What Channels Are Key to B2B Payments' Success?

November 2022

Nick Maynard

VP of Fintech Market Research

The vast array of different payment methods available to businesses of all sizes today and increasing digitisation and digital channels mean that reconciling all payments across a variety of channels that work differently is proving to be highly challenging.
 
As we discuss in our latest free whitepaper, automation promises to reduce the manual labour and time cost associated with reconciling B2B payments, for instance, by facilitating automatic invoice matching, aggregating data and comprehensive analytics, and managing supplier relations.
 
However, before the benefits of automation can be understood, it is first helpful to understand the channels that B2B payments can take, both in domestic and cross-border markets.
  

Instant Payments Schemes

 
Instant payments schemes are instrumental in leveraging domestic payment rails and other associated technological infrastructures, such as international schemes, (ie, pan-regional clearing systems) to achieve higher-speed and lower-cost payments.
 
Most of these schemes are currently domestic (ie. Faster Payments in the UK, FAST in Singapore), but there are also initiatives such as SEPA Inst (Single Euro Payments Area Instant Payments) that are designed to cater for cross-border payments.
 
Moreover, increased efforts to bilaterally connect domestic instant payments schemes to facilitate cross-border payments and remittances (ie, in Southeast Asia) are taking shape at present, mostly due to the need to seek better ways of trading, amplified by the pandemic’s impact. Such moves can also alleviate the uneven adoption of instant payments schemes in the context of cross-border trades and potentially lead to their improvement for B2B payments.
  

Cheques and Electronic Cheques

 
Although paper cheques may seem to belong to a bygone era, they still constitute a considerable proportion of B2B payment methods globally. Settlement of cheques are often lengthy and costly, more importantly, this method is prone to human error and fraud.
 
Cheques in B2B payments are still prevalent, with the US and parts of Europe being resistant to move to digitisation. In part, traditional cheques are also being replaced by eCheques for greater efficiency in processing and ease in recurrent payments.
 
In eCheque scenarios, a transferor’s bank account information and the cheque amount are electronically transmitted to the relevant clearing institution (ie, ACH [Automated Clearing House] in the US) to initiate the withdrawal. While they are gaining ground, eCheques are yet to challenge traditional cheques’ dominance in B2B payments.
  

Cards and Virtual Cards

 
Corporate card offerings in B2B payments are widespread with payment network-branded cards (ie, Visa, Mastercard, American Express) leading these offers in the market. Corporate cards are usually utilised for organisational expenses, such as travel, and often viewed as instruments to manage internal purchases, as opposed to making high-value payments.
 
This perception is slowly changing with rewards, linked business accounts and virtual cards, which provide more secure transactions, presented by card providers. However, transaction costs and overall card acceptance rates of transacting parties impede their growth. Processing fees associated with B2B credit cards are typically in the range of 3%-5%, with the potential for this figure to be higher when used for cross‑border payments.
 
Another important element hindering greater card adoption is fraud, largely mitigated by the introduction of virtual cards, which randomise card details for each transaction. Moreover, these cards can hold embedded features such as spend limits, restrictions on where they can be used and rewards/points per spend.
 
Nevertheless, as a newer form of payment, virtual cards come as linked to existing corporate card offers and often require platform acceptance from the fund receiver which might not be readily available. While they can be an alternative to physical cards in terms of security, virtual cards will need to simplify and bolster their offerings for wider customer uptake.
  

Traditional Payment Schemes/Bank Payments

 
Electronic payments via banks or A2A transfer between corporate accounts are commonplace for B2B payments and have had some success in replacing the use of cash and paper cheques.
 
Corporate payments through banks can also utilise instant payments schemes (ie, Faster Payments in the UK for domestic B2B payments, SEPA Inst in most European countries for cross-border ones) or the clearing institutions (ie, ACH in the US) dependent on the characteristics of the market, availability, and maturity of the payment rails and alternatives.
 
Roadblocks in wider acceptance and usage of bank payments include processing speed and delays, high processing costs, and the interlinked organisational-level challenge of automating and scaling such payments where needed, to reduce associated labour and system costs. Transforming AP (Accounts Payable) and AR (Accounts Receivable) systems from legacy to cloud‑based ones for automation can deter organisations, not only because of budgetary constraints, but sometimes also due to compliance concerns.
  

Blockchain Payment Networks

 
The surge in blockchain payment networks in recent years to handle B2B payments processing had caused major actors in the market (ie, Visa, IBM, Mastercard, Ripple) to carve out niche B2B payments services and solutions based on blockchain. Similarly, smaller and specialised fintechs are rapidly developing their offerings.
 
Blockchain payment networks usually involve the use of a stablecoin, namely, a digital currency linked to single fiat currency or a basket of fiat currencies to ensure its stability and suitability as a payment/transfer method.
 
Alternatively, vendors can provide Open APIs (Application Programming Interfaces) for customers to build their own solutions on top of blockchain networks (ie, Visa B2B Connect solution). CBDCs’ (Central Bank Digital Currencies) growing popularity worldwide will also add to proliferation of use cases in blockchain for B2B payments in the near future.

Related Reading

Our complimentary whitepaper, How Automation Is Unlocking the B2B Payments Market, examines the state of this traditionally challenging market, and how automation, among other technological approaches, is improving processes.

 
"The global transaction value of the B2B payments market will exceed $111 trillion in 2027, from just over $88 trillion in 2022. It predicts this growth of 26% will be driven by rising prices caused by rampant inflation, as well as by strong economic growth in developing markets. The report identified the increased automation of accounts payable and receivable as being critical to the growing efficiency of payments processing; creating a significant opportunity for B2B payment vendors."