Why B2B Payments Can’t Shake Its Anti-Innovation Notoriety

B2B payments have a reputation for being slow to innovate, though the last couple years has challenged that notoriety. Faster payments initiatives, blockchain and other disruptions all show promise to make major changes in the B2B payments space.

Still, according to the latest Mercator Advisory Group report on FinTech disruption, B2B payments will have to wait a bit longer to see true change from these innovations.

The firm released its 2017 Payments Outlook report last week and made some conclusions that B2B FinTech players may find disappointing. But while B2B payments continues to lag behind the B2C market in terms of innovation, analysts note that all sides will be facing challenges from regulation this year.

“Last year, ‘disruption’ was the watchword in payments — primarily the FinTech variety,” concluded Ken Paterson, Mercator Advisory Group VP of research operations and author of the report. “This year, disruption by financial technology firms might well be joined by regulatory uncertainty, which could be more disruptive than either regulatory or deregulatory certainty.”

B2B Payments Outlook

Late last year, Mercator released another iteration of its 2017 Outlook report. Its analysis for the commercial and enterprise payments space did find evidence to support the notion that B2B payments will see progress thanks to growing digitization, a greater emphasis on cash flow management and technologies that enable faster processing.

Critical to the B2B payments evolution, Mercator said, was that FinTech innovators are beginning to favor the space over B2C payments. The firm noted that there is now a fairly even split between financial technology innovators that target the consumer and SME space and those that target corporate services. But as the year progresses, innovators will increase their attention on the commercial payments space as “more complicated business use cases associated with corporate products and services become better understood by the technology developers.”

Unfortunately, Mercator concluded, that doesn’t mean the B2B payments sphere has entirely caught up with the innovative progress made by its B2C peers.

The company’s latest report concluded that there is not likely to be a “highly disruptive shift” of B2B payments onto faster payments initiatives and platforms, for instance, at least not for the next several years. Commercial cards probably won’t see any massive bursts of innovation or adoption, either. Instead, the corporate payments space will continue to see incremental change.

“We believe that the effects of the new schemes will play out over a multi-year scenario,” Paterson wrote in the report, “representing value-add options for businesses seeking to tighten their payments windows and further digitize payments.”

With paper checks still so prevalent in B2B payments, fraud continues to stunt the industry (although, the report noted, EMV, virtual cards and better fraud protection measures in the card space could lead to a reduction in B2B payments fraud when commercial cards are used). Still, cybercrimes like wire fraud and the business email compromise scam will remain prevalent in the industry.

Regulation Throws FinTech Off-Guard

As regulators look to safeguard payments of all kinds and reduce the instances of fraud, researchers at Mercator concluded that B2B and B2C payments innovation will overall be disrupted by the uncertainty of regulation.

In fact, wrote Paterson, regulatory uncertainty is what makes 2017 largely a “wildcard” in the world of payments and FinTech. The author predicted that the area of regulation will largely be a “stalemate” thanks to the sluggish pace of legislation. “You may be disappointed in the lack of direction,” he said, adding that “stalemate can, in fact, be disruptive.”

A new presidential administration in the U.S. means change is coming, but it’s difficult to predict exactly what that change will be. Mercator identified prepaid and debit cards as two areas particularly vulnerable to shifting regulation at the CFPB and with regards to the Durbin Amendment. Other areas of innovation like blockchain will similarly see regulatory uncertainty.

But other efforts from policymakers around the globe, like PSD2 and Faster Payments, are initiatives that could promote FinTech innovation, and B2B payments have a heavy hand in both.