B2B payments 2019-2020 – key drivers of innovation

Around the world, B2B payments growth is driven by technological innovations within the industry, changes in customer behaviour, new market participants, new technologies and changed market infrastructure.

Many solution providers are emphasizing how commercial card technology can tackle issues and solve pain points in B2B payments, others are partnering, investing in, and acquiring other businesses to keep up with the innovation, while many companies are benefiting from the card schemes network capabilities to meet the requirements of B2B payments, all while dealing with the coronavirus crisis.

No doubt, the pandemic and the reduced economic activity have negatively impacted businesses all over the world. However, the crisis is also likely to accelerate much of the catching up that the B2B payments space has already been doing. The corporates, for instance, are re-evaluating their payment processes to navigate the issues and are creating a relaunch map. 

The demand for virtual cards, online payment and the ability to manage new forms of transactions, the M&A activity and partnerships aimed at bringing innovation to market faster, the rise of new players and offerings, the investors looking for new opportunities, combined with other factors - all these lead to the question: Is 2020 the year that B2B payment innovation outpaces B2C?

Let`s take a look at the most identifiable trends and initiatives in the B2B payments space from late-2019 to mid-2020, including the card scheme ecosystem elevating its value proposition for B2B payments, the demand for virtual cards, the usage of corporate cards in the B2B space, and expansion, investment and acquisitions activities:

The card scheme ecosystem elevates its value proposition for B2B payments

Since most of the innovation of the last couple of years has been directed to the B2C market, many companies are now benefiting from the card schemes network capabilities to meet the requirements of B2B payments.

Mastercard, for instance, launched Track Business Payment Service in the US. The first commercial version of Track Business Payment Service is using card payment rails, with distribution partners across the B2B ecosystem, including Global Payments, Fiserv, AvidXchange, Boost Payment Solutions, Corporate Spending Innovations (CSI), HighRadius, Tesorio, Veem, Velo Payments, VersaPay, and YayPay.

Mastercard is also pursuing global expansion and piloted Track Business Payment Service for card with Paymentez in Latin America in 2019. The fintech is planning for pilot execution in Europe, Middle East and Africa and Asia-Pacific during 2020 with commercial launches following.

Rapyd and Visa have partnered for fintech and payment services, with a goal to deliver fintech and payment services where both see opportunities to help businesses expand their core offerings with more expansive local and cross-border market solutions. Rapyd will also join Visa’s Fintech Fast Track programs as an enablement partner to drive its speed to market for fintechs through a variety of Visa payment solutions. 

What`s more, Airwallex has partnered with Visa for multi-currency cross-border payment solutions for businesses, bringing together Airwallex’s international foreign exchange rates with the benefits of paying with Visa. Airwallex will issue the cards under its Issuer Identification Number, the six-digits at the start of a credit card. After launching initially in Australia, the card will be introduced offshore in regions such as world, the UK and Hong Kong later in 2020.

On the accounts payable front, RAKBANK joined hands with  Mastercard to launch a corporate payment solution, which includes a Corporate Purchase Card, Corporate T&E Card, and B2B Virtual Card. 

Virtual cards innovation remains resilient

The value of transactions processed by virtual cards will treble over the next 5 years, increasing from an anticipated USD 1.6 trillion in 2020, according to a new report from Juniper Research. The report, Virtual Cards: Consumer & Business Adoption, Competitive Analysis & Market Size 2020-2025,  found that B2B virtual cards will account for almost 80% of virtual card transactions by value, as that transaction value doubles over the next 5 years.

For 2020, the report forecasts a 4% decline in spend levels, due to the reduction in business travel and online travel booking. This contrasts with an 11% increase in the number of transactions forecast for the same period. This usage increase is being driven by businesses needing to authorise spend remotely. Despite this, Juniper Research expects usage to remain low, with only 3% of businesses using virtual cards.

Supplier first virtual commercial cards

In 2019, Mesh, a global B2B payment service that has been built for small businesses and powered by payment service providers, announced a collaboration with Visa on a supplier first B2B virtual commercial card payment service. The Mesh solution allows suppliers in emerging markets to enable buyers in developed countries to pay through a process that leverages Visa virtual commercial cards. Mesh partners with payment service providers globally, streamlining the process for SMBs and enabling acquirers and payment partners to capture payment volume and drive additional revenue.

Virtual B2B travel payments

Travel (which contributed USD 8.8 trillion to the global economy), is a complex vertical, due to FX costs, regulatory issues, transaction fees etc.

Underpinning a lot of the payment technology innovation is the concept of virtual cards. While corporate spending on virtual cards will drop 4%  year-over-year in 2020 due to coronavirus and the corporate travel’s collapse, the number of transactions will still rise 11% year-over-year, forecasts Juniper Research. And even though our industry is facing challenging times, payment innovation remains (or must remain) resilient.

