B2B Payments

Fostering B2B Trust Through Smart Contracts And Legacy Rails

Fostering B2B Trust Through Smart Contracts

Trust in B2B partners is critical to keeping business flowing through supply chains — especially in today's market. Yet the pandemic has, in many ways, strained B2B relationships due to cash flow disruptions, delayed payments, unfulfilled contract obligations and a trading ecosystem in which business continuity is increasingly a challenge.

With businesses operating upon legacy infrastructure, fostering trust between buyers, suppliers and other partners can be even more challenging thanks to a lack of accountability and transparency, according to Clear Co-founder and Executive Chairman Eran Haggiag.

As Haggiag recently told PYMNTS, smart contract technology can hold the key to stronger B2B relationships by ensuring that all parties meet their obligations. Yet adoption of the blockchain-based technology won't happen overnight, even with corporates' accelerated digital transformation roadmaps. Instead, explained Haggiag, the B2B payments ecosystem must embrace both legacy and emerging payment rails to guide global supply chains toward a more transparent — and trustworthy — future.

Finding Trust Via Smart Contracts

"B2B trade can be intricate and complicated due to the mistrust between enterprises, as well as the level of manual processes involved," explained Haggiag.

A lack of trust has always been a challenge throughout supply chains, but due to pandemic-fueled market volatility, more suppliers are struggling to fulfill their contractual obligations, and more corporate customers are struggling to pay their partners on time, leading to a rapid degradation of B2B relationships.

Smart contract technology has emerged in recent years as a potentially valuable fix to this solution. Powered by blockchain, smart contracts are able to integrate into corporate systems to automatically assess whether businesses have fulfilled their end of the bargain, whether that means delivering products or services on time, meeting service quality agreements or releasing payments.

Clear recently put this technology to use in an agreement with several telecommunications companies, a deal that Haggiag said illustrates the potential for smart contract technology to tackle the pain points of legacy B2B payment infrastructure and workflows. Deutsche Telekom, Telefónica and Vodafone have finalized a trial of Clear's technology, which automatically calculates and settles payments between telcos based on roaming data.

As Haggiag noted, it's a technology that can be applied to many other B2B payment models and industries.

"Smart contract technology has the ability to eliminate the complexity associated with B2B settlements by automating the intercompany settlements and flexibly defining deals and workflows between organizations," he said.

Working With Legacy Infrastructure

Despite the opportunity for smart contracts to inject a level of automation and trust in B2B transactions that cannot be achieved through legacy infrastructure, organizations aren't necessarily going to drop their old ways of operating in favor of a new, unfamiliar technology.

That's why Haggiag emphasized the importance of this solution to work in cooperation with legacy infrastructure and payment rails. For Clear, that means integrating APIs into existing payment solutions to execute transactions initiated by smart contracts — a blend of blockchain and legacy rails.

"In order to ensure a smooth transition between legacy payment systems and new market offerings, it is imperative that varied infrastructures can coexist and interact," he said. "Of course, the future benefits and opportunities that smart B2B payments systems have to offer will only be realized when widespread adoption is achieved."

There is certainly evidence that organizations are increasingly ready to let go of legacy rails. In addition to the telecommunications giants testing out Clear's solution, Haggiag pointed to central banks' ongoing exploration of state-backed digital currencies as more proof that the B2B payments ecosystem is shifting toward new payment rails.

The journey won't be without its speed bumps, however.

The pandemic has introduced a new business environment and widespread opportunities for technological adoption and innovation. Yet the new normal has also created new challenges for B2B relationships, said Haggiag — and even the most robust technologies may not be able to overcome this hurdle.

"We can expect to see a growing issue when it comes to commercial trust," he said. "With face-to-face meetings and networking opportunities replaced with Zoom and online interactions, that could make fostering relationships and building trust more difficult. This, combined with the growing need for fast and flexible partnerships, means we could walk ourselves into a serious commercial trust issue that could slow down progress significantly."

——————————

PYMNTS TV LIVE OCTOBER SERIES: B2B PAYMENTS 2021 – WHAT WILL YOU CHANGE? 

Banks, corporates and even regulators now recognize the imperative to modernize — not just digitize —the infrastructures and workflows that move money and data between businesses domestically and cross-border. Together with Visa, PYMNTS invites you to a month-long series of livestreamed programs on these issues as they reshape B2B payments. Masters of modernization share insights and answer questions during a mix of intimate fireside chats and vibrant virtual roundtables.

TRENDING RIGHT NOW