Financial institutions can offer deep-seated institutional and industry knowledge of processes, while FinTech’s can provide software solutions to make B2B payment efficient.
In the recent industry report by Association for Financial Professionals (AFP), the use of paper checks in B2B payments increased in 2016. Further, another industry survey showed that the majority of businesses value surety and security of the payment more than the speed of the payment. Historically, businesses are comfortable in providing net-30, 60, or 90 days terms to keep their customers happy.
According to Juniper Research, B2B payments netted some $136 trillion worldwide in 2017 and $20 trillion in the US, where banks and financial institutions represented 93% of cross-border money transfers in 2017 using “traditional methods.” It appears that B2B payment industry is ready for disruption and modernization. However, a B2B payment transaction is complex as it involves invoicing, reconciliation, tax reporting, bookkeeping, approving, and executing payment. Also, existing payment avenues are well-established and familiar to the end-user. There are certain regulatory, privacy, and security issues that limit adoption to new payment technologies.
Many FinTech companies are only focusing on solving the speed of payment problem (‘settlement problem’) rather than solving the end-user problem (‘business problem’). There is a continuing expectation that FinTech will play a larger and larger role in B2B payment transactions, but the full extent of that impact is yet to come. We believe Fintech companies that deliver a holistic solution to B2B payment problem will be leaders in this space. Such FinTech companies will deliver payment platforms that facilitate the transfer of funds with a FinTech user interface in mind, consolidating and automating payment processes at the business level, eliminating the requirement for multiple systems, and avoiding expensive redevelopment costs.
Financial institutions need to adjust their overall marketing and distribution strategy to meet the needs of their customers and develop products and services that are specific to the industry. There is no one size fits all B2B payment solution that provides an all-inclusive solution. We expect that there will be increased collaboration between banks and FinTech companies, which will benefit both parties. Financial institutions can offer deep-seated institutional and industry knowledge of processes, while FinTech’s can provide software solutions to make it efficient.