In 2024, the B2B payments conversation centered on moving businesses away from checks and toward electronic transactions.
Two years later, the industry has made infrastructure advances, but two newly published research briefs from the Federal Reserve Bank of Cleveland highlight that the hardest part of B2B payments remains connecting the payment to the commercial transaction behind it. A supplier can receive an electronic payment in seconds and still spend hours determining which invoices it satisfies, whether discounts were applied correctly and how the transaction should appear in its accounting system.
“Typically, invoicing processes are independent of the payment methods that are now widely used,” the Cleveland Fed wrote in “B2B Payments: Business Processing and Challenges to Achieving Straight-Through Processing,” released Friday (Sept. 25).
The agency’s research pointed toward fragmented remittance standards, legacy accounting systems and incompatible data formats as continuing obstacles to automation.
It identified five interconnected phases, including supplier onboarding; procurement and delivery; invoicing; payment; and reconciliation. Each phase creates information that must ultimately be recognized by another system, organization or department. A payment can be processed electronically while the transaction surrounding it remains fragmented.
Moving money electronically is becoming routine. Making the entire commercial transaction intelligible to every system and participant involved remains unfinished business.
Read also: Fed Study Shows B2B Payments Are Becoming a Cost-Per-Event Problem
The Check Is Losing Transactions, Not Its Place in Business Payments
The Cleveland Fed’s September research did not suggest that the industry’s digitization efforts have failed. Electronic payments have expanded substantially. But two years after replacing checks dominated the modernization agenda, the next frontier is becoming clearer.
According to the Fed’s “B2B Payments: A Gradual Shift from Checks to Electronic Payment Methods,” released Sept. 21, estimated B2B check payments declined from 4.6 billion transactions in 2015 to 2.7 billion in 2024. Their share of transaction volume fell from 32% to 13% in the same period, yet the estimated value of B2B checks barely changed, moving from $15.4 trillion to $15 trillion.
Businesses are reducing their dependence on checks without necessarily eliminating the processes that sustain them. The remaining transactions may involve suppliers unwilling to accept alternative payment methods, accounting systems that cannot accommodate electronic workflows or commercial arrangements where the paper instrument remains operationally convenient.
In other words, the easiest transactions to digitize have not necessarily been the ones creating the greatest administrative burden.
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The PYMNTS Intelligence Tracker “Who Decides Now: How Developers and Tech Teams Are Reshaping the Future of AP Payments” found in July that 58% of small- to medium-sized businesses (SMBs) rank integration as very or extremely important when evaluating technology solutions.
That hasn’t stopped the marketplace from moving forward. Bank of America on Monday (Sept. 28) introduced two new intelligence capabilities for customers using its CashPro tool and its Global Payments Solutions employees, while Mastercard also on Monday introduced a B2B card acceptance analytics platform to offer customers insights into supplier payments.
See also: The Finance Stack’s Great Unbundling Has CFOs Asking What They Need to Own
The B2B Payment Is Digital, but the Work Around It Isn’t
The Fed’s Sept.25 report examined what happens inside the commercial transaction itself. Consider a supplier receiving an ACH transfer covering several outstanding invoices. The funds arrive through the banking system, but the accompanying remittance information may arrive separately by email, through a supplier portal or in a format incompatible with the supplier’s accounts receivable software.
The Fed identified this separation of payment and remittance data as an obstacle to straight-through processing, the ability to execute transactions from initiation through reconciliation without manual intervention. The problem is compounded by incompatible standards. Wire and instant payments use ISO 20022 messaging, card payments use ISO 8583, and ACH relies on legacy ANSI ASC X12 EDI formats. Even organizations using the same standard can implement it differently.
Legacy enterprise resource planning (ERP) systems create additional complications. Some cannot support multiple remittance formats or automatically exchange payment information with banks. Others require expensive customization to connect with newer financial infrastructure.
The PYMNTS Intelligence report “The Cross-Border Opportunity: How Payments Innovation Can Help SMBs Go Global” found in May that while traditional banks remain the dominant provider for international payments, FinTech companies are expanding their role by turning infrastructure that once required dedicated systems into services that can be purchased as needed.
But adding another payment platform does not necessarily simplify an enterprise’s financial operations. Without interoperability, it can introduce another system requiring reconciliation. The opportunity is not to replace every payment method with another. It is to connect different payment methods to consistent financial workflows.
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