One of the great mysteries of payments is why paper checks still reign — at least in B2B. But the dead tree conduit of supply chain payments may see a displacement in favor of digital financial processes, with a spur from blockchain.
At least, that’s the hope.
On a Friday (Jan. 20), when the world was watching the 45th president of the United States take the oath of office, PYMNTS’ mind was on, well, payments. In the latest Topic TBD installment, Karen Webster spoke with Jeremy Almond, CEO and cofounder of PayStand, to get a sense of what might finally move B2B transactions, which dwarf retail payments, into the modern age.
Looking at the state of innovation in B2B, Almond stated that, as an industry, it “is starting to get some visibility, [even though], in some ways, it’s the unsexy side of payments.”
PayStand’s own customers in the commercial space are grappling with legacy challenges, and payments is ripe for change as these firms have moved other business processes to the cloud, including support functions and financial functions. “The last mile needs to be more internet-like,” he said, defining the “last mile” as the payments processing side of the business.
That last mile may prove tough to transform, Webster and Almond agreed, as there are so many touchpoints in making B2B payments happen. Unlike the activity that is seen in the retail continuum, the transaction is typically between consumer and merchant. In the B2B space, said Webster, there are customers, controllers and the accounting department involved, among other stakeholders. Embracing the cloud and subscription services makes sense, though, as B2B transactions are typically high-ticket, with equipment and other items running into the thousands of dollars and with the need for systems that are fixed-cost through membership licenses (rather than paid for on a per-transaction basis).
As it exists now, said Almond, the B2B payments realm is dominated by less-than-optimal choices, tied to paper-based processes, including paper checks or, conversely, to digital activities that he said are “predominantly card-based.” One impetus to embrace the cloud could come as the workforce skews younger, said Almond, with professionals more comfortable with technology in general and who realize that they should not be spending hours each week “doing nothing but processing checks.”
Webster noted that PayStand debuted a certification around blockchain last fall, with the goal of reducing fraud within supplier payments with better security and reduced human error. Almond noted that the introduction of digital notarization and security comes at an opportune time as innovation labs are broadly interested in blockchain for use cases spanning supply chain insurance and title.
He proffered that one of the key value propositions in blockchain lies with immutability. “Once you write something, in the database and in the blockchain,” he said, “it really can’t be changed. It’s written once, and it is there forever.” This is especially helpful in making sure that transactions are auditable, he said, with consistent verification of data along each stop along the supply chain. Companies, said Almond, need to be able to trust other parties in transactions that take place within the financial system.
The best way to think of blockchain here, he said, is to define it as “an electronic notarization process … The critical thing is that, oftentimes in payments, the systems are not connected.” He extolled the benefits of such a system in, for example, imports, where ships come to port, drop off goods and then an intricate dance of documentation and payments begins, with bills of sale and lading and other records changing hands. These occurrences can be tracked, and noted, by blockchain “without requiring a third party to be trusted at all,” he added. For PayStand, as a commercial payments processor, the ability is there to act as a certification of payments service for audit capability. “Every piece of payments flow that we are involved in,” said Almond, “we can create a record on.”
Despite the benefits of cloud-based and immutable record keeping, inertia continues to bedevil the commercial payments space, with what Webster termed gravitation towards “the lowest common denominator” of paper-based checks. Moving beyond this sticky adherence to checks, said Almond, is not a one-year process or two-year process but is a journey that will likely take a decade. The long-term view, he said, is one where payments “have to go digital … It’s a matter of when, not if.”