B2B Payments

Where Blockchain Could Lift The Burden Of B2B Payments, Data Exchange

B2B payments has a reputation for being slower than B2C transactions to innovate, but that’s not without reason. Corporate payments are often high-value (and thus, higher stakes) and come with greater requirements in terms of the transmission of data along with the movement of funds from one entity to another.

The movement of information is filled with friction in B2B transactions today, with deals across borders and between third- and fourth-parties, creating a muddle of data that can delay supplier payments and disrupt the reconciliation process. All of this also means buyers and suppliers alike struggle to gain real-time insight into financial positions and accurate forecasting.

Unsurprisingly, B2B eCommerce has emerged as a target for blockchain innovators, not least of all because blockchain technology may be able to help address the data problem of business-to-business trade. One startup in this space is Crowdz, which recently announced its intention to roll out a blockchain-based B2B eCommerce platform.

“Throughout the world, business-to-business commerce remains in its infancy,” said the company’s CEO Payson Johnston in a statement at the time. “Today, almost 90 percent of B2B commerce in the United States still takes place in [a] highly manual fashion, such as paper catalogs, telephone orders, fax, email, EDI [electronic data interchange] and sales representatives.”

The EDI is a particular pain point for trading businesses, says Clay Dedeaux, director of Account Services at Crowdz. He told PYMNTS that the legacy system is far from ideal when it comes to sending information throughout the supply chain.

“Today, most business commerce happens with a lot of manual processes,” he said. The “huge ERP and legacy systems like EDI” on which companies still rely, he continued, slow down business transactions and limit entrance onto the global trade market.

“Large enterprise customers have EDIs, and small- and medium-sized businesses can’t actually do business with them because they don’t have that EDI,” Dedeaux explained. “It costs hundreds of thousands of dollars to implement these.”

A survey conducted by eft in 2015 found 85 percent of companies are still using EDIs, despite 43 percent admitting they are frustrated with the tool. Even among the 57 percent that claim not to be frustrated by EDIs, eft noted “there is a strong sense that [EDIs’] days are numbered.”

“As the amount of data increases in supply chain, and mobile drives more and more the way information is collected and transmitted, it seems like EDIs” days are numbered,” said eft Head of Research Haley Garner in a statement at the time. “The main drivers for using EDI remain cost, its standards and established nature. That being said, these issues also all surfaced as negatives for the technology.”

Researchers at eft noted that most companies said they’re exploring web service APIs as an alternative to EDI. But according to Crowdz’ Dedeaux, blockchain can address many of the pain points plaguing B2B commerce today.

 

Distributed Ledger’s Data Opportunity

Blockchain’s decentralized nature means organizations can use the technology without putting a strain on their internalized systems and servers, can rely on the security blockchain provides and can deploy a technology that can be beneficial to all parties involved — buyer, supplier and third parties like banks, said Dedeaux.

“Purchase orders can be sent digitally,” he said, as an example. “What’s great about blockchain is the security layer that allows for financial documents to be easily placed on blockchain and kept safe and private. We see this as a way to speed up transactions.”

“Even some of these old, manual EDI systems that may send a letter of credit or other certificates from the banks — blockchain can speed up their processes as well,” he added, noting the potential for smart contracts on blockchain to take over the paper-based and manual processes of purchase orders, letters of credit and other trade documents.

Crowdz’ platform will deploy blockchain to facilitate the storage and movement of data along the supply chain and along the parties involved in it. The solution, explained Dedeaux, can support the movement of funds via cryptocurrency or, eventually, a Crowdz-developed token. And while using blockchain to facilitate B2B payments is important, Dedeaux said this movement of data may be even more critical for trading companies.

“Smart contracts can move quickly,” he said, “but they can also hold a lot of data. On our end, this is our biggest play. We want to grab data in smart contracts on everything from raw materials to the back side of retail and bring this data together. This is really going to be powerful.”

“What happens today is businesses look into siloed ERP systems to try to do forecasting and supply planning,” he continued. “End-to-end data blankets mean companies can actually see [data] and make better forecasting judgments.”

Real-time visibility into supply chain and trading data means smarter decisions on procurement, inventory, investments and financial positions, he said, helping to automate and optimize entire supply chains.

That has the biggest impact on bottom lines, which, said Dedeaux, is the largest selling point for a blockchain B2B eCommerce tool — even to companies that don’t totally understand the technology.

“There is a bit of an educational piece to our sales process,” he said. “But what we have found is that companies — especially those behind the tech curve who really haven’t caught up yet — they’re seeing this as a chance to leapfrog over legacy equipment. Coming into blockchain is exciting for them, once we can educate them. A lot of people hear blockchain and think bitcoin, so we have to educate them.”

Blockchain today is often seen as a quick path to innovation and a competitive edge. Crowdz may be looking to capitalize on that hype, but Dedeaux noted that it won’t last forever. Still, he said, blockchain could make long-lasting impacts on B2B eCommerce, especially in terms of leveling the playing field.

“Blockchain starts to take barriers down, and you have a network effect of SMBs doing business with larger companies,” he said. “I see this as a definite, huge disruption in that respect.”

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