A war is raging on the business-to-business (B2B) payments front. With businesses clamoring for less risk and inefficiency, greater transparency and data-rich transactions, and new working capital tools, established banks are facing soaring competition from nimbler well-funded fintechs.
Fintechs are shaking up the B2B commerce landscape, from procure-to-pay to order-to-cash. The impact of these new players on bank revenues, profitability, and customer retention is hard to miss.
Treasurers from both large corporations and smaller businesses are increasingly turning to nonbank platforms to reduce payment complexities, according to the results of Global Payments 2019: Tapping into Pockets of Growth, a 2019 report by Boston Consulting Group (BCG) and Swift.
Ominously, well-funded fintechs are diving deeper and deeper into the business banking ecosystem. Payments startups took in $15 billion in funding globally in 2019, a 20 percent jump over 2018 and more than one quarter of all fintech funding, according to Accenture.
Dozens of investor backed companies built on virtual card interchange have burst onto the scene since 2018 alone. Among established fintechs, the market caps of payment stocks like Visa and Mastercard recently eclipsed the value of Wall Street’s biggest banks, even as their balance sheets remain smaller in comparison.
When it comes to B2B commerce, many banks are leaving themselves wide open to fintechs.
Despite fantastic evolutions in technology, the B2B commerce solutions offered by most banks leave businesses wanting. Many of these solutions cannibalize other products, increase fragmentation, and are costly to develop and maintain. Closed loop networks and bilateral integration limit automation.
Individual point solutions have their own logins and passwords, file formats, account requirements, and integrations. Some B2B commerce solutions require suppliers to join a network for each buyer and manage payment and remittance data separately. And many bank solutions for B2B commerce were built on proprietary digital channels that cannot easily adapt to changing business needs.
What businesses need are standardized and fully integrated B2B commerce solutions that bring down the silos that make B2B payment generation, approval, and reporting complicated, costly, and risky.
This is where account-to-account (A2A) solutions come in. A2A platforms connect buyers and sellers through tight integration with their banks and ERPs. By integrating banking services directly within an A2A platform, banks can expand their fintech innovation ecosystem.
As a result, it becomes easier for businesses to initiate Real-Time Payments (RTP), exchange rich remittance data between ERPs, and utilize existing bank credentials to ensure the user’s identity and authenticity.
A2A solutions enable buyers and sellers to systematically connect to each other and use common rules and standards to pay or get paid and exchange rich remittance data between their ERPs.
With an A2A platform, buyers can effortlessly initiate a RTP for goods or services. Suppliers can use an A2A platform to initiate a Request to Pay (R2P) message through their bank and receive payment from the buyer. Both parties benefit from rich remittance data directly to and from their ERP. And buyers and suppliers can replace multiple, separate payments systems with an integrated solution.
Integrating an A2A platform into their mix of B2B commerce solutions is game changer for banks.
For starters, partnering with an A2A solutions provider enables banks to drive efficiencies outside of a bank’s typical scope. Banks can deliver a frictionless B2B commerce environment, regardless of market segment or vertical. Banks can speed adoption of RTP, R2P, and other electronic payment methods, while ensuring transactions stay on bank rails. And an A2A solution’s open loop, single connection design makes it easy to onboard customers.
By providing a better level of service for business clients, banks also can increase revenues on carded and non-carded B2B transactions.
Additionally, banks can use A2A data to determine alternative products and services appropriate for a business client. Payments hold the valuable data that creates the opportunity to monetize ancillary services by using that data to automate, forecast, and productize payments, Aite Group notes. For instance, banks can automatically qualify a business client for credit based on A2A information.
A2A solutions also eliminate bank challenges in connecting to faster payment networks. Connecting to a true real-time network requires the ability to provide 24/7/365 availability of funds received.
Banks also must address and resolve challenges such as agreements, testing and certification. This can be demanding for internal resources that have competing priorities and a lack of deep expertise in real-time connectivity. A2A solutions providers provide connection into faster payment networks.
Importantly, A2A helps banks level the playing field with fintechs. A2A solutions fundamentally change a bank’s value in B2B commerce. Instead of processing payments or capturing remittance data in a lockbox, a bank that connects to an A2A platform can bring simplicity to the B2B space. Partnering with an A2A provider also keeps more elements of the B2B lifecycle on bank rails.
Some financial institutions are already rethinking their approach to B2B commerce. For example, approximately two-thirds of community banks and credit unions connect to at last one faster payment rail, Aite Group finds.
Fifty-one percent of institutions connect to one faster payment rail, while 12 percent offer connectivity to two faster payment rails and one percent offer connectivity to three faster payment rails. Eight percent of community banks and credit unions have implemented RTP.
But the real call for action here is solving B2B problems by digitally connecting trading partners.
With investors pouring billions of dollars in fintech startups, banks must ramp up their own digital capabilities and expand their B2B offerings in order to survive. It is important for banks of all sizes to differentiate themselves from the increasing number of players offering B2B commerce solutions.
A2A solutions help do that.
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