How Is FinTech Impacting B2B Payments?

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Consumers are adopting peer-to-peer FinTech technologies in their everyday lives, from electronic wallet solutions to mobile money transfers. Online payments in e-commerce no longer faze consumers, with the total global market for e-commerce projected to surpass $2.4 trillion this year, for approximately 10% of the global retail market.

Global P2P payments are projected to reach $540 billion in 2017 in mobile payments alone. With such a huge market opportunity, it is not surprising to see so that over 1,000 FinTech companies are active in payment technology development.

While the P2P and C2B payment market is undoubtedly a huge opportunity, FinTech companies have begun targeting a much larger opportunity, namely the B2B market. The B2B cross-border payment market alone is valued at over $150 trillion, over 60 times the e-commerce market, creating a lucrative market opportunity for FinTech companies.

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Traditional B2B Payments Suffer from Numerous Limitations

Traditionally B2B payments are a complex and time-consuming process, fraught with high levels of bureaucracy and manual reporting. Payment, or payment receipt via check, requires the issuing of the check, deposit, monitoring the clearance of the check, and manual update of payment management systems. Checks also involve float times which affect cash flow, as well as a certain degree of security risk. This outdated payment method still makes up half of all B2B payments in the US.

Alternative B2B payment methods include ACH (American Clearing House), which connects all US financial institutions and enables electronic fund transfer within the US, and international payments via the widely accepted SWIFT, both in exchange for fees. Limited transaction visibility and the complex data processing still required with these payment options, however, continue to demand resources from businesses worldwide.

FinTech Innovations Answer Business Payment Challenges

Focused on the development of secure and easy-to-execute payment methods, FinTech companies offer a number of solutions which will likely impact the B2B payments market in the coming years. Traditional banks and financial institutions are increasingly partnering with FinTech companies in order to maintain their market share within the B2B sector. The following is a brief overview of some of these technologies and the implications for B2B payments:

Blockchain Platforms

Blockchain is a highly secure P2P network of transactions. Each blockchain is typically associated with a cryptocurrency, though in theory, this technology can be used to trade in anything of value. Transactions executed over this platform create a real-time record, called a “block,” in the public distributed ledger, which is added to the “chain” and shared with thousands of computers in the network, ensuring security.

At any given time, all records must add up, and due to the distributed nature of the ledger, it is virtually impossible to generate sufficient resources to bypass this security measure. Both sides must approve the transaction before it is executed, with no third party involved, to increase security. This highly secure platform, which offers increased transparency and real-time remittance of funds, is a key focus for B2B FinTech innovation. For instance, in October 2016, Visa partnered with Chain to jointly offer a blockchain payment platform for B2B payments.

Payment Processing and Management Platforms

Focused on B2B and B2C payment management, these processing platforms provide businesses with a powerful tool for managing their outgoing and incoming payments — all from within one central platform.

Typically offering flexible payment methods and multiple currency support, payment management platforms are a strong tool for today’s global economy. They usually offer merchants the flexibility of choosing between a variety of payment methods such as electronic and mobile wallets, prepaid cards and electronic money transfers for payment or fund receipt.

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