The consumer space has always been at the forefront of innovation. And payment isn’t an exception.
From e-wallets to BOPIS to BNPL, B2C experiences have set the bar high. But that doesn’t mean that B2B can’t share some of the spotlight.
In fact, the B2B space is a perfect storm for the adoption and acceleration of payments.
Merchants are extremely limited by cash-flow constraints and paper-driven processes.
So, not only are merchants clamoring for a better solution, but there is also thankfully a new wave of fintech companies coming in to take advantage of a still young and underserved market.
We asked Aleks Flom, a B2B payments veteran, who has worked at companies like Flexport and Wells Fargo, what kinds of opportunities we can expect.
In his words, “On the business side, there is tons of room for innovation. A lot of the things that consumers take for granted, that have become table stakes in the B2C world, are making their way to business payments.”
The need for cash
The first thing that Aleks mentioned was that B2B payments call for purpose-built solutions. This is in contrast to B2C payments, which are often a one-size-fits-all. Take B2C BNPL. Apple recently joined Klarna, PayPal, Clearpay and Zilch – all offering consumers the ability to split any purchase into four interest-free payments. No interest, no fees. That’s what shoppers want. But in B2B, generalities don’t cut it.
Aleks explained, “In B2B, you need to get more focused on a subset of customers. But it’s a blessing in disguise because you’re able to go after a much more specific problem.”
When a consumer shops online, they’re spending their own money and generally know how much they have in their wallet. In business transactions though, each month can have a drastically different flow of cash, depending on sales volume, supply chain disruptions, demand, etc.
Procurement teams often have to go through extensive approvals to get budgets approved, and then when the time comes to pay, businesses don’t normally have the cash upfront.
“Businesses need that extra 30, 60, 90 days to work that purchase into their cash flow and so they don’t have to stretch themselves too thin”, says Aleks.
Luckily, there’s plenty of room in the B2B payments space for start-ups to add a lot of value just by focusing on an issue like cash flow. Naturally, however, as the space becomes more crowded, the space will become increasingly competitive and the barrier to entry will rise.
The data factor
Aleks pointed out that on the consumer side, there is a ton of data that is being fed back as insights to the consumer. In 2020, major online brokers like Charles Schwab, TD Ameritrade, Etrade and Robinhood saw growth in accounts by as much as 170%.
“We have so many budgeting and personal financing apps to help us figure out our cash flow, where to invest, how much to save every month, etc. I don’t feel like any of that is coming to the B2B space,” says Aleks, and it’s not because there is a lack of data.
Aleks explained that “all the B2B solution players are consuming that data to make better decisions for themselves, whether it's in product management or risk, but there is a lack in serving this data back to the businesses.” If businesses had their own version of Mint or the like – the impact could be tremendous.
Today, businesses have to figure these things out by themselves. However, with the right data, Aleks says, “businesses could manage and optimize their working capital proactively and strategically, instead of oftentimes having to be reactive.”
The impact? Businesses could better manage cash flow and growth opportunities, or on the supply chain finance side, strengthen relationships with vendors by paying them early, offering them discounts, or reverse factoring.
Over time, as more solutions serve the B2B space – there is a tremendous opportunity for businesses to benefit beyond just the short-term.
A link in the supply chain
In the consumer world, there are two questions that payment products generally answer:
“Where do I keep my money” and “How do I pay for stuff?”
In the business world, Aleks explained that it all boils down to basically one thing: optimizing working capital. All businesses need to pay for goods and services, and vendors, logistic companies–like consumers–want the easiest way to do it.
In B2B though, it’s not about paying with the latest e-wallet or reward points.
Merchants buying goods and services want to be able to pay as late as possible.
The most important consideration for businesses is: When I pay for these things, can I still positively impact the cash flow of the business? Paying for inventory is expensive and can lock up merchants’ cash for months before sales.
Consumers don’t have those kinds of constraints – that’s why comparing B2C BNPL to B2B is apples to oranges.
Yes, merchants need a way to delay payment, but what about the vendor? They’re left empty handed if they aren’t paid on-time. How does a vendor that gets 0% upfront of a $10,000 transaction manage that cost? Now, if every vendor had a way to get paid upfront, while buyers still had the option to pay on their preferred terms, the entire supply chain would benefit.
So, it’s safe to say that we’re pretty excited about driving impact in the B2B payment technology space. And we hope you are too. Reach out to our team to learn more about how Balance can help your business grow.