July 4, 2017
Consumers are adopting peer-to-peer FinTech technologies in their everyday lives, from electronic wallet solutions to mobile money transfers. Online payments in e-commerce no longer faze consumers, with the total global market for e-commerce projected to surpass $2.4 trillion this year, for approximately 10% of the global retail market.
Global P2P payments are projected to reach $540 billion in 2017 in mobile payments alone. With such a huge market opportunity, it is not surprising to see so that over 1,000 FinTech companies are active in payment technology development.
While the P2P and C2B payment market is undoubtedly a huge opportunity, FinTech companies have begun targeting a much larger opportunity, namely the B2B market. The B2B cross-border payment market alone is valued at over $150 trillion, over 60 times the e-commerce market, creating a lucrative market opportunity for FinTech companies.
Traditionally B2B payments are a complex and time-consuming process, fraught with high levels of bureaucracy and manual reporting. Payment, or payment receipt via check, requires the issuing of the check, deposit, monitoring the clearance of the check, and manual update of payment management systems. Checks also involve float times which affect cash flow, as well as a certain degree of security risk. This outdated payment method still makes up half of all B2B payments in the US.
Alternative B2B payment methods include ACH (American Clearing House), which connects all US financial institutions and enables electronic fund transfer within the US, and international payments via the widely accepted SWIFT, both in exchange for fees. Limited transaction visibility and the complex data processing still required with these payment options, however, continue to demand resources from businesses worldwide.
Focused on the development of secure and easy-to-execute payment methods, FinTech companies offer a number of solutions which will likely impact the B2B payments market in the coming years. Traditional banks and financial institutions are increasingly partnering with FinTech companies in order to maintain their market share within the B2B sector. The following is a brief overview of some of these technologies and the implications for B2B payments:
Blockchain is a highly secure P2P network of transactions. Each blockchain is typically associated with a cryptocurrency, though in theory, this technology can be used to trade in anything of value. Transactions executed over this platform create a real-time record, called a block, in the public distributed ledger, which is added to the chain and shared with thousands of computers in the network, ensuring security.
At any given time, all records must add up, and due to the distributed nature of the ledger, it is virtually impossible to generate sufficient resources to bypass this security measure. Both sides must approve the transaction before it is executed, with no third party involved, to increase security. This highly secure platform, which offers increased transparency and real-time remittance of funds, is a key focus for B2B FinTech innovation. For instance, in October 2016, Visa partnered with Chain to jointly offer a blockchain payment platform for B2B payments.
Focused on B2B and B2C payment management, these processing platforms provide businesses with a powerful tool for managing their outgoing and incoming payments – all from within one central platform.
Typically offering flexible payment methods and multiple currency support, payment management platforms are a strong tool for today’s global economy. They usually offer merchants the flexibility of choosing between a variety of payment methods such as electronic and mobile wallets, prepaid cards and electronic money transfers for payment or fund receipt.
These platforms are ideal because they give businesses complete control over the date of payment or receipt for optimal cash flow. Plus, a platform offering multiple currency support allows businesses to pay and receive transfers in their preferred currency and work internationally more easily and with lower fees.
E-invoicing platforms are central management systems for invoicing and approving payment processes. Streamlining the payment process, and moving a formerly manual and paper-based procedure to an online one, e-invoicing accelerates processes and reduces operating costs. This electronic platform enables companies to easily access specific transactions, as opposed to physically identifying paper invoices in a pile of receipts – clearly an advantage in today’s electronic age. Also offering big data generation and analysis features, electronic invoices bring additional value to businesses, such as trend analysis and internal optimization processes. As both the EU and the US have issued directives or statements regarding mandatory e-invoicing beginning in 2018, the global e-invoice and enablement market is poised to grow from 3.3 billion Euros in 2017 to over 16 billion Euros in 2024.
As mobile payments such as e-wallets and mPOS payment explode in B2C, it is not surprising that executives would like to experience this same ease of payment within the corporate environment.
Answering this need, leading financial companies, such as American Express and US Bank, now offer corporate payment card compatibility with leading mobile payment methods such as Apple Pay, Android Pay, and Samsung Pay.
Mastercard introduced its B2B mobile payment app which connects buyers and suppliers in 2016. This app, built to support B2B transactions, offers extended payment terms via Mastercard’s commercial cards and a pay now feature, enabling merchants to collect payment in full within a few days.
As international transactions make up a significant portion of the B2B payment market, mobile payment methods offer a flexible solution for cross-border payments.
Advanced payments and money transfer methods are widely accepted throughout the world in the B2C and P2P sectors. These developments, pioneered by the FinTech community, are justifiably being adapted to meet the challenges of B2B transactions. Ensuring heightened flexibility and security, it is not surprising that the B2B e-commerce payment market is projected to enjoy 10.4% compound annual growth in the coming period (2014-2020), compared to the 5.8% projected for the entire B2B payment market.