The Consumerization of B2B Payments

By Ross Garrett in Enterprise Integration, API Industry Trends Posted Feb 16, 2018

Looking back as far as 2005, enterprise organizations faced and embraced the growing consumerization of IT. A phenomenon characterized by the proliferation of mobile devices and mobile applications, aimed at improving employee productivity and user satisfaction.

This phenomenon started - as the “consumerization” term suggests - as a result of mass adoption of digital applications that quickly changed consumer behavior and expectations. As consumers started to utilize mobile and cloud applications in their day-to-day lives, they quickly appreciated the convenience and utility these apps provided. The vast array of applications and services available for personal use, then spawned mass frustration for the applications imposed on users within enterprise.

Ultimately, this discontent forced organizations to act - ushering in BYOD policies, expense budgets for mobile applications, and in some cases the complete retooling of enterprise apps and services.

This same consumerization trend has now besieged the payments industry - and market leaders are again being forced to act.

 

digital-enterprise.png

In the consumer domain, the way that we manage money, make payments and even organize accounts has moved from physical tools, like cash and checks, to digital tools, like cards or online platforms - and all with relative speed and ease. For businesses though, the story has been quite different. As the consumer payments industry is almost entirely digitized in 2018, the B2B payments industry lags miserably behind - in large part because business-to-business payments processing is complex, with many moving parts and disparate players. This has made it incredibly difficult to create a universal digital product or solution that can replace all physical, manual, and - in many cases - batch processes that dominate the landscape today.

In fact, US businesses still make over half of their B2B payments via check, according to data from an AFP Electronic Payments Survey. 

B2B-PAYMENTS-blog-art.png

The critical components required to enable this shift are of course, integration and automation - enabling buyers and sellers to engage with payments rails directly within the back-office applications they use day-to-day.

To fully understand the opportunity enabled by integration and automation, it’s important to recognize the complexity of the space. There are two key components in business payments:

  • Payables. Accounts payable are defined as “the amounts a company owes because it purchased goods or services on credit from a supplier or vendor.” The payables for a large organization will often exceed 10,000 invoices every single year, making any process optimization in this domain a huge win.
  • Receivables. Accounts receivable, are “the outstanding invoices a company has or the money the company is owed from its clients.” The inverse of payables, this process is when a firm issues an invoice and waits to receive their payment in return.

Organizations often use accounting and ERP software packages to manage these processes on both ends. Vendors like SAP, Oracle, Sage and Netsuite have long provided digitized solutions for bookkeeping, invoicing, and order-to-cash management - but the payments themselves are still largely analog. Enterprise organizations and payments providers must take steps toward a digital industry standard that integrates the entire chain, from invoicing to transfer of funds.

In fact, industry leaders like Western Union - via their Edge product - have already launched platforms specifically for these B2B use cases, enabling straight-through processing and foreign exchange risk management, by digitizing the entire payment flow. A trend surely others will follow.

Ultimately, consumerization is making inroads, and 2018 can be a year of opportunity for B2B payments - with a US market size approaching $20 Trillion, market leaders should step up to the plate and embrace change in the same way enterprise IT was forced more than a decade ago.

Download "Driving API Adoption" Now