Mar 27, 2018 Karla Friede
Suddenly, business payments are hot. How do I know? Five years ago, I was invited to sit on a panel about B2B payments at a fintech conference called Money 20/20. There was an incredible amount of innovation in consumer payments at the time, but business payments to vendors weren’t on anybody’s radar. Not surprisingly, my fellow panelists and I found ourselves speaking in a small, mostly empty room tucked away in a corner of the venue.
Still, they've invited me back every year, and every year I've seen an uptick in interest in B2B payments. In 2017, it positively exploded. The B2B payments panel was in a big room with bright lights, and it was standing room only at 4 pm on a Tuesday, even though the event’s biggest social gathering took place Monday evening.
You could attribute that to the growth of the show itself—it is now the largest conference of its kind—but I was also inundated before, during, and after the show with requests to meet. At the show, people were in active pursuit, following me around the show floor and popping up in places where they knew I’d be. This is the first time I’ve been such a coveted person to meet.
Those are qualitative measures, but in the context of my experience at preceding years’ shows, I’d say there’s a growing level of understanding of the space and a feeling that B2B payments are starting to come of age. That is good news for customers, considering decades have passed since there was innovation in this space.
Granted, this is a show for industry insiders—people in financial services, banking, payments, etc., and not necessarily the end consumers of those products and services. It’s still not clear how some of the trends and technologies discussed here will play out. It’s safe to say that there are a few key trends businesses should be aware of right now.
Here are 5 trends for business payments in 2018:
B2B payments innovation has begunMany of the people who wanted to meet me were venture capitalists and private equity partners. B2B payments is a very, very large market—36 trillion in payment volume—versus about three billion for consumer payments. Most business customers are still paying with paper checks. This has always been an interesting category because it’s so big, and so far behind in digitization. Now, as the consumer payments technology market is becoming saturated, B2B payments have captured the attention of the investment community. There are a lot of new investments happening, so look for offerings related to B2B payments in the next few years.
Payments as a backboneVendor payments are tied to a lot of other processes. Once you digitize payments, it opens up opportunities with procure to pay, dynamic discounting, supply chain financing, and lending to name a few. For example, we’ve already seen Uber experiment with making auto loans to its drivers and taking the loan payments directly out of their pay. Companies should look to digitize payments with an eye to efficiency and cost savings now, and as a springboard into other innovation opportunities down the road.
Full payments automationThe first wave of new entrants in B2B payments has already hit the market, and many of their value propositions sound the same—cloud, simple, automated. But, not all of them are really in the cloud, simple, or automating the whole process. B2B payments have long been plagued by partial automation, and that’s a big reason why so many businesses are still stuck on checks. Cards and ACH make the transfer of funds electronic, but they also introduce new manual processes for file preparation, reconciliation, and vendor enablement. New, truly automated solutions can handle every part of the process. The person in accounts payable should only have to select the bills they want to pay and click the “pay” button. Buyers need to look past the marketing language and check under the hood.
Banks embrace fintechsFive years ago, the relationship between fintechs and banks was adversarial. There was a lot of talk about fintechs using technology to take over different aspects of banking and to do it faster, cheaper and better. Over the past 18 months or so, we’ve seen the conversation shift. There is a growing recognition that banks and fintechs have very different strengths and that they will be stronger together. Bank and fintech relationships are now starting to form. Examples include Bill.com's relationship with JPMorgan Chase. The idea is to bring Bill.com’s solution to small businesses through the bank channel. Chase’s recent acquisition of WePay provides an application for three-party payments for platforms such as ConstantContact and GoFundMe. This is just the tip of the iceberg; we will see many more partnerships and acquisitions in 2018.
Blockchain is still a technology to watchBlockchain, the distributed ledger technology that underpins Bitcoin, is still very much part of the conversation. This is the only technology that truly has the potential to change banking and finance as we know it, providing a new set of instantaneous, decentralized, global payment rails. Banks and fintechs such as Ripple and Earthport are collaborating and getting traction, demonstrating they have a value proposition. But, if banks find ways to control it, it may end up being a better experience, but it won't be any less expensive than current options.
All of these developments are great news for customers because the market is picking up speed and companies will have a lot more choices than in the past. B2B payments are far more complex than consumer payments, and there’s next to no technological innovation applied to them until very recently. Companies have lived with the status quo for decades. That is all about to change.
As fintechs encroach on core bank activities like lending and payments, banks are going to step up their game by either improving their own services or teaming up with the innovators. A lot of the people chasing me around Money 20/20 were bankers wanting to discuss partnerships, so clearly a lot of banks are open to the idea of offering fintech solutions through their channels. Finance professionals will probably have more people talking to them about B2B payments in 2018 than they’ve ever had before. They should proceed with caution to see if the value is really there, but they should definitely listen and learn.