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On B2B Payments

1. Business to business payments serve the area of trade and finance that is marked by heightened complexity, diversity of use cases and uniqueness of commercial interaction.  Parallels with C2B commerce and payments are many but those are commonly on the surface.  In details and in forms commerce and payments interactions between businesses are quite different than C2B engagements.  The actors within B2B framework demonstrate different behavior, have different set of expectations and are guided by different grid of policies and regulations as opposed to C2B actors.  The path to an engagement within B2B world is marked by a lengthy "RFP-Letter of Intent-SOW-Agreement" process (in some cases), and the path through an established engagement is equally complex and requires a passage via a “PO-Invoice-LOC-Shipment notification-Payment-Remittance-etc” checkpoints.  All of it takes time, generates a lot of communication and documentation - both formal and informal - and requires unique set of services and tools like: B2B Marketplaces and directories, EDI networks of many types and capabilities, ERP systems, B2B networks, AP-AR outsourcing,…, others.  That is all to prove 'water runs downhill’, - B2B is different than C2B.        

2. Continuing with the differences and uniqueness, it is important to note a heightened complexity of B2B pricing models defined in contracts and somehow depicted in PO forms.  Unlike price per item or pay as you go arrangements within C2B space (for the most part), B2B contracts specify various 'one offs', annual licenses, tiered ongoing prices per unit of a product, Change Request fees and etc..  On top of that, each B2B payment can be spread over time, broken down into installments with associated fees and discount structures.  Payments can be returned (fully or partially), can be added together, new fees and penalties can be applied and so on…  This complexity of pricing arrangements signifies a need for additional important piece of information known as Remittance data.  The ability to apply a payment to open AR but in actuality to map it against a mix of events - complex or not - is a difficult task, often manual and always present.     

3.  Right.  We all innovate today - automate processes, convert paper to electronic digits, aggregate parties into networks, blend in various services, constantly morph into new forms of amalgamated mix of products and services, keep introducing new value added solutions, compute in the clouds, of course, and do many more such great things..  With that all, the most common protocols for B2B interactions to this day would be paper (POs, Invoices, bank checks..), email, telephone.  That is especially true with respect to supply chain management.  As the definite need exists to simplify and automate procurement processes, B2B communication solutions - across every facet - will progress and overcome most of the barriers known to-day.  Greater interoperability, fewer unconnected services and more trees - all to come in due course.         

4. As for B2B payments, specifically, a lot of efforts are underway to create suitable solutions.  From P-cards to individual alliances like Ariba-Discover to closed loop payment systems tuned for Business customers - all try to overcome present barriers (from boarding and acquisition to cross-borderness and true ‘globalness’ to economics…).  What is on the market today within B2B scope promises a long way of solution discovery, certain new level of standardization and adjustments within the realm of compliance.  What I am writing below is my view of what B2B payments should be like.  (The important point is that all the aspects of B2B payments mentioned below should be developed and offered as one complex blend, as a single encompassing solution)

5. In the midst of all possible transformations with B2B communication, payments should be developed into a service that is almost invisible but omnipresent like an air.  Specifically, if it is an on boarding and merchant account underwriting process it should be instant, paperless and fully amalgamated into every relevant facet of B2B interaction.  Payment account should be seamlessly provisioned as part of Supplier on-boarding at eInvoicing domain or such account should be quickly enabled within B2B Marketplace or ERP system.  Seamless amalgamation of payment account into domains such as eInvoice networks will greatly improve supplier on boarding statistics - one of the biggest issues for all types of EDI, eInvoicing and other B2B networks.

Built as a stack of services, B2B payments should be initiated from within all relevant spheres of B2B activity.  It can be initiated from within ERP systems (and processed by an acquirer of choice), documents interchange networks or commerce places as well as from B2B payment services provider own UI (say, for small business to small business transacting).  This true amalgamation of payments processing into the fabric B2B exchange will increase velocity of electronic payments and positively affect economic positions of very party involved.  

Incoming and outgoing business to business transactions should carry a relevant load of rich remittance data.  And thus received remittance information should easily flow into all types of accounting and other business systems for thorough reconciliation.  The communication between B2B payment services and accounting systems of all tiers or eInvoicing platforms or B2B commerce solutions should account for all relevant events.  These may include transactions, returns (full or partial), applied credits, discounts and etc..  

B2B payment services should offer full transparency into the status of an electronic payment.  Its tracking capabilities should expose whereabouts of a payment at any time: “scheduled for n day/time” or "submitted to a network with possible delivery (b/a funding) on day/time” or  “re-schedule to an early day…” or “delivered to an escrow account” or whatever else.  Payment delivery options should range from Real Time to T+n and that is irrespective of a travel distance (domestic payment or cross-border). 

B2B payments should be truly global and cross border.  (A lot of Corporates have international suppliers.)  This is a heavy duty task for any provider of payment services as it requires a lot of local services and connections to be built in support of borderless commerce.  Say, development of real time on-boarding and underwriting capabilities (for payment account), as an effort, is a country by country task and will require connections to local data bureaus and application of underwriting logic compliant with local rules and richness of data itself.  Same would apply for a remittance via local clearing and settlement mechanisms (to acquire locally but settle - with a seller - internationally), as one particular (economic) way of transferring funds cross border between business parties. 

Couple more important aspects to mention.  Most of the B2B transactions have payment terms that generate Trade Finance assets.  Corporates don’ts usually pay upon delivery.  The total size of trade finance assets outstanding globally is approximately $9 trillion, of which only small part is intermediated by banks.  Most of trade credit remains on corporate balance sheets.  It will be of a great value for a B2B payment service to offer a  mix of solutions supporting trade finance intermediation, whatever this intermediation will develop into - factoring, reverse factoring, dynamic discounting and etc.  

I would also envision greater amalgamation of B2B payments and documents exchange services into business banking.  Say, a delivery of an invoice or a generation of it within SME Internet banking.  A payment of an invoice from within Internet banking site via B2B payment service provider…   This would repeat a well developed eBill and Bill Pay services that banks currently offer to their non business customers.


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