A New Era for Payments: B2B Networks

I am thinking of a model where companies will exchange payments via the same network infrastructures they already use for business-to-business (B2B) transactions such as purchase orders, sales orders, product co-engineering specs, inventory tracking and tracing, sales and procurement forecasts. These B2B platforms (e.g., Ariba Network, GXS, Tieto, Elemica, E2open, Tradecard, Covisint, Coupa) have been in place for years and connect hundreds of thousands of companies, logistics providers, and distributors in extended networks of trading partners.

It is a fact that payments[1] are tightly connected with the exchanges of goods or services. So when such exchanges are made possible through B2B platforms why should payments not use the same infrastructure? Bank accounts would simply be “buckets” where payments transactions flow in and out according to instruction messages exchanged on the platforms. Furthermore, these messages would carry relevant data for settlement, reconciliation and order matching since the infrastructure they run on is the same used to send invoices and sales orders and to receive purchase orders. Forward-looking and entrepreneurial platform providers could also offer “virtual” bank accounts for clients, totally dis-intermediating banks.

Moving one step further into the future (and with a dose of speculative imagination—I admit), these networks of interconnected trading partners could become clearing hubs for inter-company payments. In B2B networks companies are buyers and suppliers at the same time. So a not-so-distant-from-reality scenario is one where we have three companies: Company A, Company B, and Company C, all connected onto a B2B platform. Through the platform Company A sends purchase orders to Company B and buys goods; Company B buys from Company C using the same platform; and Company C purchases goods from Company A. Each company therefore expects to receive from, and make a payment to, one of the other platform partners. If we extend this simple scenario to the multitudes of companies networked on B2B platforms it becomes evident that a mechanism that clears payments transactions within the platform itself is not such a crazy idea.

I would not be surprised if in the not too distant future we will assist to partnerships between B2B platform providers and vendors of payments and clearing systems. Payments (and clearing processes) need flexible, secure, and reliable applications. There is no need to create new bank-centric infrastructures to enable payments between companies and banks when companies are already interconnected with B2B platforms.

[1] In this document payments are intended between trading partners, so payroll and tax payments are not included.