B2B Payments

Paper Checks Continue To Steal The B2B Payments Spotlight

2017 may go down in B2B payments history as the year the space finally saw a bump in attention from innovators. Amid the excitement over faster payment initiatives, blockchain, open banking efforts and collaboration between banks and FinTechs, B2B payments have found the spotlight as players recognize immense areas of opportunity to address key points of friction — and the potential for lucrative revenue streams, with Deloitte estimating global B2B payments to reach $23.1 trillion by 2020.

As the market looks toward the future, some predictions for B2B payments have remained consistent throughout the decade.

Take, for instance, the shift away from paper checks. The Association for Financial Professionals (AFP) released a report in September that found the use of paper checks in B2B payments actually increased in 2016. But experts still expect reliance on paper will fall in 2018, with separate analysis from NACHA, released in June, finding accounts receivables (AR) executives anticipate ACH payments to surpass the check by 2020.

Catherine Dahl, CEO of B2B payments company Beanworks, recently told PYMNTS she agrees with the expectation that the paper check will see declines in 2018.

“More and more businesses today want to move away from using paper checks, and for good reasons,” Dahl said. “Fraud, speed of payment and control are all problematic with paper checks.”

These points of friction are driving increases in use electronic payment rails among corporate payers. But the B2B payments market today isn’t where it needs to be for companies to easily adopt ePayment technologies, she explained.

“If the technology available was smoother and the process was easier and less error-prone, 95 percent of our customer base would be processing ePayments today,” Dahl stated, adding that instead, only about 40 percent of Beanworks’ customers are easily on-boarded to digital payment methods.

Collaboration Is Key

As industry players work to address pain points like on-boarding, traditional and alternative financial services companies have largely turned to collaboration between each other in 2017. According to Dahl, that trend will inevitably continue.

“Over the next two-to-three years, I anticipate that more banks will create partnerships with technology companies that add value to their services and help maintain the customer relationship,” she said.

Dahl isn’t the only executive with this expectation.

“In 2018, banks will look to partner with the genuine disruptors that offer a meaningful alternative to the traditional B2B transfer system,” stated Terry Clune, CEO of cross-border B2B payments company TransferMate, in an earlier interview with PYMNTS. “I believe 2018 will be the year of collaboration by banks as they continue to reduce costly correspondent banking chains or seek parallel alternative rails. API-driven interfaces particularly, with their B2B customer banking network, will feature within the collaborations to provide an ecosystem platform assisting their customer base with all aspects of cross-border activity when importing or exporting.”

Open Banking

The use of application program interfaces (APIs) and open banking initiatives across the world are also expected to make big waves in B2B payments. Myles Stephenson, CEO of business payments and API company Modulr Finance, said APIs will be instrumental in addressing the friction of onboarding Dahl mentioned.

API-driven services, like the U.K.’s Faster Payments system, “can sometimes onboard a new business in days, while providing specific [service level agreements (SLAs)] around quality and availability of service,” Stephenson said.

Those APIs have also emerged in 2017 as the critical component to bank-FinTech collaboration, especially in markets like the U.K. and EU that are bracing for open banking regulations like PSD2 to take effect in 2018. Banks’ and FinTechs’ data-sharing activity means innovators can quickly create new solutions that corporates can actually use, reducing barriers to adoption that have traditionally kept businesses stuck on the paper check.

“Traditional banks are hard to work with and will continue to lose their customers’ payments business and data if they can’t connect directly to their customers’ business applications through new technologies like APIs,” said Dahl, though she added that even after addressing pain points of onboarding, “there are significant issues with moving money digitally. From the account professional’s perspective, this should not be so hard or complex as they can go on their personal banking app today and send money easily.”

What’s Ahead

Along with open banking regulations coming into effect in 2018, faster payment capabilities will also expand their footing in several markets, including the U.S. But B2B payments aren’t likely to experience major disruption from those efforts.

“Faster B2B payments will be a great augmentation for next-day payments for off-cycle and extenuating circumstances, rather than as a de facto replacement for current methods,” Dahl suggested.

Instead, some analysts agree that value-added services linked to faster payment initiatives — like easing on-boarding friction to a digital payment solution, and the ability to track payment status and data — will be more beneficial to corporate payers.

“When it comes to B2B, payment speed is important, but only to a point,” said Neil Ambikar, founder and CEO of global corporate payments startup B2B Pay, in an interview with PYMNTS earlier this month. “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.”

Ambikar added that there is great potential for technologies like blockchain to promote many of these areas of focus. Indeed, analysts are expecting investors to go big in the blockchain world in 2018, though many agree the industry remains in its infancy, and when it comes to B2B payments, innovators are still exploring potential use-cases.

“Although possible, it remains to be seen what role blockchain can really play to improve services to business accounting teams, if any,” said Dahl. “Blockchain and cryptocurrencies will continue to evolve, and the banking system needs to continue being open-minded about around-the-payment use cases for this innovation.”

Whether through the use of blockchain, APIs or other technologies, addressing key pain points in B2B payments will continue to be the focus of the industry in 2018.

Key players in the space already have big plans for the new year. Visa, for example, will launch and scale its cross-border B2B payments solution B2B Connect, while B2B payments company nanopay will also be expanding its platform into new markets in 2018.

But for some, the ability of these emerging solutions to bring speed, efficiency and transparency to B2B payments are all knock-on effects of one goal: nixing the paper check.

“Businesses will continue to move away from paper checks and demand real-time exchange of money, on both sides of the transaction,” Dahl said.

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