B/b2b Payments?—?Why the problem is difficult.. but innovations are sweeping !

While Person-Person and eCommerce payments witnessed an upward growth trend for the past 10+ years, there is a bigger opportunity that is brewing and is ripe for innovation — ability for a Buyer to pay their Suppliers in a reconcilable, fast and affordable manner. While the opportunity was omniscient, there are certain inherent product & positioning features that acted as deterrents for innovation till now. Interestingly I noticed that in the past 3–4 years, there are several notable innovative solutions that cropped up, and sweeping the solution space and making an impact.

I want to jot down few discussion points for consideration if anyone is interested to innovate in this space.

Global Payments Opportunity Context: B/b 2 b Payments

Read McKinsey’s annual Global Payments 2017 trends for greater details on the broad topic. One thing that is clearly highlighted is the general upward trajectory for commercial payments (B2B, B2b, b2b) opportunity. If I observed it right, the opportunity is touching nearly $130+ trillion in payment volume, and bringing in $200+ billion in revenue for all the players. It is important to note that the average transaction is upwards of $10,000 + and the associated fees are higher as well (based on the need to settle sooner or later). Companies like Ripple, Veem, TransferMate, TradeShift and even Card networks like Visa (B2B Connect) have sensed this opportunity and have started to provide niche solutions using Crypto technologies like BlockChain and Ripple. There are several players already in the space — SWIFT, Taulia, Traxia, Western Union Business Solutions — and all have a distinctive purpose and value-proposition that make them standout from each other: for eg, providing features like dynamic-discounting/factoring on top of payments, or purely focusing on SMB space and offering tools for financing/working capital needs, or having corridor specific focus (select Send and/or Receive countries only) thereby offering favorable FX, or even offering tight integration partnerships with Invoicing solutions.

Some personal context:

My interest in this area was triggered nearly 18 years back, when I was at Commerce One (remember anyone?) as a Supply Chain solutions specialist. We were implementing a global supply chain solution (SAP + Commerce One) for Siemens Westinghouse Power Corporation in Orlando (and simultaneously at several global locations) and all its suppliers. The solution offered ePO (electronic PO), real time notification of ASN (Advanced Shipping Notice), eInvoice etc: all to make the supplier and buyer (Siemens) conversations really efficient — however, we missed out an important detail. A supplier stood up during a solution rollout meeting and asked us: “while everything is real-time, why not payments? Why are you sending me a check in the mail for the electronic invoice and electronic shipping notice I sent to you? It is taking 10 additional days to the NETT terms that we agreed before I got my money”

That interaction dawned on me that real supply chain disruption is complete only if we offer a full cycle (from REQ to PAY) and not missing the last mile of delivering payments on time.

A few years later, while I was at PayPal a few of us have pursued this effort religiously — Jennifer Ceran (ex-VP/Treasury at eBay/PayPal), Osama Bedier, Jason Korosec, Damon Houghland. Our mission was to showcase PayPal’s ability to solve the ‘last mile’ in supply chain through PayPal X APIs. We worked on a prototype with SAP and showcased a realtime invoice payment to live audience at PayPal X conference (here). What we realized later was: a supplier would still not get the money into his/her bank account in real time, they would only get money into their PayPal accounts! The supplier would have an additional step to do which is sweeping from their PayPal Account into their Bank account - taking another 2-3 days. Besides this, there were few other features that were deemed important that we found missing in our solution and some are detailed below.

So, what is needed in a comprehensive B2B or B2b or b2b payment solution?

