There’s no denying that the consumer payments tech sector has developed rapidly in recent years. From the rise of Apple Pay as consumers opt to pay for goods via smartphones, to PayPal’s 184 million active users, to people increasingly turning towards BNPL providers such as Klarna, significant gains have been made across the sector.
But can the same be said for B2B payment platforms and technologies? The movement of funds between transactional parties, be it for an M&A deal, a real estate purchase, or a funding round, is currently handled with outdated, manual methods. With an estimated $380trn annually being serviced in this way, it is unsurprising that the sector faces significant challenges when it comes to acute issues such as financial crime. cybersecurity, and regulation, as well having to manage excessive time and resource pressures to facilitate the payments.
B2B’s payment problem
Most payment tech in the B2B market is lagging behind its B2C counterpart, and there are numerous reasons for this disparity.
At present, many incumbent providers do not have the necessary regulatory licenses, account structure or disbursement technology to service high value B2B payments. Corporate transactions are often handled by straight-through-processing methods which do not account for the complexities of managing substantial funds or high volumes of payers or payees. This is especially true when it comes to cross-border payments and where payments have to be handled in a multitude of different currencies.
In most instances, these large transactions require legal representation. Corporate law firms have traditionally taken on the burden and responsibility of managing the monies, relying upon their client accounts to receive and pay out funds. The reality of this, in practice, has meant archaic, inefficient processes, racking up millions each year in administration costs, and all exacerbated by the stringent regulatory frameworks legal firms must comply with.
Further still, a global increase in cybercrime is leading nefarious actors to target points of failure in manual workflows, leaving businesses increasingly exposed and vulnerable to online fraud.
These overly manual processes mean slow processing and a very poor user-experience for the end customers, a far cry from the B2C customer experience. The challenge for payment companies is therefore how to address these specific B2B needs – that can differ significantly from B2C consumer desires.
Bridging the gap
What can payments businesses, or CIOs and CTOs in companies handling transactions, do to bridge this gap and solve the key challenges the B2B payments market is facing?
Firstly, they must consider B2B needs. Major priorities include trust, capability for high-value payments, and knowledge of the regulations facing each sector – from SRA regulations on law firms to PSD2 considerations, and beyond.
Added to this is the consideration that B2B payments users have their own clients or customers, compared to B2C where consumers are the end-recipients of any benefits. These businesses need efficiency and an expert partner that understands their sector and operations, as well as tech that can handle high-value transactions, or they risk damaging their own revenue streams.
The need for bespoke technology
So, how can the payments tech sector achieve this?
Given these unique needs, it’s not enough to translate over B2C technology in the hope that B2B payments must adapt to match this solution. The sector needs bespoke technology and providers that can pursue aspects such as regulatory understanding of client sectors, or which can dedicate their model to specific niches in the B2B ecosystem.
And it’s not just about designing new payments methods – industry players must also look at how they can update existing payments practices. Just as consumer payments have moved online since the days of posting cheques, taking a tried-and-tested technology such as escrow into the digital age is a great first step in modernising the B2B payments sector.
For example, the digital escrow technology used by Shieldpay allows funds to be received, held and then processed automatically when the conditions of sale have been met, streamlining, and importantly increasing security around the payments process for high-value transactions so often required for M&A, litigation and real estate transactions.
Frustrations and inaccuracies of manual processes
This isn’t reinventing the traditional escrow process that businesses already know and use, but rather addressing the imbedded frustrations and inaccuracies of manual processes by creating a new digital format.
For payments businesses unable to dedicate the required time to create a suitable solution and tap into this opportunity, smaller quality of life improvements are a simple first step into this valuable market segment. Digitalisation of manual processes and automation of admin-heavy operations offer strong routes to meet the needs of businesses in this sector, taking the trusted mechanisms that have often been in place for decades, and updating them for the current age.
The potential of the B2B payments market is significant, and as we rethink our relationship between physical and digital ways of working post-pandemic, now is the time for these sectors to attract the attention they deserve, so businesses are no longer left reliant on manual, expensive and cumbersome paper-based processes.
Pete Janes is CEO, Shieldpay