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FIs Can Pave the Way for B2B Payment Digitization

June 15, 2022



The B2B payment ecosystem is pressurized with many complex processes. While there can be numerous ways of streamlining B2B payments, some approaches to reducing friction are discussed here.

As the world of payments becomes more digital, financial institutions have an opportunity to provide clients with new ways to pay bills. As of 2021, the global B2B payments market has reached a value of US $942.6 billion. Despite the large market size, many customers still preferred paying bills manually or through automated phone systems until the pandemic. COVID-19 and the global lockdown that ensued led to hyper-escalation of digitalization in the economy, especially on the corporate front. Nearly three-quarters of those surveyed confirmed that the pandemic catalyzed their organizations’ digital payment transformation.

In this article, we’ll explore how financial institutions can help bridge the gap between legacy and emerging technologies by offering streamlined bill payment options for business-to-business (B2B) transactions.

Innovating Through Partnerships

As the future of financial services looks up to digital transformation, customers are increasingly turning to new players like FinTech and Robo-advisors to seamlessly manage, spend more wisely, and save money. As a result, banks are struggling to embed themselves in the digital transformation of financial services, with 82% of international banks flagging the data management problem faced by their customers. They are failing to keep up with customer expectations for better experiences in terms of product innovation.

The best way to innovate and deliver solutions is through partnerships. Partnerships can help FIs reach new customers, reduce costs, and build new revenue streams, and have been a primary source of innovation for 86% of them. In fact, partnering with a vendor or supplier can be a great way to deliver innovative financial services at scale, as up to 50% of B2B payments in 2025 will be in real-time. The complexity and value of B2B payments make them a more prominent problem statement in the disruptive turn of events.

Increasing the Use of Online Channels

The B2B space is changing and evolving rapidly. Digital channels are increasingly central to how businesses interact with each other, so it’s no surprise that financial institutions are following suit by embracing digital channels in their business models. The rise of digital channels has helped financial institutions create more seamless and personalized experiences for their customers, as well as innovate and differentiate themselves through new products and services that were not previously possible.

In the past, FIs have had two essential roles in B2B payments:

  • To help businesses manage their risk: This was done by providing credit lines and taking deposits
  • To help businesses manage their liquidity: This was done by providing overdraft facilities or other short-term lending products such as receivables financing, inventory financing, and invoice discounting

However, with digitalization and new technologies like blockchain becoming more prevalent in the financial sector, these two roles are being expanded to include faster cross-border payments that are more cost-efficient. This can be done by embedding the capabilities of a FinTech into the FI’s infrastructure or by working together with a FinTech to develop new products. Visa B2B Connect was one such initiative launched by Visa in 2019 to overcome cross-border friction by tokenizing sensitive financial information for open banking.

Source: RSsoftware

Providing Streamlined Bill Payment Options

Streamlined payments and services are just some of the ways that FIs can help freelancers and other small business owners increase their productivity, decrease the amount of time they spend on administrative tasks, and get paid in real-time. FIs can provide these streamlined solutions to their customers in several ways. One option is through API-driven solutions. These solutions give clients more flexibility in paying their bills online or through their apps.

APIs allow businesses to integrate new payment capabilities into existing software programs or easily connect them with third-party software providers like accounting or invoicing apps. Using APIs, an FI can make it easier for freelancers and micro businesses to receive payments from clients more efficiently without relying on traditional point-of-sale (POS) systems. This service allows FIs to retain loyalty while giving consumers access to new payment options without requiring them to change banks or credit unions.

Yet another incentive that can be provided to the corporates by the FIs is to enforce smart contracts in the form of bank guarantees. This is a great way to keep the advance payments on record for respective bills, and the remaining amount can be locked in an escrow account. It prevents the chances of non-performance of contracts and has a litigation-free mechanism for discourse in case of a dispute. The outsourcing of such collection functions helps control costs and eliminate risks arising out of uncertainty.

Role of FIs in Personalized Payments

With the digitization of B2B payments, financial service providers can offer their customers faster, cheaper, and more secure payments. FIs can leverage their vast resources to provide better data and reporting to help automate compliance, risk, and fraud management. FIs can collaborate with popular ERP software to enable digital accounts payable and receivable services for businesses, through robotic process automation. With 73% of banks reportedly undergoing ERP integration, the whole process can be made more efficient with an embedded payment ecosystem.

Financial institutions should look at partnering with technology providers that are focused on building a payment orchestration platform (POP) for cross-border payments and invoice management. Such a platform will enable banks to provide valuable services to their corporate clients while also making it easier for them to manage their business processes.

Way Ahead for the B2B Payments

The traditional B2B payment systems were not designed for digital transformation. This is why FIs can leverage their expertise, reach, and resources to embed themselves in digitizing financial services. The financial industry has never been more digital. FIs can capitalize on this trend by providing streamlined bill payment options, creating partnerships with other businesses in their ecosystem to build new payment solutions, and leveraging technology to improve customer service. The lower the order-to-cash lag, the more efficient a business is in this fast-paced world of cut-throat competition.

Contact our team to find out more about how you can benefit from B2B payment digitization.

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