Re-imagining the future of B2B payments

By Ankur Kanwar

In recent years, retail customers have got their demands for a simple and seamless digital experience answered. From purchase to payments, there has been no short of innovation that makes the online retail consumers’ lives 

that much easier. With a click, they get to choose from almost an endless selection of items, and with another click, they complete the purchase by paying with a digital wallet, mobile payment app, or stored value card. 

While business-to-consumer (B2C) payments channels dominate the market, there remains a lag in the development of business-to-business (B2B) payments solutions. 

Just as consumers find online payments to be seamless and cost-effective, many businesses consider B2B digital payments expensive and complex. Concerns about hefty set-up costs and a tedious implementation process could be keeping companies from switching to digital payments. Some 90% of Asia B2B transaction volume is in cash, and about 40% of B2B transaction value is in cash and cheques1.

But to pay less attention to the B2B payments segment would be a short-sighted approach. Estimates show retail e-commerce sales were $ 2.3 trillion in 2017 while B2B online sales stood at $ 7.7 trillion2, excluding non-e-commerce B2B payments. And the number of non-cash transactions is expected to grow 28.8% annually in emerging Asia and 9.9% in mature Asia Pacific through 20213. More importantly, electronic invoicing reduces administrative costs by 60-90% compared to paper invoicing processing, translating into savings of $ 12.80 per invoice4. 

To capitalise on the potential of B2B digital payments, we need a concerted approach to bring about a new mindset towards regular corporate payments practice and a change to businesses’ reliance on paper invoicing. Governments, banks, financial services companies, and technology firms have a role to play in this digital shift. 

ASEAN regulators are taking steps to boost electronic B2B payments. These measures include the enhancement of the e-payments infrastructure, waivers of transaction fees for domestic online transactions, and an increase in cheque processing fees. In the ASEAN agreement on e-commerce endorsed in August 2018, provisions encouraging member states to promote paperless trade, cross-border data flows, and electronic payments were laid out. 

With the advent of digital solutions that have transformed retail payments, it makes good economic sense to leverage existing innovations to engineer a shift in the B2B payments space. 

In the B2C payments area, many Asian governments are launching their direct debit networks to encourage digital adoption. Indonesia’s central bank unveiled a direct debit feature in their national clearing system in 2016, and is in discussions to launch additional payment options to provide digital alternatives. 

PayNet, owned by Bank Negara Malaysia, has also revamped its direct debt infrastructure to include business-friendly features to promote usage. These direct debit systems allow for the drawing down of payers’ accounts after a one-time authorisation. Businesses can leverage the existing instant payments infrastructure capabilities to do the same with their vendors or suppliers. 

With the widespread use of consumer e-wallets, Fintechs and corporates are also exploring the viability of business e-wallets for payments within their supply chain ecosystem. A number of Proof of Concepts (POCs) are underway as some larger corporates are assessing the feasibility of setting up their proprietary wallets. 

As instant payments among consumers through a proxy, such as mobile numbers, take shape, companies in industries such as telecommunications or insurance could be keen to improvise this capability for their B2B accounts. Higher payment transaction limits will also likely accelerate the pace at which businesses offer and accept B2B digital payments. 

In Singapore, the Association of Banks in Singapore (ABS) initiated the PayNow Corporate Scheme, an extension of the peer-to-peer funds transfer service PayNow. The corporate initiative, launched in August 2018, is an end-to-end process that covers billing, payments, and collections. 

To leverage the full potential of these technologies and simplify the business payments process, corporates need to accept and apply new technologies to their own payments systems and work together to synchronise the instant payments mechanism across their digital platforms. Partnerships between banks and technology firms are critical to develop digital payments solutions that are safe, secure, and convenient for businesses to use. 

International financial institutions, such as Standard Chartered, have a key role to play in facilitating instantaneous cross-border digital transactions. The bank is actively working with its corporate clients to simplify B2B payments in their supply chain ecosystem. It is also leveraging the distributed ledger technology, which enables simultaneous access, validation, and record-updating across a cross-border network used by multiple parties, to support international B2B digital payments. 

Re-imagining the future of B2B payments is critical to moving the innovation agenda forward. The advent of B2C digital payments is a step in the right direction, but it takes a collaborative effort between businesses and regulators to make digital B2B payments a reality. We can either be a part of the digital payments ecosystem or risk being left behind in this race towards the paperless ideal.

(The writer is Regional Head – Cash Management Products, ASEAN and South Asia, Standard Chartered Bank.)

Footnotes

1McKinsey on Payments in Asia

2 Statista’s 2017 B2B e-commerce report

3Capgemini and BNP Paribas, World Payments Report 2018

4Ardent Partners, State of B2B Payments 2015