THE B2B PAYMENTS EXPLAINER: Why business payments have been slow to digitize, and what's changing that in 2017

BI Intelligence

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As the world around us digitizes, payments are no exception. The way we manage money and make payments has moved from physical channels, like cash and checks, to digital methods, like cards and online platforms. And though that’s been a long-term shift, it’s one that’s occurred rather seamlessly. 

This isn’t the case for businesses, where the business-to-business (B2B) payments process is considerably more complex, and as a result, almost entirely analog for the majority of businesses. When businesses pay one another, like transactions between a supplier or a buyer, the process is cumbersome, involving invoices, waits of 30-to-120-days, multiple banks and platforms, and phone calls. And when those payments happen overseas, even more friction is involved, like letters of credit.

That makes payments a top pain point for sellers and buyers alike, because the existing process is cumbersome, expensive, and often unsafe. And though digital solutions exist, until now, they’ve been too costly and complex to be accessible to the majority of merchants, particularly smaller businesses — the population that’s hurt the most by the challenges of the existing system. 

However, the tides are beginning to turn, and barriers preventing firms from digitizing their B2B platforms are slowly starting to erode. Business payments are finally catching onto consumer payment trends, though it’s still a slow process. As consumer technology becomes more available, back-end innovation is becoming simpler, and cheaper, for payments companies. And as consumer-side digital payments adoption begins to stagnate as the market saturates, B2B is becoming an increasingly palatable greenfield for companies looking for a new, lucrative market.

A new report from BI Intelligence addresses what’s been holding firms back, why they’re moving forward now, and what they stand to gain from making their payments processes digital. It will also discuss potential approaches for moving into the space, and why there’s no “one ideal” B2B payments solution.

Here are some of the key takeaways from the report:

• The business-to-business (B2B) payments market is a vast opportunity. In the US, B2B payments reached an estimated $18.5 trillion last year, vastly outstripping the consumer-to-consumer (C2C) and business-to-consumer (B2C) realms.
• The complexity of B2B payments is holding back innovation, but times are beginning to change. Consumer payments innovation and a vast greenfield opportunity are making the space more accessible and more appealing to payments firms, which is translating to broader market availability for merchants.
• But until digitization permeates all stages of the complex B2B payments process, and allows those disparate segments to work in tandem, we won’t see any major steps towards an industry standard

In full, the report:  

• Sizes the B2B payments market relative to other major US payment segments
• Explains how the B2B payments process works, and what makes it so complicated relative to consumer payments
• Discusses the pain points associated with analog B2B payments
• Analyzes the factors behind eroding barriers to industry digitization
• Evaluates what it will take to eventually build up an industry-wise digital payments standard

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