B2B Payments Innovation: From Paper To Digital
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Someone needs to write an epic poem about the paper check. Love it or hate it (and we all say we hate it even though many of us still use it, especially for B2B payments), the payment form not only endures in these supposedly digital times, but dominates the corporate world like some past-his-prime warrior who, nevertheless, still has a lot of fight left in him.
Take these eye-opening — perhaps even heartbreaking — stats from the recent “Bringing Corporate Payments Out of the Dark Ages” webinar by PYMNTS: 64 percent of B2B payments are still made with checks, even though 67 percent of consumer payments are made electronically. That gap between B2B and consumer payments served as one of the main points of the digital discussion that featured Karen Webster and Vijay Ramnathan, senior vice president of product management and strategy at Comdata.
Don’t get the idea that the discussion was all doom and gloom about the prospect of B2B payments joining the digital age in full. Yes, significant challenges are slowing that progress, but few situations are truly hopeless and, even where the paper check rules the land, there are prospects for change.
Night And Day
The difference between consumer and B2B payments is as severe as the distinction between “night and day,” Ramnathan said during the webinar. Consumers are increasingly faced with the hassle of locating their checkbooks for the increasingly occasional need to use that payment method — paying rent, for instance, or the neighborhood handyman with no interest in accepting payment cards.
However, in the B2B world, “there is paper in the beginning, paper in the end,” he said, adding that so much paper — and so many touchpoints for those invoices, checks and other documents — presents ample temptation for fraud and other forms of malfeasance, along with the introduction of mistakes into the process.
That process is a sloppy, drawn-out and costly one when it is based on paper. B2B payments itself has an 18 percent error rate, Ramnathan said. The average invoice takes $17 and 10 days to process — in fact, the entire lifecycle of a B2B transaction stands at 34 days in the U.S. market.
Underlying Problems
Blame inertia and fragmentation for much of the problem.
Inertia and fragmentation are more than just the enduring existence of legacy systems. It’s about the reluctance of suppliers to invest in up-to-date payments systems unless there is a strong return on investment (ROI) case for doing so. It’s also about having different B2B payments functions — accounts payable (AP), ERP, payroll, whatever — in their own silos, separate corporate locations that might not talk to each other much, so to speak, and a lack of interoperable and integrated technology that can provide clear, real-time views into the entire payments flow.
That’s even without considering the challenges and frustrations on the other side of the payments relationship — the systems and silos used by a company’s trading partner. Any change on either side will produce a wide impact on the other, a rock producing ripples in the water.
Any initiatives and innovations “require investment,” Ramnathan said during the PYMNTS webinar. That’s its own major challenge. “How do you drive that change without a high level of upfront investment and a clear ROI?” he said.
No Silver Bullet
There is no easy answer to that question, given the complexities of B2B payments. “There is no silver bullet,” he said. “There isn’t a single payment mechanism that people can look at and say that applies to everything. You have to innovate across the entire value chain.”
That’s a plan for serious, sustained hard work. It’s possible, though.
One tool toward innovation is leverage. There is an ongoing debate about whether suppliers or buyers have the most leverage when it comes to encouraging (forcing?) B2B payments innovation on the other. The answer depends on context, company size and other factors — and varies. However, leverage always exists — that’s one of those basic facts of physics that tends to apply to daily human life. Those bent on innovation can craft a wise plan that includes ROI and employs strategic leverage.
Scale Advantage?
It also helps to consider scale when thinking about B2B payments innovation. A solution that can scale will likely prove more attractive to the powers-that-be than a change that is limited and has temporary use. In fact, the concept of scale applies to point of view, as well. Successful innovation in this space requires consideration of all players involved and the entire value chain, Ramnathan said. After all, this involves working with a trading partner.
Another tactic? Don’t, in his words, “cobble or stitch together” some solution meant to bridge those silos. That will, more likely than not, still lead to a lack in interoperability and integration, no matter how sophisticated or smart the technology, people or process might be. “You can build a team with top stars, but that doesn’t necessarily mean it’s the best team,” he said, reflecting on the hard-earned wisdom of every serious sports fan (see: New York Yankees).
B2B payments will not be an easy problem to solve, not with its complexity or its dependence on checks. However, there are ways to get around those challenges, as this webinar showed.
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