Checks. Spreadsheets. Mounds of paper. Opaque payments moving sluggishly across borders and between banks. There is a mountain of friction in commercial payments today that seems to have held the industry back from the kind of rocket-pace innovation propelling retail and consumer payments into the future.
However, while many believe B2B payments are stuck in the past, Kevin Phalen, the global head of Visa Business Solutions, has a more optimistic viewpoint.
“I would say we’re seeing the most change we’ve seen in this space in probably decades,” Phalen told Karen Webster as he opened this year’s PYMNTS B2B Payments Executive Forum.
During his opening keynote, Phalen made a case for why commercial payments have indeed made significant headway in the last decade. Yes, there are more solutions available, and yes, new FinTechs are emerging to challenge the status quo and entice traditional banks to innovate. However, the real proof of progress in B2B payments, Phalen said, is in how industry stakeholders — including FIs, FinTechs and corporates — have overhauled how they think about those commercial payments challenges as they move forward to tackle them.
Thinking Beyond the Payer
Among the most significant, concrete changes in how the B2B payments ecosystem has approached the industry’s challenges is that service providers and innovators have begun to focus not just on the corporate payer, but also on the supplier.
“If you look at checks, ACH, wires or card-based payments, we in the industry were heavily focused on delivering solutions for the buy-side, which I think is critical,” Phalen explained. “But just as importantly, we have to solve for the supply-side as well.”
It’s a strategy that has come into particular focus in the commercial cards payment space as solution providers recognize that one of the biggest hurdles for card adoption is vendors’ willingness to accept them. However, as Phalen noted, Visa’s Global Business Solutions can take advantage of Visa’s card expertise, to truly address both buyers’ and suppliers’ payments needs, solutions cannot force one technology or one rail on a user.
Payment Rails Converging
The recent effort in B2B payments to zoom out and consider payments needs beyond the corporate payer has the industry shifting toward a convergence of payment rails, according to Phalen. While Visa is best-known for its card services, the commercial payments space has to tackle friction for buyers and suppliers whether or not transactions occur on card rails, he said.
Today, not only are innovations emerging to enhance the world’s existing payment rails, but new rails are also coming into play (like the ones on which Visa B2B Connect operates). This innovation is a good thing, said Phalen, but for B2B payments to tackle friction in areas like cross-border transactions and data management, these rails must be able to interlink with each other.
“There is a convergence happening within commercial payments,” he said. “Our partner FIs are telling us that, and they’re asking us to support them in thinking about that convergence.”
For Visa and other service providers, that means providing a layer of connectivity into new services for both financial institutions and corporates to allow interoperability — whether businesses are making high-value global payments or low-value local payments, or whether they’re using cards, ACH or otherwise. As open banking continues to promote integration, Phalen added, convergence between rails — and the solutions on which they operate — will be essential.
Rethinking the Infrastructure
Within a climate of converging payment rails, financial institutions have overhauled the way they operate and offer solutions on those rails to better serve not only their corporates’ needs but also the needs of their corporates’ vendors and partners.
Phalen pointed to one financial institution partner of Visa that recently exemplified how FIs have made drastic changes in their payments innovation strategies.
“This FI is replacing its core banking infrastructure with a real-time infrastructure,” he said. “That’s a pretty significant change. It’s literally thinking about the future of payments, and bringing automation on a real-time basis. It’s thinking about how to get information to corporates and consumers on a real-time basis.”
That’s not something the industry would have seen only a few years ago, Phalen noted, as banks have historically been reluctant to overhaul infrastructure with an “if it isn’t broken, don’t fix it” attitude.
The surge in bank-FinTech collaboration seen in recent years has propelled banks’ infrastructure upgrades, too. That may be well and good for retail payments, but what about how these efforts have impacted the ability for commercial payments to move faster between companies, across borders and with greater transparency?
Phalen argued that these efforts of infrastructure overhaul, a convergence of payment rails and the inclusion of buyers and suppliers when developing new payment solutions have already made a significant impact on B2B payments progress. Undoubtedly, however, there is much work to be done.
Industry stakeholders must continue to collaborate and support each other’s goals, said Phalen. What’s more, the industry has to continue to focus on the future.
“We have to innovate,” he said, “and we have to accelerate our innovation.”