Regulations are a welcome relief for B2B automation

What's the holdup on utilizing technology to expedite B2B payments? The short answer is: Change is hard. But, thankfully, due to global regulatory initiatives we can expect financial institutions to adopt new B2B tech sooner rather than later.

In the past five years, the B2C payments space has seen significant advances. The widespread adoption of mobile wallets, the rise of contactless payments in Asia and high popularity of peer-to-peer payment platforms exemplify how B2C payment solutions are rapidly evolving to keep up with consumer demand for simplified, secure transactions.

By comparison, adoption of innovative B2B payment technology is lagging behind. According to the 2016 AFP Electronic Payments Survey, underwritten by J.P. Morgan, checks continued to be the preferred method of payment for the majority of U.S. B2B transactions, despite their known disadvantages. In the same vein, per a study published by Atradius in October 2017, a full 96% of survey respondents in China reported late payment delivery from foreign B2B customers — and nearly 42% of respondents cited “inefficiencies of the banking system” as the cause of late payments.

Research published in January by Wax Digital indicated the majority of U.K. businesses are affected by perpetual late payments. Nearly two-thirds of executives in the study reported having ended relationships with those that paid late, and 40% said they have had to go as far as to delay compensating employees due to delays in payment. Wax Digital hypothesizes that this perpetual cycle of late payments is often a direct result of inaccurate, manual and inefficient B2B payment processes.

One reason for the slower adoption of B2B payment technology is the time, cost and internal effort required for implementation. Integrating new technology into legacy systems is generally an arduous, lengthy process if the technology is not designed to launch with minimal back-end development resource requirements. As a result, many financial institutions and other private businesses decide to forgo experimenting with new tech due to both the perceived cost and potential hassle.

Another reason is that there are potentially significant financial ramifications for banks and businesses to consider. If the technology doesn't work properly — or if it doesn't receive enough adoption to generate adequate ROI — then the whole effort might go to waste. Because most institutions do not have the setup in place to allow for small market tests to help forecast the technology's success, many choose to avoid what they see as “unnecessary risk” by opting out of the latest innovations altogether.

However, despite these obstacles, change is on the horizon. Regulatory initiatives have erupted across the globe that call for the implementation of immediate payment systems. Consequently, a pan-European instant credit transfer project that enables real-time money transfers across the Single Euro Payments Area (SEPA) went live November 2017, the Hong Kong Monetary Authority announced its faster payment system will launch in September, and the Federal Reserve's Faster Payments Task Force is working to launch its faster payments solution for U.S. businesses in 2020.

According to data released by Accenture, banks could earn up to $11 billion in new revenue streams by 2020 from the small and midsize business market — if they move forward with the technological advances necessary for harnessing those profits. Other private businesses stand to benefit exponentially from upgrading their payment systems as well.

As a result, investors are watching the B2B payments space with increasing interest. Blockchain, AI and cryptocurrencies have seen especially high spikes in the market over the last several months. Additionally, several fintech startup acquisitions and venture capital partnerships have taken place within the B2B payment space — and with American Banker reporting that U.S. fintech companies are predicted to receive $4.7 billion from investors across industries in 2018, it appears we can fully expect more to come.

Banks and businesses that wish to maintain a competitive edge within their respective markets in the short term (and to remain compliant in the long-term) can't afford to ignore the evolution of B2B payment technology. Businesses making and receiving payments will increasingly expect greater speed and transparency from their financial transactions with other companies — and will eventually make decisions about where to do business based on the ease with which they can conduct it.

After blockchain technology is perfected and renders instantaneous transactions possible, same-day ACH, for example, will be yesterday's news. The U.S. digital payments company Ripple is working with 61 Japanese financial institutions to achieve blockchain cash transfers, and Santander recently announced its partnership with the company to launch a blockchain-based foreign exchange service. Once the use of blockchain technology is fully functional, businesses will no longer want to wait until sometime later that day for payment — and why should they?

When (not if) instantaneous transfers become the norm, companies that miss the memo will risk losing major business as a result. Conversely, businesses that watch the innovations taking place in the B2B payments space closely enough to take that next leap into the future will be poised to thrive with the times.