The future of B2B payments: Innovation at a consumer-centric pace
Innovation in digital payments has progressed at breakneck speed in recent years, as consumers have sought out more efficient and secure methods of paying for goods and services online or via mobile phone, whether that’s via QR codes, wearable technology, or biometrics.
The digital payments ecosystem has risen to meet this challenge, supported by the connected nature of global commerce and the “move fast” culture of the thriving fintech ecosystem. However, while innovation in consumer payments flourished, digitization in business-to-business (B2B) payments did not show the same momentum. Remnants from an earlier era including paper receipts, invoices and, lengthy transaction times for cross border payments continued to present challenges for businesses of all sizes.
This changed dramatically when much of the Central and Eastern Europe, Middle East and Africa (CEMEA) region moved into lockdown in 2020. Whole operations rapidly shifted online often in a matter of days – ranging from digitizing back-end payment processes and systems to adopting virtual cards for supplier payments. Digital progress typically taking years crunched into a matter of months, mirroring the pace of innovation in consumer payments.
“As a consumer, for some time you’ve been able to make a payment for anything through a simple mobile app, but if you’re a CFO running a successful business then you haven’t always been able to do that as easily,” says Rakesh Khanna, Vice President and Head of Visa Business Solutions for CEMEA. “We are now seeing the same experience translated on the businesses side, which brings the necessary compatibility and consistency right across payments.”
The sheer size and scope of business spending illustrates both the scale of the opportunity for innovators and the economic risks of interrupting B2B payment flows.
Businesses and governments make $120T payments globally for the purchase of goods and services1. In the CEMEA region, B2B flows represents an unprecedented opportunity for the entire payment ecosystem. This segment is estimated to be worth $9 trillion2 spanning everything from SME, fleet and travel expenses to cross border payments, about equivalent to the annual economic output of France, Germany and the United Kingdom combined3.
SME’s digital pivot in CEMEA
Much of that spending in CEMEA can be attributed to small and medium sized enterprises (SMEs), which found themselves at the centre of a world transformed by the pandemic.
Many responded to COVID-19 by overhauling systems and procedures to meet new consumer demands, including expanding their eCommerce presence, accepting new forms of online and in-store contactless payments and digitizing back-end payment processes to create more efficiencies.
Globally, 82% of SMB owners surveyed in a Visa Study have made updates to their operations to meet these new demands, up from 67% in summer 2020 when the first Visa Back to Business Study was released. In summer 2020, just 27% of SMBs surveyed had begun selling online for the first time due to the pandemic. Now, 43% are actively engaged in selling products online, and of those, 87% plan to continue over the next three months.4
In United Arab Emirates (UAE) nearly all (97%, compared to 82% globally, more than any market surveyed) SMBs have adjusted the way they operate their business in the past three months, unchanged from 94% over the summer. More than four in five UAE SMBs (86%, compared to 74% globally, the most of all markets surveyed) expect consumers to prefer contactless payments as much as, or more than, they do now — even after a vaccine is widely available.5
“A lot of businesses are pivoting to a digital-led strategy and that’s being felt right through the industry,” says Khanna. “Now almost every bank is devoting more energy to digital strategies, because they know they need to support their B2B clients end-to-end.”
It’s this approach – an understanding that digitization is about more than just the transaction – that will underpin positive change in the B2B payments ecosystem, says Khanna. An end-to-end digital experience removes clunky, manual processes, increases the velocity of transaction processing and reconciliation speed, and offers valuable spend visibility and insights. Visa is providing these digital capabilities across card-based solutions and Value-Added Services that provide the enhanced data and expense management tools. However, organizations need to continue building a smoother, integrated digital experience.
Businesses of all sizes require many payment solutions, from managing employee payments to virtual cards and cross border payments. To stay ahead, financial institutions and businesses need to streamline safe and secure pay-out operations via a scaled and trusted partner and operator.
Efficient payment flows help fleets
Partnerships are already playing an important role. As COVID-19 restrictions took hold in 2020, consumers and business increasingly relied on eCommerce, and the fleets of delivery vehicles that served online shopping.
Managing fleet payments can be complicated. Drivers often use fuel cards which cannot be used at all petrol stations or for approved business spend beyond fuel, while the surge in demand multiplied logistical challenges for businesses. Working with leading partners, Visa introduced an EMV fuel card, creating a seamless payment experience for fleet drivers whereby all fleet-related expenses could be transacted on a single card. As logistics grew and became more complex, fleet managers were able to tap into data and analytics to make cost management more intuitive so vital cash flow can be allocated most effectively.
The cash flow challenge
Cash digitization and a tight working capital cycle are common across all businesses. The last year has shown that these pressures can be alleviated by the use of single use virtual cards and digital payments. Here too, Visa is working to collaborate with banks and key players to digitize cash payments between buyers and suppliers. This includes a Visa partnership with PayMate, which allows seamless processing of B2B supplier payments, that enables reconciliation and assists with the on demand working capital requirements of both buyers and suppliers.
“Through these partnerships we want to bring capabilities organizations can integrate with straight away,” says Khanna. “So, when we go to a bank we can say, rather than build everything yourself, whether it’s mobile, digital strategy or something else, it’s all just ready to go.”
Streamlining cross border payments
Visa B2B Connect is helping solve the next big part of the puzzle: cross-border account-to-account payments between businesses. Businesses and their Treasurers are seeking better visibility as to when payments arrive, while they also expect improved predictability on the cost associated with intermediary bank fees. With cash flow of vital importance during an economic crisis, particularly for SMEs, Visa’s B2B Connect, an innovative payment network, delivers B2B cross-border account-to-account payments that are predictable, secure and cost-effective.
Visa B2B Connect6 is currently available in 97 markets globally including 30 in CEMEA; and Visa expects that will expand to 34 new markets globally over the next 18 months.
Despite the size of the CEMEA region, these initiatives reveal how the pandemic has brought the key players in the payments industry closer, positioning economies well for the coming economic cycle, Khanna says.
“Whether participants are buyers, suppliers, financial institutions, fintechs or payment networks, collaboration is vital,” he adds. “That’s how we keep businesses running and growing.”
1 McKinsey Global Payments Map; Visa analysis
2 McKinsey Global Payments Map; Visa analysis
3 The World Bank, 2019 GDP https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?locations=FR, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?locations=GB, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?locations=DE
4 The Visa Back to Business Study
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