Financial platforms are doing for B2B payments what SaaS did for enterprise software: Stripe’s Suzanne Xie
- B2B payments are still largely untouched by innovation in fintech, and the stage is all set for the next disruptors.
- I sat down with Suzanne Xie, Stripe’s business lead for B2B payments, to get an expert opinion on where we stand and what’s next.
B2B payments volume is increasing significantly year-on-year; however, a large portion of it is still done by exchanging cash and checks – seemingly archaic methods by today’s standards. If one’s kept up with the digitization of payments and its wide-scale adoption by consumers, businesses appear to be lagging way behind. In 2021, of the $27 trillion B2B transaction volume in the US, the largest portion – around $11.8 trillion – used cash or checks.
That is not to say that businesses themselves haven't developed a taste for the digital way of life.
While adoption of payment cards and wire transfers remains low in B2B payments, the reliance on ACH payments has increased consistently. Over the last two years, ACH payments have begun catching up with cash and checks, and eating into their share in B2B payments.
Source: Insider Intelligence
So, with the technology to digitize B2B payments in place, and businesses already interested, what are we waiting for?
Nothing, really – just industry inertia. The opportunity is recognized as huge, and change is considered to be just around the corner. I sat down with Suzanne Xie, the business lead for B2B payments at Stripe, to get her expert opinion on the matter.
Unlike consumer-grade payments – which are largely focused on the checkout experiences and payment methods – B2B trends are historically slower to change. This is due to the prevalence of legacy systems and processes – e.g. reconciliation, order-to-cash software, and other integrations – which naturally take time to revamp. Covid, though, accelerated online payments adoption and drove faster innovation in the particularly archaic methods within B2B payments.
“Many businesses that turned to Stripe for financial infrastructure to facilitate B2B payments have told us there’s no going back to pre-Covid methods,” Xie told Tearsheet. “We expect online B2B payments volume to spike over the next several years, as more businesses turn to tools that make it faster and cheaper to pay and get paid, complementing traditional payment methods."
A number of reasons contribute to businesses seeking real-time payments, including the need to promote efficiency in payment systems and a desire to keep up with technological advancements.
How is technology changing B2B payments?
Xie had an interesting way of answering the question of how technology is changing B2B payments. The way she sees it, acquirers, issuers, and financial platforms are doing for B2B payments what SaaS has done for the consumerization of enterprise software. By that, she means that service providers have made it easy for businesses to adopt consumer-grade off-the-shelf solutions to streamline and improve their systems. Previously, commercial legacy systems would require extensive training and specialized skills, making for bulky implementation.
SaaS platforms have evolved to include easy-to-navigate revenue and financial management solutions – like subscriptions, invoicing, and tax – integrated into their core product experience. Platforms can enable revenue data to flow directly to accounting teams, making it simpler to track, categorize, and manage online transactions. All this adds up to faster B2B payments, greater insights into revenue and expenses, and better management of cash flow.
For internet-native businesses that work with SaaS platforms more frequently, that sort of functionality facilitates better and smoother processes, as they get to focus more on strategic work and less on back office workings.
The end-to-end B2B payments flow is expected to continue becoming faster, as innovators seek to create simple and consumer-grade experiences for businesses. For example, a typical founder or finance leader might use their inbox for bill tracking, their bank portal for making manual payments, and then separately upload vendor details into their accounting software. Now imagine all that automated and done through a single platform.
Let’s take Stripe Invoicing as an example. Users can create an invoice, have language and payment methods localized automatically, and give their customers a Stripe-hosted online payment page to pay using their method of choice. All this takes a few clicks without the need for technical or financial expertise. Technology makes this transaction faster and a better experience for both a business and their end customer, compared to the traditional paper invoices and physical checks.
Among the regions in B2B payments that technology can overhaul are accounts payable and accounts receivable. Businesses find their current methods of managing these below par, and believe they’re costing them higher profitability.