CIBT, which works in global immigration and visa services for corporations and individuals, just announced an integration with Conferma Pay for virtual cards and streamlined business travel payments. This reflects the current atmosphere as countries begin to reopen after the pandemic, and customers continue to use digital payments and virtual options.

Onyx CenterSource, a B2B payments and business intelligence solution provider to the hospitality industry, has partnered with fintech WEX. The partnership will help Onyx CenterSource to expand digitised payment options and optimise payments for travel business. The two companies also agreed to focus on virtual payments methods for different transactions in the hospitality industry.

Sabre and Visa partnered to pair Visa virtual commercial cards with the Sabre Virtual Payments gateway to create a virtual B2B travel payments solution that was faster and more transparent for buyers and suppliers.

The way travel agencies pay travel providers is changing as virtual payments replace traditional methods and payment processes. This move to virtual cards helps to reduce fraud and mitigate risks associated with supplier default. In this sense, travel tech giant Amadeus offers B2B Wallet Partner Pay, which aims to bring airlines and agencies together at a lower overall cost.

Very recently, travel management company American Express Global Business Travel (GBT) launched in the UK  Neo1, a spending management platform to help small-to-medium-sized business see and control cashflow.

The travel industry needs to be ready (and with their masks and gloves on) when the travellers return.

Corporate cards find opportunity in new B2B use cases

One of the key strengths of the commercial card product suite is its flexibility. Among the latest in commercial card innovation are:

Cross-border payments

i2c enables Airwallex B2B card to optimise cross-border payments, via The Airwallex Borderless Card, a multi-currency card that connects businesses to both virtual and physical card solutions for global payment. The card supports 10 different currencies and connects corporate payers to Airwallex’s exchange rates in real-time.

The card, which is geared toward payments made to suppliers, subsidiaries, clients and business partners, will first roll out in Australia, with plans to debut in the UK and Hong Kong at a later date.

Corporate employee expenses

Employee expenses comprise a critical part of a company spend. In March 2020, Archa partnered with i2c for the corporate card programme. The Archa corporate card which will be powered by i2c technology uses multiple data sources and machine learning techniques to streamline risk assessment and enable instant lines of corporate credit and cards for employee expense accounts.

Also in March, payment solution provider Corporate Spending Innovations announced that it has entered into a partnership with Conferma Pay,  to help clients streamline and automate their corporate travel payment processes. Shortly after,  Conferma Pay has partnered with Visa to integrate Visa virtual cards in the Conferma Pay mobile app. This solution will be globally available to Visa’s commercial bank clients. 

India-based fintech startup Zaggle has announced its partnership with Visa to launch a payment solution for SMEs and startups. One feature of the card includes managing business expenses of CEOs and senior management, managing their international travel expenses as well as petty cash management like fuel and meal expenses.

In January 2020, business banking platform Pleo revealed its partnership with Mastercard and JPMorgan to shift its business model from prepaid corporate cards to commercial credit cards. 

TripActions also got into the payments business by launching TripActions Liquid, a platform that provides both virtual and physical payment cards and is linked to TripActions’ travel system to streamline compliance, reconciliation and reporting. Employees use a TripActions Liquid virtual card to pay for online bookings for things such as airfare and hotels. And then while travelling, employees can have a TripActions Liquid physical card operating on Visa’s network.

Corporate cards for business buyers

Some are committed to help their members, especially small businesses, to prosper. It`s the case of Walmart India, which introduced a corporate card for business buyers.

Investments & acquisitions activity undergoes its own transformation

During times of change, investment activity undergoes its own transformation and investors often tend make more risky bets. While plenty of uncertainty arises and with all the changes brought by Covid-19, one thing is clear: in the B2B space, there will be a fundamental shift towards digitisation and a greater need for innovation. The investors are fully aware that some of the most successful companies sprung out of crisis and that the change in the economic climate can also foster new areas of opportunity (necessity is the mother of all innovations, after all). 

In recent news, B2B payment companies have raised great amounts of capital, including Currencycloud (USD 80 million), AvidXchange (USD 260 million), Tipalti (USD 76 million), Marqueta (USD 150 & USD 260 million), Ripple (USD 200 million), Fundbox (USD 20 million) PayMate (USD 25 million) Paystand (USD 20 million), Razorpay (USD 18 million).

According to Spend Matters, there are a number of reasons why VC money continues to pour in the B2B payments industry: the fees and FX revenue generated by the payments business, the movement from paper (checks and cash) to electronic forms of payment, the internet of things (IoT) causing the need to move money faster for businesses, and manage the complexity of multiple countries, currencies, fraud etc.

