Back in 2017, Celent put together a report where the expert in financial services technology looked at major B2B payment trends separated into three categories:
- The Rise of ISO20022
- Real-Time Payments Evolving Rapidly
- APIs Will Accelerate Changes in Banking
- AI — Focus on Outcomes Rather Than Pondering Definitions
- Blockchain: Growing Adoption, Yet Not a Solution for Every Problem
Legacy & Ecosystem Transformation
- PSD2 and the Opportunity to Change Business Models
- Cloud for Payments May Finally Be on the Horizon
- Viable Cross-Border Payment Networks
- GDPR — Auditable, Real-Time Data Management Will Be Critical
I am not going to go into detail on what has transpired over three years in a short blog, but I do think there are some interesting developments.
First, regulations impacting payments: PSD2 and GDPR. While these EU directives greatly affect consumer payments around security and data privacy, it’s less clear how their mandates impact business payments. For example, it’s not clear how virtual corporate cards and p-cards used for B2B transactions are affected.
The issue around licensing has very much reared its head given the Wirecard fraud debacle. I can see regulators taking a greater interest in what licensing arrangements fintechs have, scrutinizing more closely fintech’s outsourced service provider arrangements and open-banking arrangements to assess risk in the system. This is an area to closely watch, especially as more and more payment providers pop up with e-money licenses and attempt to extend their offerings through APIs and bank partnerships. As an example, Transferwise secured an additional license with U.K. regulators to enable it to offer investment products in the future.
APIs are certainly hot, as witnessed by Visa’s acquisition of Plaid and their API rich libraries for $5.3 billion in January. APIs offer the potential for greater “financial services-fintech” collaboration to create banking as a service (BaaS). These services can include everything from account opening, cross-border payments, FX services, technology, operations, compliance and risk management. An example is BBVA’s BaaS platform and their Move Money capability. It is 100% API driven and delivers a white label or a co-branded solution. The idea is for digital banks to integrate the Move Money app with BBVA’s APIs and deliver banking solutions to their clients. Still, APIs are more like fledging buds than the ripe fruit they appear to be.
Cross-border payments have probably seen some of the greatest innovation. New solution providers are cropping up — whether it’s Ripple working with banks to move money by blockchain, or companies developing multi-currency digital wallets to make global disbursements to beneficiaries at any time. We’ve profiled several, including XTRM (see here) and Veem (see Part 1, Part 2 and Part 3).
SWIFT, the dominant bank messaging system, upped its ante with the competition via SWIFT gpi, although SWIFT does not bring the clearing, settlement and reporting capabilities (that’s the banks part). Visa recently came out with a B2B high value cross-border payments called B2B Connect, which is sold to banks as a substitute for traditional wires.
Payments in the Cloud
We have certainly seen developments around cloud payments. Back when Celent was writing their report, very few source-to-pay (S2P) vendors had any type of payment offering. What they offered was an approved payment request, which involved matching the invoice with documents (purchase orders, packing slips, etc.) and changing the payment status to “approved for payment.” Source-to-pay companies, with their billions running through their networks of purchase orders, invoices, etc., have partnered with payment facilitators to close the last mile of moving money via batch or single payment mode.
Some S2P vendors now deliver a single cloud interface to manage payments across multiple channels, banks, rails, and to handle both domestic and cross-border payments to suppliers, contractors and employees.
In the U.S., there has been a continued push to move B2B payments by check to e-payment using technology and rebates. A critical part of the e-payment solution is to reduce the amount of invoice payments with paper checks and to increase rebate income in the process. B2B payment companies like Comdata, CSI, CPS and others facilitate this process through a developed proprietary database of card-accepting suppliers, and provide services such as spend analysis and campaign management to optimize cash rebates.
In terms of B2B real-time payments, just about the time Celent released its report in 2017, The Clearing House (“TCH”) unveiled Real-Time Payments (“RTP”), delivered through the RTP network, and several small-to-large banks have since joined the effort. What TCH has done is provide the infrastructure for banks to combine payments, messaging and data to build innovative payment solutions. For B2B payments, the interest appears to be more of a one-off payment.
AI & Blockchain
Artificial intelligence has made great strides in payment fraud detection. Fraud is multi-faceted when it comes to payment processing, from manipulated supplier bank master data to correct invoices with wrong supplier bank details. AI engines now can scan payments and be taught to detect fraud.
Blockchain payments have received much investment, particularly for trade finance, but have their challenges. One example of this is the Digital Ledger Payment Commitment. Under English law and U.S. law, trade finance documents are negotiable instruments and have to be on paper. If you use a digital document, would it be enforceable if something happens and a dispute arises? These initiatives are trying to replace hundreds of years of law with a digital solution. No one said it will be easy.
There are so many other things to comment on around corporate B2B payments, but a short blog just doesn’t do it justice. And who said payments was boring?
David Gustin runs Global Business Intelligence, a research and advisory practice focused on the intersection of payments, trade finance, trade credit and working capital. He can be reached at dgustin (at) globalbanking.com.