B2B Payments

Blockchain Nudges B2B Traders To The Digital Realm

The proliferation of eCommerce makes it difficult to believe that any business would be operating without a website in today’s market. Research from Clutch published last year found nearly three-quarters of small businesses (SMBs) in the U.S. have a website, and for those that don’t, nearly all plan to have a website by the end of this year.

Separate estimates from PipeCandy pinpointed the number of eCommerce companies around the world at between 2 million and 3 million — and that’s excluding the massive eCommerce market of China.

But operating on a digital platform is far from ubiquitous in the B2B market, regardless of the size of the company or geographic location.

There is a clear reason for that, according to Payson Johnston, CEO of blockchain B2B eCommerce and supply chain finance company Crowdz.

“A lot of companies like raw materials suppliers and manufacturers that haven’t gone online, haven’t done so because of the way documents are exchanged,” he said in a recent interview with PYMNTS. “There are purchase orders, invoices, sales orders, certification of origination — a lot of documents are exchanged.”

This trend isn’t isolated to small suppliers either.

“We’re talking to steelmakers, automakers, chipmakers and raw material providers — some really big companies — and some don’t even have ERPs implemented,” Johnston said, adding that the task of migrating a product catalogue to a digital platform alone can be overwhelming. “Documents transfer is the major thing that is preventing companies from moving online.”

 

Blockchain’s Position in the Supply Chain

Blockchain, combined with the power of the web and other tools like APIs, can help B2B traders address the seemingly monumental task of digitization required to launch their digital footprints, said Johnston, who added that it’s Crowdz’ goal to do away with legacy Electronic Data Interchange (EDI) systems altogether.

That first step, in turn, can launch a company toward other efficiencies in payments and supply chain financing, the CEO added.

“The ultimate vision is that all payments will move across the chain,” he said, adding that institutions like Barclays — whose accelerator program includes Crowdz — are exploring issues like cryptocurrency to fiat currency conversions and the potential for governments’ own cryptocurrencies to potentially play a role in B2B global trade.

In the area of trade finance, the digitization of paperwork for B2B eCommerce offers an inherent link to the digitization of invoice financing processes for both businesses and lenders.

“Factoring companies today suffer from invoice inventory,” explained Johnston. “Right now, invoices are faxed, emailed — not a lot are being sent through APIs.”

Traditional lenders also struggle to provide trade financing to SMBs because they’re cutting risk and focusing on profits, but this means smaller firms continue to struggle to expand abroad because they cannot secure financing and they don’t have a digital presence.

 

The Importance of China

Crowdz is going after these two sides of the same coin — B2B eCommerce and supply chain financing — to streamline processes and interconnect all players of global supply chains in the same place. Recently, the firm revealed its China subsidiary, Crowdz China, secured investment in support of the company’s initiatives in the supply chain finance space.

Johnston pegged China as one of the most importance hubs for supply chain and B2B trade solutions today. The latest analysis, released by China’s General Administration of Customs in February, said cross-border eCommerce trade increased 80 percent in 2017; exports grew by more than 41 percent, while imports grew by more than 116 percent.

B2B eCommerce in particular is a strong suit of China’s, with 2015 data estimating that 70 percent of all eCommerce in China is made up of B2B deals, and SMBs account for about half of them.

“Our China strategy is really important because it’s where a lot of supply chains originate or where raw materials are transformed,” Johnston said, noting that even if the supply chain doesn’t begin in China, deals often involve China in at least one stop in the supply chain.

In an effort to propel cross-border eCommerce even more, China launched its “One Belt, One Road” New Silk Road Initiative in 2015, an effort to provide billions of dollars of investment in the development of infrastructure and economic corridors to support global trade.

“We want to position ourself as the Digital Silk Road,” Johnston said. “If you put infrastructure down, you can then connect to a digital blockchain to keep track of and optimize the supply chain — versus simply building roads and having the process still be paper-based.”

Today, the spotlight remains on China as international trade agreements are redrawn with the U.S., the U.K. and elsewhere. This is where another key benefit of blockchain comes in for cross-border trade, the executive noted, as the technology can handle geopolitical volatility. Companies will need to prepare too.

“Ultimately, our system survives and continues to grow,” he said. “We’re looking at the efficiency of the whole chain.”

Moving forward, Johnston said that similar subsidiaries across the globe will be added to the list (which currently includes South Korea too), while Crowdz speaks with financial institutions to explore the addition of blockchain-powered cross-border payments capabilities.

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