B2B Payments

When B2B Payments Innovation Is All Talk, No Action

It was only (relatively) recently that B2B payments finally secured significant attention and investment from innovators. A notoriously clumsy, friction-filled industry, B2B transactions must forge new paths to boost efficiency as businesses demand global solutions, speed and transparency.

Investors are paying attention to that need, and are working to back the startups that develop solutions with these goals in mind. This year is expected to be a big one for B2B FinTechs in terms of investor appetite, too: Last month, analysts from American Banker highlighted B2B payments as a key area of FinTech to earn investment this year, citing Accenture data that suggested banks could generate $11 billion in new revenue streams by 2020 through financial services for the small- and medium-sized business market.

"Toward the end of this year, we started to see more of a shift in investment toward the B2B side," said Reetika Grewal, Silicon Valley Bank's head of payments strategy and solutions. "There's big money being thrown into the B2B space. We're seeing a lot of new company formation around the B2B payment space in a way we haven't seen before. That's one trend we'll see a lot more of [in 2018]."

According to Grewal, at the heart of this trend is the continuing headache of multiple points of friction in B2B transactions.

"There's a lot of manual processes that people run," the executive added. "So many companies still rely on Excel spreadsheets to run their business."

Finexio is just one of the B2B payments startups to have recently secured investor attention. Earlier this month, the company announced it had raised $4 million in Series A funding led by James R. Heistand, while Florida Funders, Loeb.nyc, Zach Coelius, Mobile Financial Partners and angel investors also participated in the funding.

Just as Grewal highlighted, the issue of continued reliance on paper and manual processes is driving Finexio's entrance in the market, with the use of APIs and sophisticated technologies as part of the effort.

It exemplifies the newly innovative nature of the B2B payments market, but Ernest Rolfson, Finexio CEO, says that doesn't necessarily mean progress is guaranteed.

"While there has been a lot of potential for industry change, not a lot of advancements have actually been implemented," he recently told PYMNTS. In order to "move the needle," he said, the industry has to provide companies with "more payment methods, more delivery options and a variety of price points."

There's evidence to support his sentiment that B2B payments haven't evolved as quickly as innovators may have liked.

Adoption of electronic payments seems buoyed at about 50 percent, according to research. Last June, NACHA and the Credit Research Foundation said that at present, paper checks make up half of B2B transactions received in the accounts receivable department; ACH accounts for less than a third.

Use of faster payments technologies, too, remains limited in the B2B sphere. Separate data from NACHA found that of the 2 million same-day ACH transactions completed in the first 11 days of the service, just 6 percent were B2B payments; the rest were made up of B2C and P2P transactions.

And despite these statistics, B2B payments innovators remain confident that progress will be made. NACHA and the CRF's report, for instance, found that accounts receivables professionals are planning for ACH to take over paper the checks as the most common payment rail used when B2B payments are sent.

Further, in NACHA's most recent update on same-day ACH volume – which found $87.1 billion transferred using the service in 2017 – the association highlighted the potential for B2B payments in this area.

“Financial institutions, businesses and consumers are reaping the benefits of same-day ACH,” said Jane Larimer, chief operating officer of NACHA, in a press release earlier this month. “Same-day ACH is now a reality for payroll, bill payment, business-to-business (B2B) payments, account transfers and many other applications.”

Finexio's Rolfson also told PYMNTS that he sees potential for faster payments tools to gain traction in the B2B arena.

While there are many exciting developments, "the one most relevant to our customers – who are, of course, wanting to get rid of checks – is real-time payments," he said. "This opens up the possibility of the B2B marketplace to millions of smaller suppliers who were only able to accept checks as payment.

"Real-time payments in the form of debit card transfers help us reach many smaller merchants who don't have a merchant account, and really need their payments to settle as quickly as possible," he elaborated.

Another popular innovation B2B payments companies are exploring is blockchain. Proponents of the tool say it can positively disrupt several areas of corporate payments, from cross-border transactions to supply chain management. But as the blockchain hype grows, there remain a limited number of real-world, working solutions.

"In order to execute blockchain properly, you need a real-time, straight-through processed network," said Rolfson, adding that Finexio is operating in this area as well. "We're getting our clients' blockchain ready by laying the proper infrastructure now, so we're paying close attention to how this technology evolves in 2018 and beyond."

That seems to be the strategy for B2B payments innovation in more ways than one: gearing up for progress like real-time payments and blockchain, but not quite making it a reality just yet.

Rolfson said that progress cannot be made only by addressing the needs of the payer: Suppliers and their accounts receivable departments have to be a part of the process.

"Simpler, more automated on-boarding [of suppliers] is one way we can facilitate a switch to this technology," he said, adding that on-boarding is, and will always be, a process that demands strict adherence to regulatory compliance, but that technology can help ease some of that friction.

"But beyond that," he continued, "empathetic, thoughtful change management can help long-standing employees become comfortable" with electronic B2B payments solutions – meaning a culture change in the back office might be just as important as technological innovation when it comes to ditching the paper check.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.