Collaborative commerce: the next evolution of B2B payments
The digital revolution has already taken the world of consumer payments by storm – research from IMARC1 forecasted the global mobile payment market to reach $3.08 trillion by 2024. That’s a huge increase from the $1.15 trillion in 2019 and is a compound annual growth rate of 23.2 percent during the forecast period (2019 – 2024). The very same digital shift is rapidly transforming the B2B payments landscape. This opportunity represents $120 trillion in global payment volume.
Businesses need more efficient payments and faster settlements, expert advice, and relevant reporting. They also need streamlined procurement, visibility into spending, predictable cross-border transactions, and alternative payment methods. For large and medium-sized businesses, access to these tools means simplified workflows, controlled costs, and accelerated results. For governments, it means economic growth and relief when it’s most urgently needed. And for small businesses, these solutions free them up to focus on what’s most important to them: managing their business and growing the bottom line. Digitizing the world of B2B payments would help remove clunky, manual, paper processes, increase transaction processing and reconciliation speed, and offer valuable spend data and insights.
Digitization across B2B is helping us to reimagine how commerce happens, both in the office and at home, locally or cross-border. It is fostering connectivity and partnership across the full B2B payments ecosystem in a way we have not seen before. Despite our physical distance, the COVID-19 pandemic has brought the payments industry closer – highlighting the importance of collaboration between all participants whether they are a buyer, supplier, financial institution, fintech or payment network – to keep businesses running and growing.
In our dedicated B2B payments series, each quarter we will dive into one of the key growth areas driving the evolution of B2B payments such as innovative technology solutions, accelerating growth, and partnerships across the B2B payments ecosystem. This quarter we are starting with Collaborative Commerce. For more B2B-focused insights, visit the Visa Business Solutions Knowledge Hub.
Bringing buyers and suppliers together in a new transactional ecosystem
For too long, B2B payments have been characterized by distinct and fragmented approaches to accounts receivable (AR) and accounts payable (AP). Legacy systems, lack of data standards, and limited interoperability all generate challenges for buyers and suppliers.
These pain points include high costs, manual processes, lack of payment data, poor visibility into upcoming payments, errors and fraud, late payments, and cash flow challenges. These pain points are numerous, they are real, they are significant, and AP and AR professionals around the world must live with them every day. But there is a better way, and the industry can get there – if it collaborates.
Collaborative commerce is key
There are a variety of payment methods available today, and each come with unique benefits and challenges. For example, while a check may be viewed by some suppliers as simple and straightforward, checks offer no working capital benefit to the buyer, they rely on the sometimes unpredictable postal service, and the buyer does not know exactly when the funds will be debited from their account.
Similarly, ACH, purchasing and virtual cards all come with their own set of considerations for both AP and AR departments. The question is not about finding the optimal payment method overall, but finding the optimal payment method given the context of the buyer and the supplier. And this can only be accomplished if the buyer and supplier communicate and work together.
Historically, B2B payment providers were more focused on buyers. Offerings focused on providing buyers with visibility into future payments, as well as control and flexibility surrounding the funding sources and payment types. More recently, the industry has shifted, investing more to address the AR needs of suppliers. While some solutions are starting to address payment needs more holistically, most still emphasize either buyers or suppliers.
The need for a more integrated and digital approach has been brought into sharp relief by the COVID-19 pandemic. Economic constraints and the persistent risk of recession are impacting not just individual companies, but also their suppliers and customers. Companies need healthy suppliers and customers, so they are increasingly evaluating different payment methods, and assessing which payment types best meet not just their needs, but also those of their trading partners. Financial institutions, as well as AP and AR providers, can help drive collaborative commerce by enabling buyers and suppliers to choose payment methods that best fit their needs.
From local optimum to global optimum
This is enabling an evolution in how companies optimize their payments strategy. AP and AR professionals are moving away from selecting payment strategies that optimize solely for their company’s position (a local optimum). Instead, they are evaluating across their trading partners and identifying potential outcomes that are more beneficial to their partners overall, and as a result also more beneficial to the company than would otherwise be possible (a global optimum). This move has come in two waves.
The first wave has seen buyers and suppliers implementing AP and AR solutions to streamline and automate their own internal processes, e.g., automate approvals, make payment initiation easier, and streamline AR reconciliation. That has often involved moving away from manual payment methods like checks to more digitally advanced payment methodologies. Examples might include a business using Bottomline Technologies’ payment network to streamline its AP processes. It might involve a company moving to virtual card to push its payables out or earn rebate; or a company using a payment network to streamline receivables.
The second wave builds off the first and enables communication between buyers and suppliers to optimize across supply chains. Sometimes buyers may be able to pay earlier. Sometimes suppliers may be able to accept later payments. Sometimes buyers need credit to make a purchase. Sometimes there is a greater need for data to support the payment and enable reconciliation. Sometimes one payment type is preferred over another. This requires AP and AR suppliers to connect and enable data exchange. Importantly, it also allows for better outcomes for both buyers and suppliers than would be possible for either the buyer or supplier just optimizing for itself. It is the kind of capability that we see offered through Billtrust’s Business Payments Network, which is designed to streamline the delivery of electronic B2B payments to suppliers, or increasingly through the use of application programming interfaces (APIs) that connect buyers and suppliers, and through the latest AP platforms.
Looking positively forwards
Several traditional AP fintechs have expanded their capabilities to connect their APIs directly into their clients’ suppliers to streamline data exchange for reconciliation. We expect that this will expand, with AP providers bringing more services to suppliers, and that AR providers will provide new connectivity to buyers.
This is more than just a move to advanced payment methodologies and digital technologies. By enabling buyers and suppliers to identify how they want to partner together to advance their common interests, we are now arriving at the emerging reality of collaborative commerce.
Last updated: April 2021
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1 “Mobile Payment Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2021-2026”, IMARC Group: https://www.imarcgroup.com/mobile-payment-market
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