B2B's focus is on the buyers, and that's causing a digital imbalance
The advantages of digitizing payment relationships between buyers and suppliers seem obvious. Lower paper and postage costs, faster speed, and increased security are just a few of the clear benefits. Yet, research - and experience - show a different reality from what we'd expect with respect to how buyers interact and transact with their suppliers in 2019.
AFP’s 2019 Electronic Payments study found that while over 60% of organizations believe faster payments will have a positive impact on their organizations, 97% of financial professionals continue to use checks to pay their business suppliers.
Meanwhile, data from NACHA indicates that 32% of B2B payments today are ACH and are set to increase to 45% by 2020. While this shows progress, with practically every facet of business today fully digitized, one has to wonder why it’s taking so long for B2B payments to follow suit.
First, let’s clear something up. Many believe the B2B space is significantly behind its B2C counterpart when it comes to adopting payment technology. That's true. The B2B industry is slow to adopt new technology. But that's also true for the entire U.S. payment system.
Take EMV chips. While we’ve transitioned from swiping to inserting our cards over the last couple of years, EMV technology emerged in Europe long before it did in the U.S. Why? Because of inertia caused by the changes and the costs required to adopt the new technology.
EMV chips boost security. But adopting them meant retailers had to install new readers supporting the chips while issuers had to provide cardholders with new cards. Making these changes took time and money, slowing adoption.
The U.S. was also slow to adopt near-field communication (NFC) chips, which transfer information between two devices, when they first came out. In Canada and Europe, these chips quickly became widespread once introduced.
This scenario continues to play out today. In China, for example, more than 80% of consumers use mobile payments, generating about $5.5 trillion. In the United States, only 10% of consumers use mobile payments, producing $112 billion.
A major reason why digital adoption of payments aren’t where they need to be today is that we’ve put most of our eggs in the buyer’s basket. For the most part, technology innovations have been geared towards buyers, tipping the balance of power towards them.
This imbalance has slowed the adoption of payment technology, like virtual credit cards, real-time payments, and proprietary networks. While these innovations have been welcomed with open arms by accounts payable teams, they’ve made many in the accounts receivable world cringe as they’re left to struggle to process these increasingly complex forms of electronic payment.
These buy-side changes boost costs for suppliers and create manual A/R chaos for U.S. suppliers. For example, recent survey shows 69% of B2B companies report a lack of integration between electronic payments and their present accounting systems is a critical barrier to further adopting electronic payments within their accounts receivable (A/R) operations.
European suppliers, by contrast, have already made the changes needed to accept these faster and smarter payments, speeding adoption of payment innovations. An Atradius report, for instance, says that 67.4% of respondents in Western Europe said that they are already invoicing their B2B customers electronically (e-invoicing).
Shifting the focus to the supply side would speed adoption of payment technology and propel the industry to a whole new level. For buyers, it would mean greater acceptance of electronic payments, avoiding the costs of printing checks, and eliminating the need to enroll suppliers into their programs. For suppliers, it would mean accepting electronic payment without hiring more staff to cope with diverse buyer payment preferences, reducing the burden of a highly manual process and cutting operations costs.
How does the B2B industry successfully balance power between buyers and suppliers? We do so by designing more supplier-centric solutions that address a critical part of the B2B transaction: “the last mile.."
That’s where suppliers, having received a payment instruction from a buyer, must post remittances to their ERP systems and determine which customer paid them and for what. It’s a critical point in the process, and it’s also a common bottleneck for suppliers as most electronic payments today look different based on the AP system they originate from. Suppliers do not have the technology means available to translate each payment to an input their ERP can handle and instead rely on humans to interpret electronic remittances, if they’ll accept them at all
So what will a solution look like that enables greater electronic acceptance of payments? Will it come in the form of new technology suppliers must implement, like the EMV terminals we now see at every retailer? We think not. The key to eliminating this bottleneck is to create a B2B transaction experience that “submerges” the exchange of payment between buyer and supplier.
We believe this technology takes the form of a network that supports backend integrations with the major accounting systems, ERPs, and payment platforms currently used by buyers and suppliers. More connected commerce will lead to more comfort with electronic payments, eliminating many of the behavioral changes that are otherwise required today to enter the world of digital transactions in B2B.
To put it simply, in order to overcome this digital payment inertia we need to design solutions that allow buyers and suppliers to focus on a more critical aspect of the transaction experience—the sale itself. After all, isn’t the sale what payments are all about?