Categories: B2B Payments

What New Payment Rails Miss About Solving B2B’s Remittance Challenge

B2B payments’ innovation trajectory continues to accelerate as more end-point solutions emerge to improve the vast number of friction points in the industry.

New technology solutions are stepping onto the market to help automate accounts receivable, accounts payable and the act of supplier payments, as well as other processes surrounding these fields, like trade finance, cash flow management and accounting.

It’s undoubtedly a positive trend, but one that continues to leave a larger issue unresolved for B2B buyers and suppliers, according to Richard Jackman, CEO of Fintainium (formerly ePayRails).

As Jackman recently told PYMNTS, in addition to automated processes, what corporations want is to be able to have all of these operations connect and integrate with each other for a holistic, seamless B2B payments experience, whether sending or receiving payment. Achieving this goal in improving B2B payments means moving beyond the transaction itself.

“It’s no longer just about the payment,” he told PYMNTS in a recent interview. “It’s about the exchange of data and, ultimately, business relationship management.”

The Remittance Challenge

One of the biggest points of friction in B2B payments for both buyers and suppliers is capturing information about a transaction, and feeding that data into back-end systems for automated accounting and reconciliation.

The drive to digitize B2B transactions with technologies like virtual cards and ACH can certainly connect businesses to more transactional information, however rarely is that data moved seamlessly and with enough context. More often, businesses will find that the clunky paper check is actually the payment method best suited to support the movement of remittance data along with funds, although businesses are still struggling to find affordable and efficient ways of ingesting that information.

“The only way you’re going to be able to do that is by enabling seamless communications, integrations and interoperability,” said Jackman. “There’s nothing more valuable than remittance data. This is what businesses are asking for. They need the remittance data, whether it’s incoming or outgoing, to be able to sync up with their general ledger system.”

It’s for these reasons that emerging payment methods like ACH can actually add burden to business operations. While ACH may be significantly less costly for a vendor than accepting a card, for instance, Jackman noted that a supplier may actually ultimately spend even more on capturing and ingesting remittance data.

“You can send out a less expensive payment method and still increase your costs,” he warned.

What New Payment Rails Are Missing

This demand for the transmission of data along with payment has emerged as a focal point for the newest payment rails and services coming onto the scene, including Same Day ACH and SWIFT’s gpi.

Unfortunately, said Jackman, this still doesn’t solve the remittance and data integration challenge.

“The problem you have is there’s no standard,” he said. “If somebody chooses one payment method or another, and they receive their data in a different way, or it’s not formatted properly, or it’s not all the data they were expecting, you have a void. The problem I see right now in this space is everyone is heading off in their own direction and trying to do a land-grab for remittance data, but without a standard.”

This is particularly true for smaller and middle-market firms, he noted, which will struggle to be able to take advantage of the valuable remittance data moving along faster payment rails and other emerging services without sufficient resources to capture and integrate it.

That integration, he noted, means not only being able to capture that information once a payment is made or received, but to automatically generate that remittance data. It’s a process intrinsically connected to pre-transaction processes, like the generation of a purchase order or the processing of an invoice, once again reflecting the importance of an integrated B2B payments experience from the very beginning.

Expanding the Integration Scope Beyond the Payment

Other key areas of opportunity for corporates to improve B2B payments exist outside the scope of the payment and into fields like financing, cash flow management and forecasting. In this area, noted Jackman, not only managing payment method, but managing payment timing, is key.

He pointed to Fintainium’s patent-pending solution that integrates buyer-supplier negotiation processes, enabling buyers to submit an offer to delay payment to a vendor for a premium, vendors to submit an offer for a discount on early payment, or either party to initiate dispute resolution. It reflects the intertwined relationship of B2B payments and trade financing, with Jackman adding that Fintainium is also able to step in and connect businesses to financing solutions from within the platform if, for example, a supplier rejects a buyer’s offer for extended payment terms.

It’s the combination of both making a payment and managing a payment that Jackman said is so important in the B2B payments landscape today, and a factor that can most effectively be accomplished when these processes, from remittance data capture to trade financing, are all integrated with one another.

Solving these friction points individually is valuable, but businesses are seeking even more value from their solution providers as expectations increase. That means a broader-level view of B2B payments to promote enhanced cash flow management and buyer-supplier partnerships, which is the direction that Jackman said the industry is headed.

“There’s going to be a lot of change to come, and change is good,” he said.

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The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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