B2B Payments: Challenges & Innovation

September 2021

Fintech & Payments

Nick Maynard

VP of Fintech Market Research

B2B payments represent an area of enormous opportunity for payments vendors. Businesses have been transferring funds to each other for as long as they have been operating, yet the process of doing so remains difficult to navigate, due to many recurring challenges. 

B2B payments can take a variety of forms. These range from basic cash payments, to sophisticated instruments like virtual cards, which solve the problems of B2B payments to varying degrees, but the core challenges remain. The ever greater use of automation is also a noticeable trend within the B2B payments space, and represents a potential solution if the underlying payment systems can support the elements necessary for this.

Due to the complicated nature of B2B payments, the risk of undetected fraud is of serious concern. There is a real chance that fraudulent activity can go unnoticed as it is diluted within the mass of financial activity a business is constantly undertaking. BEC (Business Email Compromise) is a major type of B2B fraud, where email systems are comprised by fraudsters; leading to false instructions to transfer money, make purchases, etc. 

The high frequency and large value of some B2B payments can create problems regarding payment charges. Certain forms of payment incur a charge that, for smaller businesses, can be challenging to absorb, as each transaction generates an overhead. If this amount is a percentage of the total transaction, then this can add up to a significant amount when large sums are regularly transported, significantly eroding business profit margins. 

In addition to the cost of making large quantities of payments, there is the time this takes. In terms of man hours to process some forms of payment, this can represent a large overhead in itself, as well as the application of resources. 

On average, B2B payments take 45 days to process, with additional amounts levied for making late payments or delays to funding transactions when the business they are engaging with is stalled by payment processing difficulties. 

Automation has the potential to bridge the divide between user willingness to improve their B2B payments and hesitancy to adopt new solutions. Given that the current method of processing invoices and payments is so manual, there is significant scope for the introduction of automation to lower costs, increase speed and reduce errors. Additionally, much of the concern regarding new technology stems from a lack of confidence that it will be understood and implemented correctly. Automation takes this burden away from the user. 

Blockchain has an important role in B2B cross-border payments, with services such as Visa B2B Connect and RippleNet having significant potential. However, blockchain is not essential to this process – a network of networks can be built without using blockchain, meaning blockchain vendors must emphasise unique abilities, such as traceability and immutability, to make it more appealing for B2B payments than the alternatives.
Until cross-border instant payments are ubiquitous, payments vendors must cover gaps by ensuring that alternative and easy to manage methods, such as virtual cards, are available to businesses.