The last decade has witnessed a paradigm shift towards digital payments in the B2B space. The COVID-19 pandemic not only accelerated the digitisation of B2B payments but also emphasised the effectiveness and utility of the contactless and cashless payments.
As per Globe Newswire, the global B2B payments market accounted for $732.4 billion in 2019 and is estimated to be $2 trillion by 2029; the expected CAGR would be 10.1%. The numbers are a testament to the massive digitisation of the B2B payments markets globally and also to the kind of growth expected in this segment.
B2B Payments: An Overview
Business to business (B2B) payment is a transaction that happens between two firms. It includes payments that are made to the vendors or what is received from customers.
The B2B payments market has not grown at the same pace as the B2C payments market owing to factors like high cost and time involved in switching to a digital payment system from a physical one. However, a host of factors like technological advancements, start-ups offering cost-effective solutions, and the global push towards digitisation is likely to change things.
A 90% growth is expected in the use of the cards for business purposes over the next few years. The usage is expected to surpass $1.6 trillion by 2022. (Juniper Research, 2019).
B2B virtual cards will contribute to almost 80% of virtual card transactions in value terms, and transaction value will double over the next 5 years. (Juniper Research, 2020)
Solution providers across the globe are emphasising the role commercial card technology can play in reducing the problems faced in B2B payments. The innovation that has happened in the card scheme network capabilities in the B2C segment over the years is now being leveraged to meet the requirements of the B2B payments.
Businesses are recognising the benefits of automating their accounts’ receivables; this has led to a spur in the growth of adoption of automated payments by companies both in the private and government sector. Many governments are also emphasising the adoption of automated invoicing; this is likely to spur the growth further in this area.
Cross border B2B transactions are also likely to grow significantly, owing to outsourcing work from developed markets to developing economies. The payments can be streamlined and sped up by the adoption of the Distribution Ledger Technology. This market offers enormous potential, and many established players are coming up with innovative solutions.
Factors Driving The B2B Payments Digitisation Growth:
The digital B2B payments space is changing faster than ever before, and there is an understanding that growth in this space should go hand-in-hand with improvements and modernisation of processes. There are a host of factors that are expected to fuel the global market growth in the future.
- All participants of the B2B ecosystem realise that they stand to gain from the adoption of digital payment methods. Digitisation of accounts payables and accounts’ receivables enables workflow automation, reduces human error and labour costs, and also enhances productivity.
Just consider the following: Electronic invoice payment processes cost 60% less on average as compared to their paper-based counterparts. (The Hackett Group, 2018).
E-invoicing reduces the average cost to process a single invoice by 81%, and the average time to process a single invoice by 77% faster. (State of ePayables, 2019).
- Digitisation of payments enables visibility and also ensures that they are made swiftly, which works in favour of all concerned, especially the suppliers. Suppliers know when they are getting paid the amount that is owed to them, and those who are making the payments also work more efficiently with greater transparency.
- The global pandemic forced a large chunk of the workforce to work from home. In such a scenario, the traditional route of paying via paper checks became redundant, and businesses quickly switched to digital B2B payments.
- Card networks also benefit from an increase in B2B payment volume; their accelerated adoption of B2B payment functionality is likely to enhance buyer and supplier acceptance further.
- Improved infrastructure, more focus on cybersecurity, and changing government regulations also contribute to the B2B payments market growth.
- With the advent of new technology like blockchain, big data analytics, artificial intelligence, the B2B payment structures became simpler, which has added to their revenue growth.
The India Story
Demonetisation and the digital push orchestrated by the government in 2016 has contributed to the digitisation of B2B payments in India too. India is one of the fastest-growing digital payment economies in the world.
The B2B segment offers tremendous opportunities in terms of growth in India. Solution providers need to provide customisable solutions as per business needs.
Solution providers are banking on blockchain technology to offer secure, low cost, and swift payment processes. Blockchain can assist businesses with KYC (Know Your Customer) and AML compliance requirements.
In India, commercial cards have been gaining popularity for making B2B payments, especially in areas like employee expense management. Many solution providers are offering commercial cards to businesses to ensure timely payments. Linking both parties to a network is a major challenge that is being faced by the players.
The commercial-card market was estimated at $24 billion for FY and is expected to grow at CAGR 30%. However, the current pandemic has had a significant impact on the commercial card market, shrinking it by approximately 70% as per the existing usage pattern.
The B2B payments digitisation market is poised for tremendous growth; many players are entering this space, thereby making it fiercely competitive. Solution providers who offer differentiated services and can shift focus to products and services where corporates are spending more will be able to benefit from this digitisation trend and carve a space for themselves in this crowded market.