B2B payments have comparatively failed to innovate as quickly as B2C payments. Chip-and-pin terminals, contactless cards, and card-on-file solutions employed by companies like Uber and Amazon have increased convenience and eliminated the need for cash.
While B2B payments remain dominated by manual bank transfers and cheques. Why?
There are a string of logical reasons why B2B payments have been neglected:
- • They’re typically larger payments.
- • Prices are often negotiable.
- • Payment terms are more complex.
- • The payer and purchaser can be different persons.
- • B2C payments are expensive to process.
Nonetheless, card payments are half a century old; it’s 2021, the B2B market dwarfs the B2C market, and these are very addressable hurdles. Nevertheless, problems are here to be solved. The future of B2B payments will resolve these issues while remaining as invisible as B2C contactless payments today, without the costs associated with card transactions.
Costs are key. Retail shops accept high card processing fees to save on labor costs and assure the checkout counter isn’t a bottleneck. Online e-commerce sites accept the fees to reduce the checkout abandonment rate. B2B payment checkouts, such as invoice payments, are not subject to bottlenecks and abandonment rates, albeit late payments are an issue. Consequently, losing 2% in processing fees doesn’t make sense when such savings drop straight to the bottom profit line, potentially increasing profit for low-margin companies by 40 (if you’re prior net profit margins are c.5.0%). Card payments cannot work for B2B payments because of the costs. An alternative scheme is required.
Fortunately, over the last five years, there has been rapid growth in banking-as-an- infrastructure. Companies like Railsbank, BankingCircle, CurrencyCloud, and Modulr have de-bundled banking infrastructure to provide single products with unique value-adds, such as bank accounts, FX payments, SWIFT payments, and direct payments debits, etc. Companies like Crezco can select the best product offerings from each of these providers solely for creating a single international B2B checkout with equal convenience to card payments but without the fees. There are more tools at our disposal today than there were a decade ago. Unsurprisingly, we are making better products.
By Ralph Rogge, CEO and Co-founder at Crezco
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