Growing both in popularity and necessity, digitized payments have paved the way for consumers across the globe since the COVID-19 outbreak. With stay-at-home orders in place, consumers have had to find alternative means to get hold of the items they need. From groceries to electronic goods, fitness equipment to facemasks, the B2C sector has seen an evident boom – but what about the B2B sector?
The B2B market is worth $130 trillion, with a 5% compound annual growth rate, Bain and Company report. COVID-19 has wrought immeasurable damage, with some company giants folding under the strain. 60% of global accounts payable (AP) volume come from industrial, real estate and consumer discretionary purchases, which are amongst the hardest-hit sectors.
Following the accelerate of online commerce, the B2B payments ecosystem has embraced digital transformation. Corporations are moving away from more traditional paper-based payment processes in favor of digital workflows that raise efficacy, improve customer experiences, and ultimately support data-driven methods of growth and innovation.
With trillions of dollars at play, financial institutions, from enterprise to start-up, should be looking at ways to monopolize this new growth opportunity. However, no opportunity comes without risk. In the payments sector, one mistake can be costly, especially when one errant transaction can cost a business millions of dollars in losses.
These challenges have largely been eroded by a combination of technology and location data solutions that are making it easier than ever for financial institutions to verify and standardize customer data, increase customer satisfaction, and grow revenue.
This article will look into the rise of digitized payments in the B2B sector, what it means for revenue streams moving forward, and the role location data can play in attaining successful digital transformation.
EY’s America’s Payments Consulting Leader, Jennifer Lucas, says that the pandemic has generated as much as ten years’ worth of growth across both B2B and B2C sectors, citing: “The payments world is transitioning to digital-first, and there’s no turning back.”
Hand-in-hand with the growth in digitization is the growth in user adoption. In Visa’s ‘Merchants and consumers turn to tap to pay as part of new daily routines’ report of April 2020, they note how contactless usage in the U.S. grew 150% since March 2019. Worldwide, they’ve worked to raise the contactless transaction limit to minimize the number of times cardholders are required to touch a checkout terminal to complete a purchase.
It’s easy to look at these solutions and think they could just be quick-fixes to combat the pandemic and the limitations it has wrought on consumers. But many believe they are here to stay.
In a conversation with PaymentsJournal in March 2021, Sam Kies, Director of Account Management at Mastercard, said: “We see those trends toward digital really manifesting, and particularly B2B payments with the importance of a digital card.” He continues to cite that the pandemic is forcing workforces to look at archaic practices and consider what is no longer fit for purpose for a digital world.
Practices such as relying on paper copies and manual processes to complete payments are two such areas. This understandably fell apart during various stay-at-home demands, with workforces unable to use their standard office equipment to complete orders.
This urged a change in methodologies, which is where the digitization of payments excelled. In the same conversation with PaymentsJournal, Harry Harnett of BBVA said: “COVID and the whole work-from-home dynamic immediately complicated how invoices are being sent, how they’re being received, how they’re being processed, and even how payments are now being made.”
Digitization isn’t something that came about overnight. For most B2B companies, digitized processes have been available to them for years, but the methods haven’t been implemented.
For the risk-averse, changing something that ‘works’ for something unknown might have seemed like a leap too far, with the adage “if it ain’t broke, don’t fix it” coming to mind.
But when COVID-19 struck, manual processes were – at least temporarily – broken. With employees unable to complete their by-hand processes at home, there had to be another solution to make sure B2B’s accounts payable (AP) and accounts receivable (AR) sectors were working.
According to EY, when participants of a recent webcast were asked what their concerns were about digital payments, 68.5% cited digital security as the factor most valued by customers in a payment experience. Although predominantly for a B2C audience, this same fear can penetrate the B2B arena – especially when large amounts of money are in play.
In Pyments’s ‘Digitizing B2B Payments: Moving From Paper Checks To Digital Payments Choice’ report of April 2020, it’s said that “Many businesses cannot jump from established AR and AP systems to digital solutions, while other may not wish to make such shifts,” citing “budgetary concerns, infrastructure issues, and security worries prompt them to slowly and carefully approach such innovations.”
Although the results of digitizing payment processes are clear to see and have in some instances saved companies from being taken under by the pandemic, the inherent fears in changing known techniques for the unknown still remain, and will be a barrier to entry for some time.
Location Data: Connecting the Physical and Digital Worlds
As new business strategies develop by blurring the digital and physical worlds - it is worth noting the power of location that connects these two. Understanding when and where someone or something of interest is can answer a plethora of questions. In the case of digitized payments, a customer's address is required for a number of sensitive processes. Without access to valid customer information, B2B businesses risk low-quality data entering their online systems – something that can have grave downstream effects in the long haul. Let’s take a look at a few of the pain points currently affecting the B2B payments landscape and how high-quality address data can help:
High processing costs: It costs a typical (AP) organization nearly $8 to process a single supplier payment. With high processing costs becoming a significant challenge with traditional payment methods, businesses have very little space for errors caused by inaccurate supplier information.
Payment delays: Payment delays can result from declines in payment from suppliers or slow payment processing methods. Accurate address data can make it easier to validate the identity of customers and suppliers, accelerating credit card validation and ensuring the right people get paid expediently.
Fraud risk: When it comes to handling money, the risk of fraud is always heightened. Even with measures in place, skilled fraudsters can still run rampant. Address verification tools provide an additional level of security, easily matching address data to the prospective supplier/buyer and verifying their identity before authorizing any transactions.
Digitization of paper processes is the way forward for life in 2021 and beyond. But this fact doesn’t negate the fears and worries of those in AP and AR positions, forced to use technologies they aren’t yet comfortable with.
To keep afloat during turbulent times for businesses and industries alike, moving at pace with digital means is the solution - but the time when all companies are harmoniously embracing digitization of payments within the B2B sector is still yet to be known.
As businesses transition towards becoming strong digital competitors, they must understand the role of location for making data-driven decisions. Businesses that prove effective at leveraging location data to create location-aware experiences will be the ones that thrive as the benefits and use cases of location intelligence become more widely known.
Loqate’s Global Partner Program can ensure that your data contains correct address information. Built by aggregating multiple data sources into a single master reference to any location worldwide, our solutions support the capture of accurate address data and can enrich any address with latitude and longitude coordinates for pinpoint precision.