Greg Toussaint, Director at Edgar, Dunn & Company, analyses the key capabilities that drive growth when it comes to the new entrants in the B2B payments space.
B2B payments are growing worldwide due to technological innovations in payment infrastructure, changes in customer expectations, the increasing number of new entrants, and regulatory changes. The cloud, artificial intelligence, and APIs all play key roles in making B2B payments and processes faster, more automated, and less expensive. Many solution providers also emphasise how commercial card technology can address issues and alleviate pain points for both buyers and suppliers with a specific focus on automation and optimisation of B2B processes and payments. Investment and product development related to B2B payments have recently increased as COVID-19 acted as a catalyst to further accelerate the growth of B2B payments.
In this article, Edgar, Dunn & Company (EDC) analyses the key capabilities of new entrants that are assessed in further detail in a white paper to be published next month on the increasing digitalisation of B2B payments.
The landscape of actors in B2B payments has evolved significantly, moving from a mainly bank-dominated landscape to a market with a myriad of different fintechs and actors focusing on specific use cases and pockets of profitability.
This translates into the entry of many new players either moving from B2C to B2B payments such as Adyen and Stripe or specialist B2B companies such as Bud, TrueLayer and WEX. COVID-19 has also led actors focused traditionally on T&E (e.g., travel-focused payment providers such as AirPlus and Tier 1 financial institutions like BNP Paribas, Citi or HSBC) to diversify their portfolio and increasingly focus on and invest in B2B payments.
(Selective and non-exhaustive overview)
This has resulted in a flurry of initiatives addressing buyers’ and suppliers’ key pain points such as manual payments and processes, cash flow management and payment delays, and lack of integration with existing systems.
B2B payments are often inefficient and new entrants are leveraging payments technology to facilitate automation and bring benefits to both SMEs and corporates.
Regardless of the verticals targeted, most new entrants in B2B payments like WEX, Bill.com, AvidXchange or Tipalti focus on the automation Accounts Payable (AP) – accounting for 90% of opportunities in B2B payments according to analysts – and leverage virtual card payment capabilities.
Virtual cards create many benefits to fasten and simplify AP & AR (Accounts Receivable) reconciliation processes, reduce operating costs (e.g., avoid FX markups, reduce errors), increase control of corporate spending (keep track of budget vs. actual), reduce fraud (with single-use virtual cards), provide financial rebates and enhance data capture (e.g. access to level 3 data). In addition to virtual card benefits, fintechs such as Brex and Stripe have developed additional services beyond payments – either in-house or through partnerships – to serve the SME and middle-market segments with a suite of services to automate processes such as invoice management and cash flow management. Companies can then integrate this AP/AR suite with their ERP or accounting software leading to a significant reduction of their workload, up to 80% according to some fintechs.
One of the key drivers for innovation in the B2B payment landscape is the lack of automation regarding processes and payments. Corporates’ key pain point is indeed highly manual and people-intensive processes that are slow, error-prone, and expensive, resulting in issues related to reconciliation, and cash flow.
Fintechs such as Boost B2B and CSI (Edenred’s subsidiary) have developed straight-through processing (STP) capabilities to fully automate B2B processes and payments, removing all paint points related to manual processes. With STP, suppliers can conduct a fully automatic financial reconciliation and receive payments directly to their bank accounts. The use of virtual cards combined with STP and Card-to-Account (buyers pay by cards, payment providers receive the funds as Merchant of Record and then transfers funds to suppliers by ACH) provides a more balanced value proposition between buyers and suppliers. This is a key aspect to creating more value for suppliers and increasing the supplier acceptance network of B2B payments, often considered a key hurdle to B2B payment growth. Supplier enablement is another example of new services offered by fintechs such as Boost B2B or Billhop contributing to the development of B2B payments.
The automation of processes is further facilitated by the development of new ecosystems directly linking buyers and suppliers. Tradeshift, C2FO or Coupa are examples of this new trend to create ecosystems allowing corporates to go beyond automation and optimise financial incentives, working capital or costs. Mastercard Track BPS is another example of an ecosystem connecting buyers and suppliers to facilitate and optimise B2B processes and payments. Many Tier 1 financial institutions are considering or implementing Mastercard Track BPS to create a new range of services for their SME and corporate clients.
B2B payments include many specific niches, ranging from B2B travel, B2B marketplaces or B2B cross borders, with high revenue and growth potential that are targeted by new entrants.
New entrants in B2B cross border payments address many pain points, ranging from a poor customer experience, payment delays, costs and lack of security and efficiency. In this case, Visa B2B Connect was designed to create a multilateral network delivering B2B cross-border payments that are predictable, secure and cost-effective for financial institutions and corporate clients.
Currencycloud is another provider focused on B2B cross-border payments that leverages the innovative capabilities of blockchain by partnering with Ripple. Ripple provides a blockchain-based fast payment settlement system, allowing to process faster payment transactions compared to other alternatives such as SWIFT.
B2B payments are being increasingly targeted by a myriad of actors – both traditional financial institutions and fintechs – who are developing innovative services through smart use of technology. EDC expects this trend to continue as there is a high number of opportunities in B2B payments.
This article was first published in Who’s Who in Payments Report 2022, the most recent market overview and analysis of key payment providers in the B2B and B2C commerce payment ecosystem.
About Greg Toussaint Greg Toussaint is a Director at Edgar, Dunn & Company (EDC). He leads EDC’s B2B Payments practice globally. He has more than 15 years of consulting payments experience with EDC in business strategy for clients in Asia, Europe, Middle East and the Americas. Greg has worked in EDC’s London, Sydney and Paris offices and has gained extensive knowledge of both retail and B2B payments, including card products, instant payments and alternative forms of payments while working with a wide range of organisations in payments including central banks, issuers and acquirers, international and domestic payment schemes, merchants and payment providers. About Edgar, Dunn & Company Edgar, Dunn & Company (EDC) is an independent global payments consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payments ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now