2B digital payments.
In the consumer world, interoperability dates back to the late 1970s and early 1980s, when there were dozens of ATM networks like Star, Cirrus, and Pulse. While it’s great to be able to withdraw money from your bank account 24/7, you were initially limited to using your own bank’s ATM or network ATM. It was only when these networks joined forces that ATMs really took off. These interbank networks now play a vital role in facilitating transactions between cardholders, merchants and banks, and they form the basis of today’s strong consumer payment system.
As with ATM networks, B2B payment networks exist today, automatically connecting vendors to many AP portals that buyers use to pay bills, as well as to third-party banks and ERPs. Functioning as a digital safe, a B2B payment network captures the payment instruction when an invoice is approved for payment and transfers the money to the vendor based on their payment preferences. He obtains the discount, publishes it, and presents it in a format compatible with the company’s AR process. A payment network also allows providers to broadcast their payment preferences on AP portals, which more and more businesses are using.
Although B2B payment networks exist and are growing, more integration is needed. It will bring suppliers and buyers together by connecting the financial services ecosystem between AP providers, payment card issuers, ERPs and banks. For large businesses that transact with vendors, including large paid hotspot providers on behalf of smaller organizations, payment networks will play a central role in the future of B2B payments.
– Flint Lane is the Managing Director of Billtrust, Lawrenceville, NJ