How Brexit and the trade war force change in B2B payments
Brexit, the U.S.-China trade war, and warning signs of a recession are pressuring cross-border supply chains, accelerating the impetus to streamline payment processing for transactions that are still relatively large, recurring and paper-based.
"We're seeing early indicators tipping that there's the potential for the economy to slow down," said Scott Webb, CEO of Avionos, a Chicago-based company that works with corporates on supply chain strategy, transaction processing, marketing and other business processes.
That model places Avionos at the center of the trade dispute between the U.S. and China, one of several factors that could hurt the overall economy and disrupt supply chain finance. The environment has caused Webb to push payment automation as a way to navigate pressure that can also be hard to predict, given the political volatility.
One area that's getting more attention as a hedge against economic weakness is the B2B version of the broader trend toward e-commerce tools such as self-service. Similar to how unattended retail checkout relies on technology to enable consumers to handle the process on their own, corporate supply chains use automated payment execution to centralize data and information for orders, inventory and cash flow.
"The tariffs can cut both ways," said Webb. "As companies look at billing and payments, they accelerate their move toward self-served because it gives them more control and agility."
The trade dispute has accelerated recently as the Trump Administration pushed more tariffs and floated the idea of declaring a national emergency to push U.S. companies to move supply chains out of China. At almost the same time Brexit is becoming more complicated, adding a second major factor, along with signs the economic cycle has peaked. Executives such as Mastercard CEO Ajay Banga have already warned these factors can cause headwinds in the future for payments companies.
The economic and political pressures aren't happening in a vacuum, and many companies are already building products to help weather the trade war.
For example, Airwallex, a Melbourne-based fintech, has raised more than $80 million from Tencent and Sequoia — and it counts Mastercard as an investor and client. Airwallex uses an API and local partners to eliminate third parties from cross-border supply chain payments by directly connecting buyers and sellers.
Despite the pressure on cross-border financial services collaboration from the political disputes, payments innovation is seen as a way to navigate the challenges. Writing for PaymentsSource, Tipalti CEO Chen Amit, who builds payroll technology to tie companies to international contract workers, has argued digitizing payment flows can improve accuracy and security, and more closely tie a company's back office to sales, purchases and payroll.
"In times of uncertainty, payment processing could be the single most important factor impacting revenues," said Igal Rotem, CEO of Credorax, adding that on both the corporate and consumer side, firms should continue to work with firms such as Alipay and WeChat to extend cross-border transaction networks. "Regardless of geography, the technology enabling smooth and seamless payments is necessary to ensure transactions are processed safely and securely."
The availability of fintech tools such as APIs can help businesses adjust quickly, since the volatility is more of a threat than the actual tariffs — companies simply don't know how much a tariff will be, or even if there is a tariff.
"How to respond to what seems to be an ongoing tariff situation that's largely retaliatory is difficult," Webb said. "When you have a large fixed investment in suppliers, and are using several suppliers, there's a worry about how to deal with slower growth. That's one area where we are seeing organizations turning to digital enablement."
Payment technology companies often cite the stat that 50% of business payments still use checks. That habit may finally be unsustainable for companies that have to shift supplier payments on the fly.
Webb would not name specific clients, but mentioned an automobile parts manufacturer that's launching a new digital distribution channel in partnership with Avionos. This channel will have self-service tools to search, select and buy auto parts digitally, borrowing from e-commerce to simplify the sales and invoicing relationships between the manufacturer and users of auto parts.
This will allow the manufacturer to centralize its own incoming invoices to cover multiple payments from multiple sources without having to reconcile the individual transactions.
"There is a headcount benefit to this, since it frees up labor to do other things," Webb said. "A growing number of companies are going to be looking at headcount."