B2B commerce is on a quest to help corporate buyers access a B2C-like experience. But the reality of B2B eCommerce is that it’s not on the same plane as consumer online shopping — transaction volumes are higher, and, in many cases, so is risk.
B2B payments companies have worked to integrate their solutions into these online marketplaces to achieve an experience resembling online shopping on Amazon. Often, that includes adding a mechanism to support commercial cards. But Scott Reynolds, president at Armor Payments, a Payoneer company, says cards aren’t the right answer — and often, even integrating a payments portal in a B2B eCommerce marketplace isn’t right, either.
“B2B marketplaces are looking to create a great user experience for buyers and sellers,” he told PYMNTS, “but they don’t want to become a payments company or payments experts.”
Similarly, credit cards may not be the best way to hand buyers and suppliers the experience they seek.
“Credit cards do a great job of protecting consumers, and the typical online consumer transaction value is around $80 to $90,” Reynolds said. Retailers are more willing to accept an interchange fee on that sale, as well as take on the risk of potential chargebacks.
“It’s not going to break the bank,” he added.
“But a smaller or medium-sized business may have a $5,000 or $10,000 sales, and if it’s on a credit card and the buyer initiates a chargeback, well, you’re in trouble,” Reynolds continued. “You may not be able to make payroll that month.”
The cost of accepting payment methods typically seen on B2C eCommerce sites is often too much for suppliers to bear. The consumer protection on those payment methods, too, often “don’t translate well into the B2B world," he said.
With these high-value, high-risk transactions, other payment vehicles may be a better fit. Today, these platforms are integrating third-party solutions to facilitate transactions via wire, ACH and other rails that can support the security and affordability necessary for high-value transactions. Less common is an escrow service, which some businesses may find more secure as there is greater control over when funds are transferred as goods and services are delivered.
Escrow services to facilitate B2B payments may be on the rise. Earlier this week, Ripple, which provides FIs with financial technology using blockchain, announced its own escrow service for clients.
“The benefits to escrow are twofold,” the company wrote in a blog post revealing the new feature. “1) It completes this task [to hold funds until a service is completed] without having to trust intermediaries, and 2) no single institution is in charge of holding the funds.”
The service is different from those offered by Payoneer and Armor Payments, though, as Ripple’s facilitates the transfer of digital assets.
Payoneer — which won Gold at this year’s PYMNTS.com Innovation Project for Best Small Business Innovation — has made it a point to introduce escrow services into B2B trade transactions and put its money where its mouth is when, last year, the company acquired Armor Payments. Today (April 3), Payoneer is revealing new information about its escrow services and touting its adoption by top companies including BidAero, BidSlate, EC21 and other B2B online marketplaces.
According to Reynolds, the adoption of escrow services like the ones Payoneer offers isn’t only seen in newer online platforms that facilitate B2B trade — older, more established portals have decided to facilitate the movement of money between their buyers and sellers in a more digital, secure way. Traditionally, Reynolds explained, the process lacked any oversight from a third party.
“It required that you take the transaction offline,” he said. “Typically, it was either the buyer taking the risk and paying upfront and hoping that whatever shows up on the business’ doorstep is what they ordered. Or it’s the seller taking the risk, shipping the goods or providing the service and then invoicing the customer.”
“Traditionally,” he continued, “one or the other side takes the risk and hopes for the best.”
Clearly, this process opens doors for all sorts of risks: risk of non-payment, non-delivery of goods or even fraud. Overall, Reynolds said, B2B transactions are moving online, albeit more slowly than they did with B2C payments.
“But there is a new wave of marketplaces emerging, and a wide variety of B2B segments, where they’re bringing together buyer and seller,” he said.
Payoneer’s announcement today highlighting the adoption of its escrow solutions is reflective of broader adoption rates in the B2B space, across industries, he said.
“Buyers and sellers want to engage in transactions, and these platforms want to find new customers or suppliers, but they want to do that in an efficient and cost-effective and low-risk way,” he said. Escrow services may not be the most common way these B2B eCommerce platforms facilitate payments between buyer and supplier, but Reynolds is working to change that.