B2B payments digitalization is accelerating as businesses reconsider the manual processes and legacy systems that continue to support many commercial transactions. While consumer payments have rapidly adopted digital experiences, business payments have generally moved more slowly because of complex workflows, entrenched processes, and disconnected accounts payable and accounts receivable systems.
The pandemic has exposed many of these limitations as businesses shifted to remote operations and discovered that processes dependent on paper documents, checks, and centralized offices were difficult to maintain. This disruption is encouraging companies and financial institutions to take a more strategic look at modernizing financial processes from end to end.
This blog posting at Finextra has an enticing title and leads one into a discussion around how digitization in business payments trails that of consumer apps and that the pandemic has boosted activity for a B2B catch up. Suggesting that it is not being talked about we suppose is a matter of where one has been looking, since this trend is covered on a daily basis on these pages as well as CEP member research.
The author is a senior at a UK-based cross-border payments fintech and the overall point of the piece is certainly on target.
‘Inertia and friction in the different systems between accounts payable and receivable have allowed these out-dated ways of doing things to persist longer than they should have. But the pandemic has driven this to a halt. How can you fax a document while working from home and the fax machine is in the office? Where do you mail a check when offices are deserted? Centralised offices were created to deal with increasing mounds of paperwork, but businesses and financial institutions have suddenly been thrust into a distributed remote working world.’
So while companies are now confronting the inertia that led to frenzied operational adjustments during the early days of the pandemic, that deep breath taken after pushing through the crisis should be leading to a more sober and strategic assessment of the true end-to-end needs for digitalization of financial processes.
That of course includes banks, who have been to traditional go to source of solutions for these companies. However, if banks don’t have modernized infrastructure themselves, it may indeed have given many of them an impossible task, and John Wick is not waiting off screen to help out. So as we have been saying for some time now, the collaboration and cloud approach will assist in this necessity.
‘Traditional financial institutions will start to bring in payment portals and other features that mimic the consumer experience, but for most, the task is too great to do in-house. This will create opportunities for another cohort of fintechs that can provide the critical digital infrastructure they lack, leading to a flourishing of Software and Banking as a Service (SaaS and BaaS) business models in payments….Once commercial transactions go digital, this will give financial institutions and businesses alike far more control over their money. Payments will no longer just be money, but rich data that can be analysed and provide insights that give organisations far greater control and transparency over their finances.’
The shift toward B2B payments digitalization extends beyond simply replacing paper checks or automating individual transactions. Digitized commercial payments can connect payment information with richer transaction data, giving businesses greater visibility and control over cash flow while creating opportunities for improved financial analysis.
For many financial institutions, delivering these capabilities will require collaboration rather than building entirely new infrastructure internally. Partnerships with fintech providers, along with cloud technology, SaaS, and Banking as a Service models, can help banks modernize more quickly. As businesses continue reassessing their financial operations following the pandemic disruption, these technologies could play an increasingly important role in the broader transformation of B2B payments.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
