Businesses Push Banks, FIs for Innovation in B2B Payments

You could call it a case of better late than never.

This is as financial institutions (FIs) around the globe work to bring the speed and convenience that is the expected norm for consumer transactions into the business-to-business (B2B) payments world.

In fact, this month alone, The Clearing House (TCH), EBA Clearing and SWIFT issued a progress report on the upcoming transatlantic instant payment system known as “Immediate Cross-Border Payments” or  “IXB,” which is being piloted by the three organizations to process transactions in the euro-dollar currency corridor.

For Patricia Montesi, CEO at B2B Fintech firm Qolo, the long overdue initiative, which was first announced in April of this year, is a step in the right direction and will help smooth out the cost inefficiencies created by the stranglehold that major banks have had on large money transfers.

“Cards are convenient and instant, but as we know they’re expensive, so this gap has been there for a while,” Montesi told PYMNTS in an interview, adding that today large corporates still use their top 20 banks, which charge hefty fees, for most of their money movement needs.

Read more: Euro, Dollar Clearing Agencies Prep for Real-Time Transatlantic Payments

When interchange and foreign exchange (FX) fees are thrown into the mix, not to mention the hidden costs associated with back-office reconciliation and paperwork, this creates a difficult financial burden that has long strained cross-border B2B payments — “at a time where digitization is at the forefront on the consumer side,” she noted.

Related: Qolo, Moneycorp Integrate For Foreign Exchange B2B Payment Solution

As a result, people have turned to cryptocurrency and blockchain technology, but Montesi is of the view that the traditional banking and payment infrastructure is capable of shrinking that efficiency gap over time.

However, for that to materialize, a lot hinges on how regulation evolves, she acknowledged, especially having policies that do not stifle innovation. But at the end of the day, she said regardless of the regulatory challenges or extra costs compliance might add to a firm’s bottom line, companies need to play by the rules.

“[Global payments are] less about whether the tech will work [and] more about making sure you understand [the regulatory landscape] and how to play within the rules that are set,” she explained.

‘A Healthy Rinse Out’

While the current macroeconomic climate has dealt a huge blow to businesses, Montesi said the crisis is going to help weed out “some of the craze in the FinTech world” and lead to a “healthy rinse out” of the landscape as there is no need for “400 neobanks, all with their own different niche.”

From a banking and FI perspective, she said that figuring out how to innovate and compete effectively in a field increasingly dominated by FinTechs, as well as how to capitalize on developing trends such as embedded finance will be key.

Against this background, Qolo is working with banks that want to do away with decades-old core systems and take advantage of the commercial opportunities digitization has to offer. The firm’s solution is to overlay its own technology on top of the legacy system to equip FIs with the modern functionalities they need to effectively serve the B2B market, Montesi explained.

Read more: Banks Leap From Legacy Core Systems to Innovation, Real-Time Capability

And as businesses increasingly demand a consumer-style payment experience, she said that FIs are being pushed to up their game to meet those demands while navigating the more complex nature of B2B transactions.

Her observations resonate with the findings of a PYMNTS report, “The New User Experience: Tracking the Consumerization of B2B Payments,” which surveyed executives from FIs with assets of at least $500 million or more serving clients with revenues ranging from less than $20 million to more than $1 billion annually.

The report found that less than one-third of FIs see the solutions they offer as “very” or “extremely” effective in meeting their B2B clients’ payments needs. Yet at the same time, 64% are “very” or “extremely” willing to adopt new technologies to lessen the friction their clients experience.

Get the report: The New User Experience: Tracking the Consumerization of B2B Payments

Power of Right Associations

Montesi has witnessed this appetite for novel solutions firsthand, pointing to the booming demand Qolo has experienced in recent times from FIs looking for new B2B payment solutions.

She concluded by saying that despite all the advantages that instant, real-time B2B payments offer, there are downsides that should not be overlooked, such as the difficulty in recuperating lost funds and the challenge in preventing fraud in real-time.

Per Montesi, the key to addressing this is for businesses to choose the right partners, pointing to the recent partnership Qolo struck with artificial intelligence cybersecurity company ThetaRay to help bolster its anti-fraud and anti-money laundering armory.

Read on: ThetaRay Partners with Qolo to Fight Financial Crime

Ultimately, it boils down to being open to forging new partnerships and experimenting with new technologies is what will move the B2B payments field forward.

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