B2B Digital Payments 2021 – Is It The End of Check Payments?

August 2021 | Digital Payments

b2b-digital-payments-2021-–-is-it-the-end-of-check-payments?

In 2021, many businesses transitioned completely to digital platforms for their B2B payments. The move towards digital payments was a given for both B2C and B2B payments. However, it was difficult to predict that by when would there be a wide-scale adoption of digital payments.

The 2020 Covid-19 pandemic proved to be the catalyst that accelerated the global digital payments adoption rate. Normal form of using cash or transacting physically at stores came to a sudden halt, with people and businesses quickly moving on to use mobile payments, QR code, and other forms of digital payments.  In 2020, not only did consumers opt for digital methods of payments, such as mobile payments, and direct transfers, many businesses also made the switch to go completely digital with their payment process.

Since the move to digital commerce was almost sudden for many companies, they may still be unaware as to how to enhance their digital B2B payments, what security measures should be taken with digital business payments, what is the future of digital B2B payments, which fintech services will help further streamline their business payments process, etc.?

Here is a report on the B2B digital payments industry trends and what to expect in the near future.

Digital B2B Payments Methods (2021 to 2025)

Until 2019, checks and bank wire transfers were the most popular forms of B2B payments. Since B2B payments involve large amounts, checks were usually preferable as they also served as proofs to help substantiate business deals. However, the need for speed along with cost-effectiveness in cross-border monetary transactions has moved many businesses to look at digital alternatives. Some of the currently trending B2B digital payment methods are:

Virtual International Bank Account Number (IBAN)

Virtual IBAN service providers offer clients their own virtual international bank account number (IBAN). These IBANs enable businesses to make payments digitally across the globe in real-time and at affordable rates without the need for banking relationships.

SWIFT

Society for Worldwide Interbank Financial Telecommunications or commonly called ‘SWIFT’ consists of 11,000 plus globally interconnected financial institution (FI). These FIs provide the market infrastructures in more than 200 countries to enable cross-border payments. SWIFT supports almost every currency and has been ruling the cross-border payments sector for many years due to its ability to address scale, precision, pace, and trust. SWIFT helps transfer an average of USD 29 trillion on an everyday basis.

Fintech B2B Payment Platforms

Paypal, Google Pay, and Apple Pay are few of the well-known payment platforms which enable real-time payments system without the need to reveal bank account details and other information. Payment platforms enable monetary transactions using e-mail ids and mobile numbers. Individuals and businesses can connect their bank accounts to these platforms and make transfers to their account only when necessary. They can maintain the amount received in their e-wallets provided by these platforms making it easier to make quick payments without the hassle of logging in to their bank’s website for every payment.

Cryptocurrencies

Cryptocurrencies is the latest addition to B2B payments. They not only serve the payments purpose but also work as investments with significant growth potential. Many businesses have started accepting Bitcoin and other cryptocurrencies as a form of payment.

According to a survey by Pymnts, 58% of multinational companies use some form of cryptocurrency.

B2B Payments Innovations

A study by Juniper Research finds that instant transactions could reach US$18 trillion by 2025 with the B2B market accounting for 89% of these transactions. Thus, making innovations in B2B payments critical for the growth of this sector. Some of the upcoming B2B innovations that businesses should look forward to are:

ISO 20022

ISO 20022 provides a platform for developing a flexible, yet interoperable set of financial messages, and enables more and richer machine-readable information to be included into a payment message, making it straightforward to track, process, reconcile, and apply payments. This will provide the payments industry the support it needs to build efficiency and innovation. The SWIFT community plans to begin adoption of ISO 20022 in November 2021. By 2025, they expect to have all their high value payment systems of major reserve currencies follow the ISO 20022 protocol.

Virtual Business Payment Cards

With the adoption rate of mobile wallets and payments significantly increasing, virtual cards represent the next greatest opportunity for commercial payments growth. Virtual cards are issued without much hassle which could increase its demand amongst companies struggling financially due to the recent economic hardships, and therefore seeking to improve their working capital.