Product features: Key product features should include:

1. Realtime Account (Buyer) to Account (Supplier) money movement, with transparency. Key is to make funds available as soon as Buyer approves payments from their ERP. Many times, providing transparency while money is getting transmitted becomes more important (especially for cross border). Typically Suppliers end up calling their Buyers to trace where the money is at a certain point of time. Often Buyer’s response would be, even they would not know where the money is! This is where Crypto currencies like BTC (on BlockChain), XRP (on Ripple) are scoring — they provide both transparency and real time money movement notifications. Please note that a Supplier would still need their money in a Bank Account not in a Crypto Wallet !
2. Favorable FX (ability to buy FX spreads ahead). Unless you are offering a currency agnostic payment system that is based on Crytpos, sender & receiver currency fluctuations become important as soon as frequency, volume and values go up. Many Buyers (their Treasury departments) would like FX spreads locked weeks in advance to help tide any FX swings. A system that allows clear visibility to manage FX Spot & Futures exchange rates would help a lot.
3. Remittance detail — This is one of the most important feature that brings efficiency to table. Remittance details for a payment include, for eg: List of PO#s that they are getting paid for, Credit adjustments taken (if any), Discounts (if any), Settlement Date, ASN#, etc — anything that would help a Supplier easily reconcile with the payment. If a supplier receives $85,500 payment into their Account, they should be able to clearly see from the Remittance detail all the information about the payment is made for. This information should travel with the Payment ideally — for eg: we don’t want Payments and Remittance data arrive in different time frames. So, how do you send unlimited text (not just 140 chars) in an ISO 8583 or ACH file format? ISO 20022 has some flexibility - but not much. One suggestion is to send a 'Remittance Detail Message ID' in the payment API/ISO and the Supplier systems would call a secondary API - getRemittanceData () -to get the data corresponding to the 'Remittance Detail Message ID'. With methods like Call Back URLs, large Data Warehouse APIs for bulk download can be supplemented to solve this.
4. Reporting — Provide ability to reconcile through comprehensive reporting data including FX settlement data is critical. Real time notifications to all stakeholders when a payment is credited/debited would greatly benefit automation
5. Security, Compliance & Legal Support — like cross border payments, providing a secure way of money movement and being legally compliant (for eg: travel rule by FinCen) is essential. Many regional compliance rules on both Send/Receive side could complicate - Eg. SEPA for EU, BSA in US, and market specific regulations on disclosures, KYC etc
6. APIs — in an "API First" world, providing tight integrations with ERPs and Systems of Record are essential (or rather brass tacks) through RESTful API suite.
7. Provide functionality beyond payments - like Lending, Short Term Credit for Working Capital, Factoring, Invoicing, etc. Creating a Platform Strategy with focus on Supplier & Buyers collaboration and conversation so that deeper relationships can be established

Based on some preliminary research done by me, solutions based on Crytpos (BlockChain or Ripple) seem to be having an advantage. However, incumbents & new players are continuously innovating with hybrid solutions: mixing crypto & standard currencies through clever use of Nostro/Vostro Bank accounts; leveraging Open Banking framework and BlockChain technologies; partnerships with large gateway providers like WorldPay, Digital River, EarthPort, etc offer reach & flexibility wrt coverage of geographies & currencies.

Positioning

Key question that needs to be answered by a solution provider in this space: 

Why would a Buyer still love this service (as opposed to conventional slow payment process) if they have to pay money sooner to a Supplier? 

Many Buyer/corporations like to hold to their money longer so that their working capital ratios are favorable to them — so WHY do they want a solution that transfers out money sooner? What advantages outweigh?

Many enterprise Suppliers like to reduce their DSO (Daily Sales Outstanding) as much as possible. I have heard that from a Treasurer that shaving off even half a day DSO could tremendously boost the bottom line and the Balance Sheet — what a CFO really cares about.

Pricing

Flat fees.Transparency on FX rates. No hidden costs. All inclusive rates including customer & operations support. Here is an example of clear pricing - from the PayPal Business Payments product that I was involved closely from concept to finish. Pricing is very clearly displayed and avoids any confusion.

I only highlighted a few that I remembered, I am sure there are many more that are essential for a solution to be globally adopted.

DISCLAIMER: This disclaimer informs readers that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer (current or previous), organization, committee or other group or individual.