In a survey, 92% of finance managers across industries said they could increase earnings per share for their company if they had better accounts receivable solutions. Furthermore, over 40% said that their companies lose 4% to 5% of revenue each month due to payment processing inefficiencies.
Innovators are aware of this. A current trend among them in B2B payments is trying to unify accounts payable and receivable, and that’s expected to continue. What that means is that while the same team takes after both the affairs in both businesses, now they will have a single software stack that lays all that out for them.
Bill Manager, created together by Wells Fargo and Bills.com, is an example of a tool that automates AP and AR by converging them. The offering is geared at SMBs, and allows them to electronically capture incoming bills and invoices, which are digitally routed through a workflow for simplistic review and approval. As such, users can initiate and request payments within a unified interface.
"A world in which businesses use both AR and AP in a unified manner will reap more benefits – moving money globally, across currencies, with lower cost and full visibility, in minutes rather than days," Xie commented.
As established, business payments are still heavily reliant on analog methods like checks. Checks, by today’s standards, are painfully manual and take an unreasonable amount of time – where they are written by hand, mailed to the seller, and manually deposited. Add to that the fact that approximately $12 trillion in B2B payments will be made through these vehicles, and that underscores how young digitization is in the industry.
“The B2B market is at an earlier stage in its maturity curve than the acquiring market, which is closing in on saturation and moving towards pricing compression,” Adam Hallquist, principal at FTV Capital, told Tearsheet. “B2B payments still encompasses a large amount of payments that are being done with checks or ACH, both of which are imperfect solutions. Secondly, B2B payments can provide more value via virtual card rebates and accounting reconciliation.”
Hallquist said VCs are particularly interested in B2B solutions that enrich payments through additional data, provide unique funding mechanisms, and focus on specific verticals. The additional data can help businesses reconcile invoices, funding mechanisms can help improve working capital, and a vertical focus (like healthcare or restaurants) can address the specific needs and dynamics of those markets.
Disruptors also have an opportunity in automating compliance with B2B transactions.
Regulators the world over are hitting B2B payments particularly hard as of late. To complete every transaction, there are now more steps that need to be performed by businesses. In practice, that means that manual processes, which are already slow, are getting a whole lot slower. This big challenge for businesses presents a bigger opportunity for disruptors. If they can figure out how to automate these processes, and add them to the payment flow seamlessly, innovators can create great value and further motivate businesses to go digital.
Let's take an example. Imagine a business makes its first international sale. Now, the complication is born right off the bat – different countries follow different invoicing and tax laws. An automated B2B payment solution can simplify that by taking a customer’s information to generate compliant invoices, with taxes, for a given region and send the required standardized formats to government portals.
However, to be fair, that’s not an easy task.
“B2B transactions are becoming increasingly more regulated by international governments,” Xie said. “For example, in some European countries, in order to legally invoice a business, you need to send a copy of your invoice to a government portal, and receive a unique SDI number that must be added to your invoice. Challenges become exponentially worse for larger companies with multiple departments and a patchwork of finance solutions.”
A look ahead
At Stripe, Xie envisions a world in which B2B payments are faster, lower-cost, more assured, and inherently global. Technology will enable the ability to send funds for multiple types of business spend and automate the pre-and-post-payment workflows to give businesses visibility and control over their spend.
Additionally, technological advances are expected to help businesses manage their accounts receivable better. Tech solutions in this area may look like an AR function that is able to dynamically scale itself, and support a growing business.
“As businesses scale to new business models, including “high touch” sales-driven channels, they will be able to send professional invoices that automatically adjust based on the business and customer type,” Xie said.
This will also provide greater visibility into the transaction by allowing both parties to track it in real time. This will contribute to higher-quality customer engagement and decreasing reliance on manual collections.
Furthermore, as businesses, especially SMBs, develop a more global perspective, automated B2B payment services are expected to make it easier for them to expand.