Financial institutions have come a long way in digitizing payments and payment processes, and many offer robust solutions for P2P (person to person/peer to peer) and B2C (business to consumer) payments. B2B (business to business) payments, however, are still dominated by checks and cumbersome processes, partly due to a technology gap between consumer and retail solutions. What can bridge this gap? One way is to find opportunities to innovate in the lower-risk small business space first.
Faster payments solutions
Faster payments capability presents a ripe opportunity for serving small businesses with B2B solutions. With same-day ACH and real-time payments finally a reality, faster payments are quickly penetrating the P2P and B2C space, but they have not made much headway into B2B. This is partly because it’s less risky to innovate in retail payments, where dollar values are much smaller. A bigger barrier, though, is the fact that businesses might have to change their entire operating model to adopt faster payments. When payments start coming in day and night, a business must constantly reconcile those payments—effectively becoming a 24-hour operation. Batched payments processing during business hours has been the norm for corporate customers for decades; a full-fledged transformation of that norm will not happen overnight.
Small businesses, on the other hand, have to manage their cash flow closely; the ability to make faster or real-time payments at any time of day can have real value for this segment. Small businesses’ ERP systems are simpler than corporate systems and could integrate more easily with real-time solutions. PayPal has already taken notice of this opportunity and now enables small businesses to issue invoices with a “Pay Now” button so that business customers can pay their bills via PayPal. Banks that offer Zelle, a P2P service designed to compete with P2P apps like Venmo, could tweak their solution to do something similar.
Tweaking retail solutions for small business applications
Based on the Zelle example, banks should think about retail solutions—or even just certain functionalities within those solutions—that might apply to businesses. Retail solution providers, recognizing that many commercial online banking systems are clunky and outdated, are already moving into the B2B space. Bill.com, for example, is addressing accounts-payable needs by integrating with payables to execute ACH payments on businesses’ behalf. Many legacy cash management systems still lack this basic capability.
Other providers are working to apply consumer-like user interfaces to business accounts; Capital One, for instance, provides treasurers with an app they can use to obtain payment approvals via their mobile device. The app looks more like a consumer app than a business one—because Capital One’s commercial banking team leveraged the FI’s existing consumer app to create it.
Developing a strategy
Xtensifi can help banks plot out a strategy for moving into the B2B space via small business solutions. A strategy is needed soon, because digital natives are advancing into senior-level treasury positions as their predecessors retire. These new executives will look for immediacy in their banking services and will have no patience for paper. Banks should act now before fintechs lure these digital natives away with slick interfaces and faster service.