Between legacy tools like paper checks, contemporary solutions like ACH and potential emerging innovations like the blockchain, B2B payments are no longer stuck with their head in the sand when it comes to payments evolution.
Juggling so many technologies, while trying to stay on top of what works for both the payer and payee, however, creates an entirely new ballgame for FinTech companies looking to smooth over points of friction in B2B payments.
One firm in the race is Ixaris. The payments technology firm first began with a focus on consumer payments. About four years ago, though, it launched solutions targeted towards corporates, and since then, that aspect of the business has ballooned.
According to Ixaris Group, B2B payments now make up about one-quarter of its revenues. With that in mind, the firm revealed last week that it will be spinning off its B2B payments unit into its own separate organization, Ixaris Technologies.
Ixaris Group CEO Alex Mifsud spoke with PYMNTS about the firm’s plans to launch a unit dedicated to B2B payments innovation and how current market conditions are guiding FinTech disruptors to develop customized solutions.
“There are three big drivers of opportunity in payments,” Mifsud declared. “The first, the obvious one, is cost. The second is control, and the third is convenience.”
As corporate payments continue to progress in sophistication, the B2B space is increasingly propelled by these three aspects, he said. Mifsud pointed to cross-border payments to exemplify how crucial these cornerstones are.
“Cross-border transfers are still very expensive and slow,” he said, “and prone to be broken — to not arrive at the other end or not arrive in the amount that is expected.” These points of friction mean international B2B payments need to be more affordable, businesses need greater control over the transaction to know where a payment is at any given time and they demand the convenience of knowing a payment will land where and when it should, for the correct amount.
Like so many FinTech players today, the Ixaris CEO highlighted the inability of traditional banks to get a handle on these issues.
The problem, Mifsud claimed, is that banks offer packaged solutions that won’t work for every vertical.
“We want to move away from the one-size-fits-all, quite inefficient way we make payments today, to a solution that is very tailored to the specific industry or even a specific customer,” the executive said, emphasizing that his company believes the way forward in B2B payments innovation is through customization.
Mifsud proposed two industries to demonstrate. One of Ixaris’ clients is in the insurance sector and needs to issue global payments to various suppliers of emergency services in real time. In this case, a virtual card solution was most appropriate, the executive said.
“It allows them to make a unique card number for every claim and deliver that card to the emergency supplier,” he explained. “It’s not only available in real time, but also, they get the data on how the card’s actually been used so it will match up to the authorization they have been given.”
But a virtual card may not be the best solution for, say, a B2B travel company. Another client of Ixaris in this vertical is more focused on the costs associated with making global payments, Mifsud said.
“Online travel is a very small-margin business,” he said. “Firms need to make sure they minimize the cost of conversion, the cost of cross-border transfers, the cost of surcharges when they have to buy services or pay airlines.”
“The travel industry needs to solve that problem of cost, compared to the insurance business, where it’s all about real-time payment and the data that comes back to the originator,” he continued. “No solution is exactly the same.”
FinTech players must mix and match the various payment rails available to them — ACH, virtual and physical cards, even blockchain in the future — depending on the business making the payment, Mifsud said.
There may be issues ahead for companies that focus on the buy-side organization when developing payment solutions, however.
Recent research from Receivable Savvy examined the disconnect between how corporate buyers are paying their suppliers and how suppliers actually want to get paid. The conclusion was unsurprising: These preferences rarely match up, at least in the U.S. market.
While ACH payments were a common denominator between buyer and supplier, card payments are rarely preferred among suppliers, largely due to the interchange fees associated with them.
And when it comes to legacy payment systems versus contemporary solutions, the payment tools are often similarly misaligned; the majority of suppliers prefer to get paid digitally but are instead being paid by their buyers via paper check.
Mifsud noted that, across Europe, use of the paper check is far less than it is in the U.S., though “there are still lots of legacy systems” in the market, he said.
The executive again pointed to the concept of customization and the mixing of payment rails as a way to bring the payment needs of buyers and suppliers back in balance.
Ixaris will be pitching that proposal to investors in the near future as it seeks support for the spinoff. Mifsud added that while the firm doesn’t operate yet in the U.S., over the next two years or so, it will explore that market. But, for the payments innovation space overall, when it comes to progressing B2B payments, it’s all about eyeing new approaches the banks have failed to take.
“You move away from ‘here’s something the bank has created,’ and you just use it as the way the bank intended,” Mifsud said. “That’s the old world.”