In the push to digitize B2B payments, the commercial card continues to gain traction thanks to its ability to meet buyers' need for financing while simultaneously addressing suppliers' need for faster access to capital.
But in the B2B payments ecosystem, the buyer and supplier are far from the only participants involved in a transaction. The path to enabling merchant acquirers and issuers to seamlessly facilitate a B2B card transaction adds to an already long list of potential friction points experienced by corporates and their vendors.
There is also significant potential for innovation in the commercial card space to address these challenges, however, according to Pat Bermingham, CEO of global payments processing company Adflex.
In a recent conversation with PYMNTS, Bermingham discussed some of the biggest disruptors in the B2B payments space that take a holistic approach to tackling friction across multiple stakeholders and friction points, driving the ecosystem toward a more efficient future.
Completing the Circle
One of the biggest hurdles to overcome in the B2B payments arena, explained Bermingham, is to close the gap between issuers, acquirers, buyers and suppliers — in essence, completing the "circle" around the B2B ecosystem.
"It's very complicated, and it's always been the downside of B2B payments," Bermingham said. "For example, the purchasing card, which is the bedrock of B2B card payments, requires a lot of moving parts."
Any seemingly small breakdown in the workflow of a purchasing card (p-card) payment will cause ripple effects throughout these stakeholders. For example, an incorrect cost center code — a code that categorizes an expense against a department's budget — that fails to match with an original purchase order will require some type of manual intervention when a card payment is processed.
A vendor and its payment processor may be automating dozens or even hundreds of card transactions daily, but if one of those cards is declined, the reconciliation process is greatly disrupted.
These card payment workflow challenges add to the existing headaches that can often arise in the B2B payments ecosystem, particularly when it comes to the vendor's acceptance of a card and the buyer's reconciliation of a card transaction.
Virtual Cards and the Cloud
There are two key technological shifts occurring in the B2B payments market, and the commercial card arena in particular, that have been especially effective at addressing these pain points, explained Bermingham.
One is the migration of the entire ecosystem to the cloud, a shift that he said allows for accelerated, more seamless integrations into payment processing services like those of Adflex, as well as integrations between partners for the purpose of exchanging data.
"What this gives is scalability, resilience and a much higher level of automation," noted Bermingham.
Embracing APIs has also lowered the barrier for non-developers to create their own payment systems via low- and no-code, drag-and-drop interfaces.
The coupling of this cloud environment with the adoption of virtual card technology has amplified the ability for the B2B payments ecosystem to embrace interconnectivity and seamless processing as well.
In traditional B2B payment scenarios, it's the vendor that inputs transaction data into a system. But through virtual cards, the buyer-side is able to add reconciliation data — a shift that Bermingham said leads to greater accuracy of reconciliation information.
"Now, when people are loading data onto a virtual card, because it's coming from the buyer, it will be 100 percent correct," he said. "When the data flows through the card networks and gets back to the buyer, it will be 100 percent reconcilable because they control it. That's been the biggest change for us."
Accuracy and integration of transaction data, along with the enhanced security and spend control capabilities, have introduced the virtual card as a driving force of not only commercial card adoption, but of B2B payments digitization as a whole.
Exploring Novel Use Cases
The flexibility of the cloud and virtual card technology means B2B payment workflows and payment processors can adjust to new business models and B2B payment scenarios, some of which are emerging as a result of the sudden digital migration amid the coronavirus pandemic.
Push payments and straight-through processing, for example, is an important strategy in enabling B2B suppliers to quickly start accepting virtual card payments, even when they lack the necessary terminals or other hardware to do so, while lowering the risk of declines.
"Using virtual cards within straight-through processing guarantees that funds are ring-fenced and the card doesn't decline," Bermingham said.
He added that card rails can also be used in conjunction with other payment networks, like ACH in the U.S. or Faster Payments in the U.K., leading to the development of "hybrid systems," where card rails move funds but the last mile of the transaction is completed using a local payment network, a strategy that can be particularly valuable in cross-border scenarios.
Agility in B2B payment capabilities for both buyer and supplier will be an important part of helping these businesses adjust their business models to mitigate current volatility - an effort that will undoubtedly be easier for some than for others. With data connectivity a crucial component of ensuring B2B payment workflows occur seamlessly, virtual cards and the cloud can offer the agility and connectivity needed to keep B2B trade (and capital) moving.