Tech companies like Apple, Facebook, Square and Venmo have been moving into payments over the past several years, dramatically changing the way consumers pay for things. Checks and cash are fading as people increasingly pay using their phones or take advantage of in-app payment capabilities. But what about business payments?
Companies on average are still making 51 percent of theirpayments via check.For many, it’s much higher. But, that is finally changing. In the last eightyears, venture investments have targeted the B2B payments space. It’s a marketthat’s 10 times the size of the consumer payments in terms of volume, and onewhere solutions are more complex to build and scale. Change takes longerbecause the challenges are bigger.
B2B payments are fundamentally different than consumerpayments, for three main reasons. First, there is the sheer volume of paymentsbusinesses make. A small enterprise might be making 100,000 payments a year on200,000 invoices, and working with 10,000 different suppliers.
Second, in order to pay your supplier electronically, you needto know what types of payments they accept, where to send them, what format to sendthem in, who the remittance contact is and, if they prefer ACH payments, whattheir bank account number and routing number are. Once collected, this financialinformation must be securely stored.
The third and final thing is the dynamic nature of the data.You have this huge volume of sensitive data that has to be collected, and thenit is always changing. Suppliers change, their contact people change, and bankingdetails change. The sheer effort of collecting, maintaining and securelystoring supplier information has been a huge barrier to automating B2Bpayments, but it’s finally happening. Here’s what’s new:
1. Truly automatedpayments.
Up until now, most US business have thought of electronicpayments as a “card program” or some ACH payments through their bank. Thesebank-based solutions typically automate about 25 percent of business payments,leaving behind 75 percent of payments to be made by paper check. In many cases,this approach has added more manual effort, since it requires the accountingteam to manage payment flows and information across three separate processes.
The new generation of payment automation delivers 100percent of enterprise payments electronically, with visibility, traceability,and control across both domestic and international supplier payments, andwithout the burden of maintaining supplier information. This is the biggesttrend in B2B payments; truly electronic payments for all suppliers regardlessof size, technology or geographic location.
2. Procure-to-paybecomes procure-to-paid
Procure-to-pay (P2P) networks have been around since theearly 1990s and provide an electronic experience for the business procurementprocess, from purchase requisition to payment. At least that’s how people havetalked about it, but really, the second Phas been missing in action.
These systems only took the process to the point of invoiceapproval, leaving it to the accounting team to figure out how to get the supplierpaid. This is changing in 2017, as procurement companies add payment automationtechnology to their solutions. The ones that will be successful won’t repeatmistakes of the past by focusing on a card-only offering that doesn’t do theheavy lifting of managing the supplier information
3. Faster payments
In consumer payments, there have long been peer-to-peer paymenttechnologies like Dwolla or Venmo that make it seem as if you’re moving moneythe same day, but they’re actually moving it in 48 hours. That’s because techcompanies don’t control how quickly money moves between bank accounts—it stilltakes two days.
The National Automated Clearing House Association (NACHA),which does control how fast the money moves, has recently changed its rules andis rolling out same-day ACH processing. When the rollout is complete in thespring of 2018, businesses will have another payment option – same day ACH.Since there will be a higher fee for this service, it probably won’t take overregular ACH payments, but it will replace some of the expensive wiretransactions which are currently the only way to move money faster.
4. Streamlined cross-borderpayments
Today, many solutions overcome the difficulty of makinginternational payments through the existing correspondent bank networks byleveraging a web of relationships and application programmer interfaces (APIs)to provide a user experience that covers up all that complexity and feelssimple.
Distributed ledgers, and specifically blockchain distributedledgers, have the potential to create an entirely new network for paymentswhere data is synchronized, replicated, and shared securely across geographies,banks and computer systems. This will allow money to move quickly from point Ato point B without a bank or middleman in between, greatly simplifying theprocess. This is still in the early stages, think three to five years away, but it has great potential to dramatically streamlineinternational payments and bring down the very high costs banks charge for them.
5. Fintech banks
The US Office of the Comptroller of the Currency isconsidering rule changes to allow financial technology companies (Fintechs) toperform lending functions currently only allowed by banks. This would enableApple, Facebook, Square and others to perform limited banking functions if theycan meet the chartering regulatory standards. If this happens, it will foster awhole array of new Fintech solutions around payments, and lending.
Automating one hundred percent of business payments with thekind of user experience people have come to expect from their experiences withconsumer payments requires more time, effort and investment. So, I understandwhy the consumer payments have been the first and early target. There have beenso many technology advances on the consumer side that it makes the businesspayment process seem archaic by comparison. That said, at long last bettersolutions are coming to B2B payments, and just as with consumer payments,they’re not coming from banks, but from technology companies. Look for them ata Fintech near you.
Karla Friede is Chief Executive Officer,co-founder, and member of the Board of Directors at Nvoicepay. Nvoicepaytransforms the massive and expensive effort that goes into paying suppliersinto a simple and automated solution. www.nvoicepay.com
She has 20 years of experience in management, finance,and marketing roles in both large and early stage companies.