As the financial services industry takes a look back at 2017, a few milestones stand out: the progress of faster and instant payment initiatives. The evolution of blockchain-based services. Collaboration between FinTechs and banks. And, much to the relief of corporates, the continuing focus on B2B payments innovation.
Businesses have begun to shed the notion that they are slow to embrace new technologies, and that means the disruptive services and solutions coming out of the financial services space aren’t leaving B2B payments in the dust.
Neil Ambikar, founder and CEO of global corporate payments startup B2B Pay, based in Finland, says many of these tools are beginning to address the particular points of friction in international B2B payments, which are often slow, expensive and lack visibility for both sides of the transaction.
“We are definitely seeing more innovation in the cross-border B2B space in the last two years than we have ever before,” he recently told PYMNTS. “We are not too far off when the difference between local and international payments is going to get very blurred to the point where it won’t matter.”
That includes the ability of faster payments initiatives to address corporate, cross-border transactions in addition to consumer, national transactions, he said. But considering the pace of innovation, speed is only one part of the overall evolution of global B2B payments.
“When it comes to B2B, payment speed is important, but only to a point,” said Ambikar. “It’s the whole package that needs to be changed and accelerated. A small business needs working capital, letters of credit, export insurance logistics, shipping insurance and credit protection. This whole area is fragmented, archaic and very costly. Faster and cheaper payments are just the top of the changes we need.”
Traditional banks have, so far, been unable to address all of these points of friction for small- and medium-sized businesses (SMBs) that trade internationally, he added.
“This has happened due to lack of competition, cost of legacy banking systems and lack of profitability on small customers,” the executive explained, adding that financial institutions (FIs) have paid little attention to their small business customers, instead focusing on the more profitable large enterprise clients.
That’s where FinTech comes in.
“There are solutions that banks just don’t offer for the modern world,” said Ambikar, adding that small businesses’ financial services demands continue to grow more complex, forcing them to look outside the traditional banking system. “How many small businesses do you know today who don’t have an online presence or who are not selling globally? They can’t do this via their bank.”
FinTech’s ability to fill in SMB service gaps has become a key driver in 2017, as more companies not only develop solutions targeted toward small businesses, but also actually begin collaborating with the banks that couldn’t fill SMB service gaps on their own.
Traditional FIs have noticed B2B Pay, too. Last year, the company was accepted into the Barclays Accelerator program, and this year, Argentinian bank BBVA chose B2B Pay as a winner of its Open Talent 2017 F4C.
But collaboration with traditional players is, again, only one piece to the massive puzzle of B2B payments innovation. Interacting with other innovations, like blockchain, has become a focal point for the industry, said Ambikar.
The CEO admitted that he was skeptical of the technology at first, especially considering the complexity and inevitable regulation surrounding cryptocurrencies.
“But when you look at the technology itself and what it has achieved in the consumer market in creating truly global payment solutions, it’s amazing and way ahead of anything out there in banking today,” he said. “I am super excited about creating the necessary blockchain protocols that combine the benefits of the blockchain with regulatory layers built in to meet local and international laws. This will lead to businesses being able to use this amazing technology and also feel safe using it. Trust and safety is a … bigger issue in the B2B space than the B2C space.”
With innovation coming from many angles, the B2B payments space in 2018 isn’t likely to see a linear path to progress. Ambikar told PYMNTS he seeks three key trends for the cross-border business payments market in the coming year.
One will be the impact of FinTechs on the industry as they emerge as larger, more influential players in the market.
“They are also investing more in compliance and regulatory activities, which has been a barrier to growth in certain areas of B2B,” he stated, adding that in the U.K., for instance, after nearly 100 years without a new bank, the last few years have seen dozens of FinTechs acquire banking licenses to disrupt the industry. “You will see a lot of complex products that will be offered by these challenger FinTechs,” he said.
Secondly, continued Ambikar, the B2B payments space is likely to see a lot of cross-selling and integration with other third-party providers, as players aim to offer small businesses a package deal, “since SMBs don’t want to sign up for dozens of different services,” he said.
And finally, looking ahead, the B2B payments space will likely continue its focus on what Ambikar called “the big B”: blockchain.
Despite controversy around ICOs (initial coin offerings), which have garnered significant criticism from regulators and CEOs of blockchain companies, Ambikar said the offerings have led to significant investments in blockchain startups and, through that funding, those companies will be able to innovate and address some of the most complex challenges in B2B payments.
They include “supply chain documentation, letters of credit and international trade litigation,” he said. “These problems require a lot of patience, time and global resources. It’s amazing that even with globalization, a lot of international trade practices are not standardized and subject to an enormous amount of bureaucracy.”
“Small startups just don’t have the resources to solve them,” the CEO said. “I am hoping the crazy money raised in ICOs will be able to.”