According to VISA’s 2020 research reports,  virtual card spend may grow from $213.8 billion in 2021 to $414.2 billion in 2024.

Virtual Purchase Connection

With the help of ‘Virtual Purchase Connections’ clients of partnering banks & financial service providers can check if a prospective business customer will be able to pay or not before the deal is finalized and an advance payment is accepted.  The virtual purchase connection helps reduce risks and avoid unnecessary processing costs.

Automation of Accounts Receivable and Accounts Payable

Digital transactions speed up transactions processing. Thus, associated processes, such as accounting and record-keeping also needs to move at the same pace. Manual processing of transactions take up approximately 67% more time than automated AR processes in following up on overdue payments

B2B Payments Market Trends

It is estimated that by 2025, 40% of businesses will use digital B2B payment services.

In 2028, the global B2B payments market size is expected to reach US$1.91 tn., growing at a CAGR of 10.6%. In 2020, the value of the B2B payments market was US$870.42 bn.

B2B- payments related subscription services is also expected to boom. UBS expects the subscription economy to reach US$1.5 tn. by 2025. Double its current market size value of US$650bn.

Cross-border payments is projected to cross US$35 trillion in transactions value by the end of 2022. Thus, reflecting a 30% growth from its 2020 value of US$27 trillion.

Instant or real-time payments will probably account for 9.3% of B2B transactions in 2022. This is a 6% increase from its 2020 volume.

The APAC region has the highest number of manufacturers in the world. This directly impacts global B2B cross-border payments, making the APAC region the highest contributor to the B2B cross-border payments revenue. B2B payments in APAC could reach US$1,356.28 bn. by 2025 growing at a CAGR of 10.5%. With Indonesia being the leading contributor to B2B ecommerce and payment, followed by Vietnam.

According to Pymnts Cryptocurrency, Blockchain and Global Business report, 73% of financial institutions plan to expand and provide access to cryptocurrencies by 2022.

BNPL players may soon expand their services to B2B sector as well. Many businesses could benefit through instalment payment plans due to the recent pandemic induced financial hardships.

Manufacturing sector is the highest contributor to B2B payments, generating 28.8% (US$ 53 trillion) of the total B2B payments value in 2020. Professional and business services stand second, with the sector making up 21.2% of the B2B payments value.

Enhancing the Digital B2B Payments System

As businesses continue to expand virtually, the need for proper streamlined digital payments channels also increases. Payment financial technology companies, and businesses need to work in collaboration to identify the gaps, and work towards enhancing the B2B digital payments infrastructure.

B2B businesses need holistic solutions that not only provide instant payment facility but additionally assist with managing their financial records, avoid chargeback, prevent online frauds, and ensure safety.

To ensure that businesses do not lose their momentum, multiple payment channels should be available with the possibility to execute transactions in real-time.  Marketplaces and supply chains have become borderless in the current times. Thus, requiring corporate treasurers to have the ability to make faster cross border-payments. Furthermore, the possibility to have all of these services integrated in one place without drastically impacting their cash flow could be a bonus.

Fintech companies, incumbent banks, and third-party infrastructure & technology providers should partner and come up with such integrated services. Provision of SaaS (Software as a Service) subscription plans along with the main product or service can help B2B business manage their payments related operating expenses.

About Penser

Penser is a fintech and payments specialist consulting firm, based in the UK. As the digital payments sector continues to evolve, Penser tries to keep its clients and other businesses updated with the ever-changing world of financial technology (fintech) and digital payments.

We have experience working for clients in the digital payments, digital banking, and mobile payments sectors. We have some of the renowned companies as our clients.

Our services include:

Contact us at hello@penser.co.uk to learn more about how we can help you transform your business or help you transition to B2B payment platforms in a cost-effective manner.