Securities Services
B2B payments: the poor cousin of retail payments?
.jpg?width=100)
Guest blogger and payment industry veteran, John Chaplin, president of Ixaris, says innovation in the B2B payments space may not have the "wow factor" that it has in retail payments, but it is happening, although he says the banks cannot afford to rest on their laurels as new challengers are threatening the status quo.
B2B payments are not usually the first thing that springs to mind when thinking about innovation in the payments industry. In fact, according to a recent report, ‘Payments innovation 2011 – the Global Jury Decides’*, commercial payments and high-value payments were seen as the least likely to drive innovation.
The findings were based on the expertise of 22 high profile payments and banking innovators and experts from around the globe, one of whom commented that the “evolution of payment technology always moves more slowly the higher the payment value.” But is this a fair representation of B2B payments? Maybe there is innovation going on without necessarily making the headlines.
A shining light for innovation
Although there isn’t the glitz and glam of retail innovations such as the much-hyped mobile payments and Facebook Credits, there are some quiet but exciting B2B revolutions going on in industries such as travel. The new breed of online travel agents typically has to handle very high volumes of low- and mid-value payments to multiple suppliers on behalf of their customers.
They had been trying to use conventional purchasing cards from banks for many of these B2B payments but were experiencing huge problems of fraud, complex and costly back-office reconciliation and a significant number of failed transactions. But some forward-looking travel companies are working with specialist providers to implement brand new payment applications that automate the corporate purchasing process through one-time-use virtual Visa cards.
Unlike retail payments, innovation in B2B payments tends to focus on incremental improvements rather than ‘Big Bang’ changes’. In the case of online travel agents, the new solution uses existing internet-based virtual card accounts, but in a way that was not previously envisaged.
This is highly effective in reducing reconciliation discrepancies, preventing fraud and allowing transactions to actually happen, and it all happens automatically because the travel agent systems use API’s to access the virtual account systems. So major benefits for the bottom line of the travel agents. And while this type of innovation might not have the same ‘wow factor’ as some of the more flashy retail payment developments, it is equally important in terms of the business value it can deliver.
The drivers and difficulties
According the report, pressure from competitors is considered the number one driver of innovation, when compared to other factors such as cost reduction and customer retention. These motives are equally applicable to both the retail and the B2B payments sectors. Similarly, the inability to guarantee customer uptake is seen as the biggest barrier to innovation today.
For instance, a lack of certainty about customer demand has delayed most UK banks’ roll out of ‘Direct Corporate Access’ to Faster Payments. Currently Barclays is the only financial institution that offers the service. But traditional financial institutions cannot afford to rest on their laurels when it comes to innovation, whether they focus on B2B or retail payments. The fact is, there are challenges emerging from a variety of sectors, such as telecoms and internet organisations that threaten the status quo of traditional payments institutions.
To end on a positive note, one expert who contributed to the report did comment: “Dedicated B2B solutions, e-invoicing and non-bank international transfers will drive innovation in general commercial payments”. Therefore, it’s important that we champion best practice and the benefits of innovation in this area so that it doesn’t continue to be overlooked.
*For a fully copy of the Payments Innovation 2011 report, please contact marketing@ixaris.com
Date Posted:18th February 2011