B2B Payments Are Antiquated And Starving For Data

The problem with the B2B payments mindset is that financial players still focus on the money transfer element, when it’s the data that has to rule. This is colored mostly by the fact that B2B payment professionals also happen to be consumers. And the important elements in consumer retail payments and B2B payments couldn’t be more different.

“Information is what is really key to B2B payments because is it very unlike the consumer world, where you may swipe a card and transact at POS and everything about your payment happens right there. In the B2B world, it’s a very different situation, where goods and services are delivered and then an invoice and its 30, 45 or 90 days later when the payment’s made,” said Drew Hofler, director of solution marketing for SAP Cloud and Network Solutions, during a recent podcast. “There’s this massive disconnect between the movement of the money and what that money is for. In the B2B world, often you will have maybe a 100 invoices paid with a single payment. With the very limited information set that is available through electronic payment and ACH, you’re not able to get enough information. That’s what companies really need in order to reconcile, in order to know what to do, in order to have visibility and to forecast things like cashflow. They need that information. And frankly, the actual movement of money is such a given that it’s table stakes these days. It’s secondary. If banks cling to that as what’s core, I think that’s where they can become disintermediated by things like business networks that actually connect the information to the right people at the right time.”

The background to that problem is the age-old NACHA 94-character format, which is used by 97 percent of all B2B electronic payments in the U.S., Hofler said. “That allows for one line of information, one line to tell you what that payment is for. That line has 94 characters, only 80 of which are usable. That’s about half of the information that a Tweet gives.”

Another enemy of making needed radical improvements to B2B is, quite frankly, complacency. Hofler argues that B2B systems are bad, but not bad enough to sufficiently motivate company executives to demand major upgrades. “B2B payment is not very good. It doesn’t work perfectly well. There are lots of problems with it, but it’s never been bad enough to force a change,” he said.

Gloria Colgan, a managing director at Market Platform Dynamics and another guest on that podcast, added that globalization is another complicating B2B factor.

“We are now a global economy. As you’re dealing with global corporations and the need to exchange information and then exchange funds, companies that have the ability to trade in that way, will clearly have a step forward,” she said.

That consumer mindset, though, has set back B2B payments in other ways, Hofler said.

“Companies collaborating, buying and selling, managing cash, moving things back and forth, that (consumer speed) is becoming the expectation of the people who actually do that. They may be working in a business-to-business world, but they are consumers themselves. So that consumer-like experience is something that is becoming an expectation in the business to business world. And yet, the technology, the experience in the B2B world, is lagging so far behind,” he said. B2B transactions today are “anything but connected, anything but integrated, anything but seamless. It is very disconnected. I think it’s this expectation that is finally driving us toward that kind of innovation in the B2B world. Working on a spreadsheet or something that looks like you’re running MS-DOS on your computer screen in order to collaborate with your business partners and suppliers is just not acceptable anymore.”

Hofler also compared the B2B and B2C worlds in terms of speed of app development. “In the B2B world, nothing happens fast. We can create an app for some sort of payment and make it happen relatively quickly in the consumer world, but in the B2B world, nothing happens fast and it comes with lots of analysis ahead of time. It has to have the right ROI internally and once that thing is baked and done, it is there for awhile,” he said. “This idea of changing payment and making payment work better, I think it’s very important that we identify clearly where the fundamental breakdowns are and develop the innovation around that as opposed to ‘Wouldn’t it be cool if it could do this?’ Rather, wouldn’t it be even cooler if we could solve the fundamental issues underneath?”