How Digitizing B2B Payments Leads To New Revenues

When it comes to B2B payments and accounting processes, paper is the enemy. But like any formidable foe, it’s not going down without a fight.

It’s a battle Dylan Jones, vice president of operations, corporate payment solutions at WEX, fights every day. He told PYMNTS recently that eliminating paper processes — among other actions — can streamline interactions between buyers and suppliers, opening the door for solutions providers to modernize B2B payments, and along the way realize new streams of revenue.

The conversation came against the backdrop where the pandemic has accelerated digitization efforts for companies across the globe, especially for payments. Part of that journey has been about pivoting to new ways to make sure business continuity is in place, and at the same time, as WEX has found, 81 percent of financial services executives say technology and innovation will generate new revenues. He noted that the U.S. B2B commerce market is a significant one, tied to $25 trillion in annual payment flows.

“And when we look at this market, we also know that there are incredible inefficiencies,” Jones said of accounts payable (AP) functions, adding, “We know that there’s minimal automation across the board. There are frequent errors in payments. And when there is an error, the process to rectify those errors or reconcile payments between parties is challenging. The stakes are high.”

The finance departments on both the buyer and the supplier sides of the transaction are seeking to maximize cash flow — and payment errors mean cash is not being used efficiently. New use cases (for providers) and the reduction of inefficiencies, he said, are all predicated on software enhancements and improved data flows.

“Payments will no doubt be front and center for FinTechs. Every business they work with needs to send and receive payments. The need is ubiquitous,” he said.

Drilling down, he said improving the front-end user interfaces that buyers use to originate and manage payments can improve workflows.

Historically there have not been many options — or firms — focused on this critical step of B2B commerce. But that’s changing, observed Jones. Up until recently, UI ease and speed have been hallmarks of consumer-focused transactions. But the B2B space has been catching up, he said.

“Buyers are willing to pay to improve this workflow,” he noted — and the fees associated with originating payments can create new revenue streams for FinTechs in this space. Another use case ties into embedding payments directly into software, enterprise resource planning (ERP) systems, and business management platforms (across banks and FinTechs).

As payment processes become more efficient and companies such as WEX have better insight into data, he said, “it’s going to introduce opportunities for more players to lend, in more creative ways, to buyers and suppliers” across, for example, secured credit lines and supply chain financing.

Keeping An Eye On The Paper

Even as the B2B space is pivoting to digital initiatives, Jones noted, “We don’t expect paper to totally disappear — certainly not this year.” But by and large, the reliance on paper checks is decreasing.

“The paper processes in businesses have been established over many years. And they’re ‘burned in’ with teams,” he said. “It will take investment from partners, investment from the corporates and their finance teams and their AP teams to start to gain traction and move away from paper.”  He added that the journey toward payments as a 100 percent digital process will take shape over several years. Along the way, he predicted, there will be greater emphasis on partnerships and acquisitions.

“We see new FinTechs emerging almost every month, aimed at servicing very specific use cases, very specific sectors or niches. The increasing nature of this velocity creates solutions that FIs and banks could potentially offer their customers,” he said. Joint efforts between banks and tech-nimble FinTechs can take the best that both parties have to offer (in terms of expertise and solutions), with positive ripple effects for corporate customers.

Most immediately, providers and their customers will have to address the “chasm” that exists between AP and accounts receivable (AR) departments.

“The buyer side generally know that they can originate a payment and send a payment over to a supplier and they expect the supplier to do something with it,” said Jones, while suppliers may get payments without the rich data that could speed processing those payments. Smoothing the conversation between AP and AR needs intermediaries such as FinTechs, across a variety of solutions such as ACH, virtual commercial cards and other options — in automated fashion.

Digital solutions will also be instrumental in helping AR/AP departments manage exceptions in B2B payments, helping to reconcile them before they become cash flow pain points.

Looking ahead, “Full optimization and full for both AP and AR departments is years away,” said Jones. “And it will take a concerted effort by all parties and the intermediaries involved to take steps in the right direction.”

And as Jones reinforced in his interview, that concerted effort will decrease the friction in B2B payments flows and unlock revenue opportunities.