Another driver in B2B payments innovation is the increase in mergers with and acquisitions (M&A) activity and strategic partnerships, as organisations look to form partnerships that build out their offerings in ways that help them keep pace with the changes.

In July 2020, Rapyd, a global fintech-as-a-service company, completed the acquisition of Korta, an Iceland-based payment card service provider. Rapyd will integrate Korta’s payment card servicing capabilities with Rapyd’s global fintech platform. Rapyd’s vision is to extend the capabilities Korta currently provides by enabling Iceland and European businesses to accept a broad range of international payment methods both in-store and online. 

Also in July 2020, Rapyd announced its partnership with players of India’s payments ecosystem – including Paytm Payments Bank, PhonePe, PayU, Citibank, DBS Bank, HDFC Bank, BharatPay, and Unimoni – to roll out a comprehensive payment service that allows international merchants to grow their business in India and helps Indian merchants to expand sales internationally and easily access over 900 locally-preferred payment methods around the world.

Capitalizing on the ongoing growth in B2B electronic payments, US-based Repay, a provider of vertically-integrated payment solutions, announced the acquisition of APS Payments for USD 60 million.

Harbour & Hills, a Hong Kong-based B2B payments service provider, has acquired a controlling stake in Global Envoi, a payments processor with functionalities in clearing payments to China. With Global Envoi acquisition, H&H has acquired a channel to process commercial payments in USD, EURO, JPY, GBP and other currencies to all major banks in China.

Expansion offers new opportunities

From gaining global market share to increasing sales and profits, expanding abroad offers businesses major rewards.

In April 2020, Rapyd announced the expansion of its mass-payout platform Rapyd Disburse. The company has made significant investments in the Rapyd Global Payments Network in Europe and the Americas, and now offers payout methods in Asia.

In the same period, Siam Commercial Bank has unveiled its global strategy for cross-border payments, and the launch of Outward Remittance Service via SCB EASY developed in partnership with Ripple, the enterprise blockchain solution for global payments.  Outward Remittance Service via SCB EASY aims to improve cross-border payments and expand its remittance service across 12 countries.

NovoPayment and Visa have announced an expansion of their partnership to enable financial institutions and merchants to deploy Visa’s digital solutions in Latin America and the Caribbean. Over the past two years, Visa and NovoPayment have worked together on the digitisation of payments across the region. This has included the deployment of Visa Direct, Visa’s real-time payments solution, and Visa Token Services for various use cases including payouts and peer-to-peer payments, as well as facilitating business-to-business (B2B) money movements in markets like Mexico and Colombia.

Bankable, an API-based payments solution company, forged US deal with Visa. The strategic partnership represents an opportunity to further accelerate digital payments innovation in the region, with a focus on B2B payments.

Expansion is a good thing and, for dynamic businesses that have ambition and drive, there are numerous opportunities out there.

The impact of coronavirus on B2B payments and future outlook

Commercial payments and cross-border B2B transactions have been highly affected by the coronavirus crisis, according to McKinsey. Over the long term, supply chains will be most disrupted, as different geographies will emerge from the crisis at different times and different pace.

Moreover, the risk of B2B payments fraud is even higher particularly as more employees work from home. Recently, Europol issued a warning of how cybercriminals and other fraudsters are adjusting their strategies to take advantage of the current climate uncertainty stemming from the coronavirus.

According to McKinsey, revenue growth in global payments is to turn negative. Instead of growing by 6%, as projected by their 2019 global payments report, the activity could drop by as much as 8 to 10% of total revenues, or a reduction of USD 165 billion to USD 210 billion - comparable to the 10 to 11% revenue reduction in the wake of the global financial crisis in 2008-09. 

On a more optimistic note, a July 2020 study from Juniper Research says that the total value of B2B cross-border payments will reach USD 35 trillion in 2022, as business activity slowly rebounds. In the post-pandemic recovery phase, businesses will be more cost-conscious, meaning that cross-border payment vendors must offer compelling cost propositions to companies, or they will fail to recover lost traffic.

There is a lot of change coming to the B2B payments space, some pessimistic, some exciting and beneficial to businesses and their customers. No doubt, 2020 will be a transformative year for B2B payments. Banks and payment service providers need to be well-positioned to deal with all the challenge and the effects they will have on their business going forward.

We`ll be sure to keep an eye on this space!

About Oana Ifrim

Oana Ifrim is Senior Editor at The Paypers. She is a passionate observer of banking innovation, Open Banking, and fintech - always keen to identify and understand how technology, new initiatives, trends, and  strategies are shaping the future of banking. Oana holds a Master’s degree in American Studies.