Fintech in B2B payments is helping drive a broader shift toward digital, integrated commercial payment processes. While innovation in consumer payments has moved more quickly, corporate transactions involve greater complexity, multiple systems, regulatory requirements, and significantly larger transaction values, making transformation more gradual.
That transformation is nevertheless well underway. Corporations are paying greater attention to emerging financial technologies as they seek more efficient ways to manage payments and transaction data. Regulatory initiatives such as PSD2 in Europe are also encouraging innovation, while banks increasingly balance competition with collaboration as fintech companies introduce new approaches to commercial payments.
The somewhat inquisitive nature of the title in this piece belies what is essentially a rhetorical question. The answer should be ‘yes’. Fintech is a broad category. If narrowly applied to only recent startups, then the answer to the question might actually be ‘no’. Most of the startup activity (until recently) has been dominated by non-B2B investments. Applied to the broader category, fintech drives the industry and contributes to the digital wave. The transformation has not occurred but is certainly well underway. It is at a different pace on the corporate side. Due to the complex nature of B2B payments compared to consumer transactions.
Compared with widespread innovation in consumer payments largely stimulated by the digital economy, commercial banking solutions – previously a one-size-fits-all landmass that splintered into separate islands of innovation to address specific needs – have left finance and treasury teams with a cumbersome patchwork of payment services and isolated pools of transaction data.
The article goes on to point out how corporates are paying more attention to fintech. It cites one of the reasons in Europe as PSD2. PSD2 mandates the sharing of bank data as of 2018 for purposes of supercharging fintech innovation across the Eurozone. Mercator has covered this extensively with reference to both consumer and corporate paradigms. There is no such equivalent carrot or stick in the US market, which has traditionally been more reliant upon market forces to guide innovation. But the point about corporates trying to understand who they are dealing with (or may be dealing with soon) is valid since regardless of whether they think their bank(s) sit atop the innovation summit, by-and-large they do trust them to securely get things done.
Change for B2B Payments
Highlighted is the renewed vigor surrounding the massive B2B payables market, involving $100 trillion or so of business settlements annually across the globe. Whether new versions of older models (virtual cards) or new rails (especially welcome in cross-border payments), we are in the process of enormous change. Banks are doing their part to compete and collaborate, and corporates will be learning much more about it soon.
He says: “Lots of big corporates are now on a mission to find out more about what’s going on in fintech – and this is born from necessity as they face both regulatory and capital management challenges.”It is a market on the verge of disruption and fragmentation as the digital economy drives cross-border commerce and electronic payment integration
The growing influence of fintech in B2B payments points toward significant changes in how businesses manage domestic and cross-border transactions. Virtual cards, new payment rails, greater electronic payment integration, and improved access to transaction data all have the potential to address inefficiencies within traditional commercial payment processes.
Banks will remain important participants because of the trust corporations place in them to securely execute transactions. At the same time, fintech providers can introduce new capabilities that improve speed, connectivity, and efficiency. As banks, fintechs, and corporations adapt to the digital economy, collaboration between these groups could play an important role in reshaping the enormous global B2B payments market.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
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