The payments industry has seen enormous innovation and transformation, but unequally so. In fact, much of the B2B space has been left behind, a market representing $127 trillion in payment volume globally, with $26 trillion in the U.S. alone.
This has been especially the case for payment options tailored to small and medium-sized enterprises (SMEs), which make up 99% of U.S. businesses. For these firms, economies of scale are out of reach and modern technology hasn’t quite caught up - meaning they’re unable to take advantage of the conveniences, cost savings, and efficiencies that come with them.
At the same time, SMEs are also becoming more global than ever, having been born and bred in a digital-first economy. Today, borderless supply chains define business opportunities and brick and mortar presence is just an afterthought.
The combination of these two trends mean that small and medium sized businesses are desperately in need of partners who are as global and nimble as they are. With political headwinds such as Brexit and the trade war further threatening to destabilize worldwide markets, decreasing business confidence, and putting costs and efficiency front and center – it’s at the intersection of SMEs and B2B where we’ll be seeing the future of payments.
Today’s digitally connected world has vastly expanded the channels for labor and commerce: A local “mom-and-pop” business that was once limited by geography may now employ a worker in Europe, or contract with a factory in Asia.
Greater access to global resources and partnerships creates new opportunities but can also introduce challenges that small businesses are not used to navigating, such as currency fluctuations and the need to process cross-border payments.
Business owners who are accustomed to operating within a small region or locality, but who also have an appetite for growth in the context of the global economy, need financial partners that can address their evolving needs. Currently, most small businesses tend to bank locally - for familiarity and convenience. But as they face an increasingly complex and global competitive environment, local banks are often limited in the capabilities they can offer - particularly when it comes to payments. In many ways, it can feel like a mutually exclusive choice: go big but lose that personal touch; stay small and miss out on resources.
For payments providers, this is the white space and represents an immense opportunity to bridge the gap. Solutions will be about intelligent consolidation of fragmented processes and building connections between once-disparate offerings.
Consumers today live in the age of instant gratification, sleek user interfaces, and frictionless purchasing experiences. They buy products and pay bills with little more than a swipe and a click. Yet unlike the proliferation of financial technology companies that have tackled the B2C space to make this possible, business payments have seen far less disruption and innovation due to the scale and complexity of the solutions it needs.
Pain points currently exist all along the process: foreign exchange remains slow and costly, invoicing is expensive, and manual AP processing continues to be both time-consuming and complicated to do -- which is why most vendors along the supply chain don’t receive payment until 30 or 60 days after providing a service.
Case in point: according to the 2016 Federal Reserve Payments Study, ACH credit transfers were the most frequently used payment method by U.S. businesses in 2015, and before that, checks were the predominant payment method up until 2012, and continue to be favored by some businesses due to the fact that they remain widely accepted by most suppliers and vendors. From a global perspective, the ACH network is U.S.-centric, so international payments are more likely to actually still be made by check.
This might feel archaic, and yet it’s the reality for many businesses without the optionality and accessibility offered by new tech-driven solutions.
Despite the clear advantages of adopting a more modern approach to payments, the lack of a universally accepted, globally available payments system continues to hold many businesses back from a payments perspective. For suppliers and vendors, managing multiple payment portals according to each customer’s preferred method reduces efficiency and introduces complexity that could lead to accounting inaccuracies.
Furthermore, as geopolitical tensions continue to roil markets, global supply chains – and by extension, global payments - are facing unprecedented uncertainty. In the already complicated environment of cross-border payments, tariffs and foreign exchange volatility only add more fuel to the fire, and the ability to quickly, securely and accurately handle transactions and manage cashflow become even more critical.
To that end, a big area of growth will be toward digital transformation, such as using algorithms and artificial intelligence to automate accounting processes that are currently performed manually, presenting a significant opportunity to reduce costs. Businesses spend about $187 billion a year on direct payment processing and labor costs in North America alone. The amount of money to be saved by digitizing and automating accounts payable processes is a powerful incentive not only for businesses, but also for the payments industry. According to one estimate, the revenue opportunity in this space will reach $1.5 trillion by 2028.
Taking a cue from the evolution in the peer-to-peer space, the industry is at the cusp of new approaches to business payments. Think all-in-one dashboards that bring together payment services, cash flow management tools and access to financing - all crucial components to business success. Such platforms have the potential to revolutionize company operations, increase efficiency and reduce costs, finally delivering the value that modern businesses need to survive and grow.
Today, information, commerce and labor flow unobstructed around the globe – payments will be next.
