Digital transformation is accelerating and along with it the shift to instant digital payments is moving apace. Yet, the landscape of B2B payments is littered with land mines that often trigger concerns from corporate treasury that have prevented or delayed LOB executives from moving at the speed of business. The business case is often very clear but the risk concerns from treasury can often be misunderstood and thus not addressed clearly.
The good news is that, according to a recent report from Capgemini, corporate treasuries are looking more often to digital payments to address B2B payments challenges and inefficiencies. Why? Because B2B payments have process inefficiencies in cash and liquidity management. Often requiring manual intervention, B2B payments can suffer from significant errors, fraud and slow transaction processing.
The shift to digital payments, according to Capgemini, falls into four categories:
- Instant payments
- Mobile payments/B2B wallets for vendor/supplier payments
- B2B API-based payments
- B2B payment virtual cards
They report that digital payments, combined with other technology innovations, are being adopted by corporate treasuries. And we can expect that they will continue to grow at an even faster rate. One reason is that 3rd party APIs are growing as the level of trust from corporate treasuries for non-bank solutions increases. This is critical to application developers as it removes a major roadblock in adopting solutions featuring embedded digital payments.
Dealing with Risk in B2B Payments
Where are the risks? In short, the greatest risks are often fear of the unknown; not truly understanding how digital wallets work and underestimating their ability to shift workflows by replacing payments functionality that has often been handled by traditional financial institutions (banks) without introducing undue risks. So, it falls to payments providers to address these risks through awareness and education so that corporate trust departments can better support their LOB partners in achieving the benefits to be found in using digital wallets for solving often complex B2B payments.
Let’s start with the table stakes: security, fraud detection and regulatory compliance.
- Security – Digital payments are more secure than the alternatives. Using a secure payments platform and APIs provides security and privacy for both remitters and payees provide multiple layers of security.
- Fraud – By eliminating multiple manual steps the opportunity for fraud is greatly diminished. Using a payments platform with fraud detection AI and automated processes to monitor for and detect potential fraud, both reduces the potential for fraud but, more importantly, shifts the exposure to the platform.
- Regulatory compliance – Just keeping up with regulatory changes can be a resource drain. Outsourcing payments to a payments platform that serves as a third-party settlement organization can shift the regulatory burden and free up corporate trust staff for other duties. And again, shifting the risk to a third-party payment provider can save costs without impacting the payee experience.
Focus on Opportunity
Let’s not forget the business case for the company’s LOB executive looking for digital transformation to improve domestic and cross-border payments.
- Speed – pay instantly using digital wallet-to-digital wallet transactions without a bank, card network or other intermediaries
- Global – pay partners, suppliers and customers directly and enable them to receive funds in their local currency
- Cost – automation reduces staff costs in addition to mitigating cost associated with banks and card networks already mentioned
- Flexibility – cash or cards? Increasingly, B2B payments need to facilitate either. Digital payments can serve either as well as pave the path for new digital currencies.
- User experience - both payers and payees want the ease of use as well as choice
A Platform for De-risking B2B Payment Processes
Using digital wallets for B2B or B2C wallet-to-wallet transactions using funds stored on a secure payment platform operated by a third-party settlement organization enables remitters to safely handle instant, multi-currency transactions. As a third-party settlement organization, the platform can take on the responsibility for regulatory compliance, ensure that AML and KYC strictures are followed and report taxes for payees using 1099-K. Improved automation can reduce, if not fully eliminate, the need for costly manual intervention, while reducing errors.
And it also enables developers to embed the technology in their clients' software or in their own software to manage payments on behalf of clients -- without the need to become a third-party settlement organization. Once a managed company is onboarded, the managed company as a remitter on the platform sends funds directly to the platform. The managing company need never hold the funds limiting their regulatory exposure while adding or improving an important capability for their customers and prospects.
As the transition to digital B2B and B2C payments continues apace, the benefits of digital payments appear to be on an inexorable path to broad acceptance by corporate treasuries but, as with any change, their list of concerns needs to be addressed head-on with specifics rather than ignored. So, please let us know how we can help you make the transition for your customers and how we can help make the case with their corporate treasuries when needed. Just drop us a line or jump on my calendar.