At a glance
- While C2C and C2B payments have become highly digitalised in recent years, B2B remains largely tied to traditional systems
- Market expectations are changing and new roadmaps need to be implemented to optimise B2B payments
- The widespread introduction of new technologies and open banking system will enable the digitalisation of B2B payments
Payments have become increasingly digitalised around the world as economies around the world move away from cash, and the Covid-19 pandemic boosting digital adoption.
One of the latest examples include the introduction in November of a cross-border payment system to facilitate customer transactions between Singapore and Indonesia through the use of QR codes.
However, not all payment types are experiencing the same push towards digitalisation. While innovation permeates consumer-to-consumer and consumer-to-business payments, business-to-business transactions remain primarily reliant on non-digital operations.
Alex Axelrod, founder and CEO of international payment platform Uluky, says some fundamental distinctions between consumer and B2B payments need to be made in order to understand why some are more efficient than others.
“With consumer payments, we are talking about smaller transaction sizes and smaller risks that are conducted in shorter amounts of time, where in B2B the processing times are much longer because corporate clients have many more things that they are obliged to report,” he says, and stresses that many of these requirements do not apply to individual clients.
Muted growth
Darren Parslow, global head of business solutions at Visa, says that the lack of digital progress within B2B payments is linked to their reliance on legacy systems that have been slower to adapt to rapid digitalisation trends over the years.
“When businesses were forced online by the pandemic, traditional financial institutions hadn’t progressed the roadmap for B2B payments as much as for consumer payments, and B2B transactions require a ton of additional non-payment information, which makes the system more complex,” he says.
According to a 2022 report by Barclays, 58 per cent of small and medium-sized businesses in the UK are waiting to receive funds that are being held as a result of unpaid invoices, which can negatively affect their ability to manage cash flow.
However, experts warn that generational shifts are bound to result in greater digitalisation of payment systems, with millennials and Gen Z looking for platforms for smoother consumer payments and B2B payments.
“We call this the consumerisation of B2B,” says Parslow, noting that this would result in payment providers pushing for a faster digital adoption but that “the sad part is that we’re not quite there yet”.
Historically, B2B cross-border transactions have been costly, time-consuming and challenging for payers to keep an eye on. However, the growing popularity of cross-border instant payments is helping to turn the tide, and global spending on B2B payments is set to reach $40tn by the end of 2024, according to a recent study by Juniper Research.
Regarding logistics and safety within B2B, Axelrod believes that it is essential to understand that risk prevention remains an inherent part of payment systems, and the key to making these transactions more efficient is to develop more effective ways of dealing with them.
“The reason why B2B still lacks innovation is because a long time is still spent on manual reviews of the transactions, so if we could come up with another system that would make this process more convenient, then we would see more efficiency and a development speed similar to consumer payments,” he says.
Interactions between different legacy systems remain limited within B2B, because service providers maintain a high level of independence. However, efforts are being made to improve interoperability, especially in cross-border transactions. In September 2023, Visa and Swift entered into a collaboration to enable frictionless B2B payments by facilitating communications between parties.
New dynamics
B2B payments are likely to see new growth trends in 2024 thanks to technological innovations, changing market dynamics and customer demand for new platforms that can guarantee fast and secure transactions.
The consolidation of open banking will also help B2B payments become faster and cheaper for companies, especially for small and medium-sized businesses, which have often been overlooked by financial institutions, particularly during times of economic uncertainty.
Siamac Rezaiezadeh, director of product marketing at GoCardless, says that open banking could help digitalise the share of B2B payments that are still conducted offline while improving oversight of transactions.
“I think that we will start seeing a shift of all that offline legacy of transactions towards a more open banking space for payments because the technology can offer effective and low-cost bank-based payments, where the payer can maintain some oversight over the transaction,” he says.
Additionally, financial institutions and payment companies are leveraging their data stacks to drive more automation within the sector. “I think that we will see some of that machine learning-driven payment intelligence, combined with open banking and payment tools, create more efficient services for businesses,” says Rezaiezadeh.
Innovation also has the potential to increase interoperability between systems and help democratise cross-border B2B payments.
“There are plenty of payment options available and ways to do things, but accessing those tools hasn’t been a priority within the B2B world up until very recently,” says Visa’s Parslow, adding that technology and growing interest in user interface and user experience solutions will help boost their globalisation.
