We've seen a lot of investment and innovation in consumer payments within the past few years. But as this market has become saturated, investments in the consumer space have shifted toward the B2B space. In fact, 54 percent of European fintechs surveyed by researchers at Roland Berger said payments is the greatest area of opportunity.
What's this opportunity, then? B2B payments.
Illustrated by Ryan Mason
Up until a few years ago, no solution provider entirely addressed this, leaving businesses with a patchwork of partially automated, mostly manual payment processing operations. In fact, according to the 2016 AFP Electronic Payments Survey, U.S. businesses still make 51 percent of their payments by check.
For a while, that percentage was slowly yet steadily falling—from 81 percent in 2004 to 50 percent in 2013—but it's recently ticked up; illustrating that companies have reached a limit with what they can do with current electronic payment offerings.
New B2B payment solutions are not just an opportunity for fintech investors. It's an opportunity for businesses to adopt these new solutions and eliminate the last bastion of paper processing—forever.
Why are we stuck here?
Although the reason seems simple enough, B2B payments are anything but. For starters, corporate payments have bonding, insurance, compliance, and security requirements. Vendors want to be paid by different methods; plus compiling and managing that information is an unending task.
On the back end, there's a lot of work needed to see payment through to completion. From sorting errors to incorrect payment or invoice amounts, even paying the wrong invoice—it's a proverbial Murphy's law: anything that can go wrong, does. And payment products of the past have just pushed payment out, disregarded follow through, and clapped the dust off their hands leaving the customer to deal with the aftermath on their own.
We never stopped to think how ridiculous it is to call this a payments solution—until now. That's not a complete solution.
Some software suites do payments—but marginally. Those payments are typically an afterthought in software platforms such as feature-rich ERPs, accounting, procurement, or travel and expense solutions. Simply put, they may include a payments component, but it's not a laser-focused payments solution.
You do gain convenience in this setup—convenience of having everything under one umbrella. That means only one contract and only one place to call for support. But you also make a business-critical sacrifice.
Since payments aren't the primary focus, they tend to get shortchanged on support and resources. And that's a big a problem in payments.
It's one thing if your invoice scanning system goes down—somebody could just hand-key invoices for the day. A hiccup in your procurement system? That's not a deal breaker. But if vendors don't get paid, it is a big deal.
What about banks?
Yes, banks offer business payment products—from revolving lines of business credit to business loans. Banks offer a bevy of products to help keep business payments moving along, but what they truly offer are suite relationships.
For the most part, they're reselling someone else's payment product. Whether it's a card network, access to an ACH network, or printed check operation, they're selling a service that isn't in house—so you can pretty much forget about any customized development requests and integration.
Plus, setup takes a lot of work, and there's limited assistance with vendor enablement. So it's entirely up to you to get payment information from your accounting system into the bank. And that very same card, ACH, or printed check solution doesn't communicate with one another so this solution won't scale.
That's where we've been with B2B payments for a long time—bits and pieces taped together by manual processes.
The real solution
The business-to-business payments landscape is littered with plenty of products tackling only a few of the pieces—a lot of crucial details are left out and that's held companies back. A complete payment-centric solution, then, should provide:
- A solution that makes any payment type—card, ACH, international wire, and printed paper check—directly from within an accounting system.
- Visibility into the status of all payments.
- Complete vendor onboarding—not just the top 10 or 20 percent. And do this continuously and in real time. So when a vendor changes address, banking information, or type of payment accepted, the solution immediately commits those changes.
- Optimized payment routing. Make payments through the most advantageous payment method. Ideally, through card to generate the highest rebates. Alternatively, ACH or printed check.
- Payment support. Guaranteed delivery to the correct recipient for the right amount.
Software—more specifically, fintech—excels at solving these problems; and can do so much better, faster, and cheaper than any disparate solution of the past.
And that's the opportunity investors are seeing. Businesses, too, are beginning to see this as well.
Are you ready to open your eyes to a true B2B payments solution?