Rising demand for real-time, accessible, and digital-first payments experience that integrate seamlessly to support business and lifestyle needs is causing an inflection point for bank’s payments strategy. Technology, competition, regulators, and customers continue to raise the benchmark. While players have been responding, the ability to act at speed and scale has been a challenge.
While the digitization of consumer payments has flourished, B2B payment digitization is lagging. One reason for this may be that B2B payments are significantly more complex than B2C payments. They must be viewed in the context of purchase orders (POs), invoices, payment terms, accounts payables (AP), and accounts receivable (AR) departments. Digitizing B2B payments involves digitizing the payments themselves, but also digitizing workflows into much more efficient solutions. Accounts payable automation (APA) reduces the manual tasks, such as entering invoices, recording receipts, verifying POs, and making payments. APA brings various benefits – faster payment flow, reduced errors, improved communication with data, lower effort, and realization of early payment discounts. Though the automation of accounts payable is not new, fintechs and banks have moved it to a new level of sophistication.
Read this report to better understand:
- Key market drivers of payments IT modernization.
- Payments innovation opportunities and perspectives for mid-sized banks to build the business case.
- Risks and benefits of two alternate approaches i.e. Big-bang and progressive.
- Challenges and best practices for banks to consider on their modernization journey.
Commercial banks provide innovative solutions to their clients in collaboration with technology partners and fintechs. HSBC’s eMarketplace is one such solution. It centralizes the printing and mailing of outgoing paper checks and migrates those paper-based disbursements to cost-effective electronic payments in the form of virtual card or ACH (automated clearing house) transactions [1]. ACH payments are attractive for accounts payable as they facilitate fast and cost-effective payments in various formats. While ACH payments have been around for a long time, APA has increased its adoption. Now many fintech firms with APA solutions integrate mid-market accounting packages with payment flows.
Commercial banks are also joining this trend: HSBC and Oracle launched an APA solution. [2] Other examples includeAvidXChange, which integrated dozens of accounting packages with its APA solution [3], and MineralTree, acquired by Global Payments in 2021.
MineralTree offers ACH and virtual card payment integration that allows businesses to automate their accounts payable processes and pay invoices directly from the accounting software. MineralTree also notes in its annual accounts payable report that the adoption of accounts payable automation increased by 61% during 2021-2022[4].
International payments
Operating an international business sometimes involves managing the increased complexity of vendors at multiple geographic locations; slower approval processes; multi-lingual and multi-currency invoices; shipping documents; freight, brokerage, and customs charges; and local tax regulations. While banks have historically dominated the international money transfer market, new international payment specialists have gained market share by utilizing technology to simplify the cross-border payment process for individuals and businesses. Through analytics, reporting dashboards, competitive FX rates, and open-banking APIs, international payment specialists can provide clients with cross-border payments in a more seamless way.
A prime example is Payoneer, which facilitates cross-border e-commerce by providing services to online marketplaces, buyers, and sellers globally. It offers tools to make faster and more cost-effective international payments in more than 150 currencies across 200 countries and territories. Payoneer and Mastercard have launched Payoneer Digital Purchasing Mastercard [5], a payment card for small and medium businesses (SMBs), e-commerce sellers, and freelancers. Visa acquired Currencycloud [6], a global platform that enables banks and fintechs to provide innovative foreign exchange solutions for cross-border payments.
Embedded banking
Users are looking for the same seamless experience in their B2B interactions as they have in their consumer transactions. Embedded payments through automated accounts payables will support this by generating new trade tracking data streams. These data streams enable better funding options for working capital for small and medium businesses. In addition, treasury functions can utilize this data to streamline operations and improve cash forecasting. SMBs, in turn, can focus on providing additional services instead of being limited to selling their own products. SAP Fioneer has expanded offerings for embedded finance to support these areas. Open data, trusted insights, and data-driven financial services are the pillars underpinning SAP Fioneer’s embedded finance products. Wide corporate usage of SAP products enables access to open data and reliable insights, while data-driven finance is customizable for industry segments to offer compelling products.
Embedded finance is shifting from a bank-led financing value chain to becoming an ecosystem with a software platform and other financial services enablers. Shopify and Stripe are two new players in this ecosystem, and they have created multiple new use cases. Shopify provides a software platform to create online stores and accepts Stripe credit cards. The Stripe credit cards are, in turn, delivered in partnership with a financial institution. This inclusion of a software platform and a financial services partner creates the potential for many new use cases in embedded finance.
Sources
1. https://www.business.us.hsbc.com/en/campaigns/hsbc-emarketplace-solution
3. https://www.avidxchange.com/integrations/
4. https://www.mineraltree.com/wp-content/uploads/2022-State-of-AP-Report.pdf
Future of technology
“If you don’t use technology to disrupt the market, then someone else will.”