Banking and B2B Payments Innovation: Fixing The Imbalance Between Buyers and Suppliers

Accounts Payable New Technologies Keep Emerging, What About Accounts Receivable?

Accounts payable (AP) has seen a bounty of new technologies introduced over the last twenty years leading the charge with robust innovation. Accounts receivable (AR) organizations have not evolved as quickly technologically and still use many manual, paper-based processes. As a result, there is automation on one side of the cash flow equation and a manual process on the other. What does this mean for interactions between buyers and sellers in the B2B space? We’ll touch on this question in this post today and provide you with a link to an article and podcast for a deeper dive. 

What Does This Technology Gap Mean For The B2B Cash Flow Equation?

WEX’s SVP of Product & Strategy, Mark Aquilina, was recently interviewed on the PYMNTS podcast and talked about the imbalance within the world of B2B payments. 

On the podcast, Aquilina discussed financial services companies being aware of the gap between AP and AR and wanting to bridge that gap. What he pointed out was the lack of AR focus on technology preventing them from keeping up with the speed at which the AP side of the house is adapting and changing with the times. As Aquilina puts it, “There are a lot of people in the industry talking about bridging the AP to AR chasm but not enough people… (There is a) lack of acceleration on the AR side to match the speed of acceleration on the AP side.”

Why does this imbalance matter? Because one side of the cash flow interaction is faster and more efficient than the other, which results in a bottleneck. “At WEX, we’ve identified what we call the B2B chokepoint that’s created by the acceleration of AP automation tools and products that is not matched by the acceleration of AR products and tools. It’s created this chokepoint in the industry where more and more people are trying to push more and more invoices and payments to suppliers but those suppliers don’t necessarily have the technology or the automation to accept all those payments at once.”

Historically Fintech Pays More Attention To Buyers

This imbalance between AP and AR is not a new thing, but rather dates back decades. “Historically, the industry has always focused on the buyer. So when commercial card products started coming out there was this focus on the buyer and the buyer using the card. And then when rebates started coming out in the early 90s, late 80s, all of that focus really generated heat around the buyer and cardholder that was not matched by banks on the supplier or merchant side.” Aquilina goes on to talk about how this has been a historic legacy in the industry “where fintechs, banks, card providers and program managers have always focused on the buyer more than the supplier.”

How Well Does The Open-Loop Network Work In B2B Payments?

There hasn’t been a real diversity of economic models across open-loop networks. “Cards have historically been one-size-fits-all…When suppliers have been asked to accept cards it’s really kind of been forced down their throats unfairly and typically with economics that is unfair to the supplier as well.” Suppliers have been slow to adapt while at the same time buyers come to the table expecting that suppliers have evolved as they have. That disconnect is causing dissonance in the space.

How Do We Fix The Problem?: Three Factors To The B2B Chokepoint

The question is, what do we do about it, and how does the industry support change for the AR side of the house? Aquilina describes three key factors that are attributing to the B2B chokepoint. 

The first key factor is the antiquated transaction pricing and static payment methods and models that are tied to card products. As Aquilina describes it, “In ACH, and check, if you think about the types of payment form factors, with cards there are really standard large market rates for large companies, there’s a single standard small business rate typically for small businesses and then on ACH and check there are static economic models associated with those forms of payment form factors. The static nature of the economics associated with payment methods is one issue that we see in the marketplace.” The static nature of the economics of payments is one contributing factor to the B2B chokepoint currently being experienced in AP and AR transactions.

The second key factor is the highly manual nature of the reconciliation and invoice processes that occur. “The majority of virtual cards – say a $250 billion marketplace in 2019 – over 95% of those virtual cards that amount to that $250 billion in U.S. domestic volume are all sent via email. So when you have a tremendous amount of volume all sent via email to these suppliers, the suppliers themselves have to stop everything they’re doing, open up an email, and key in those invoices.” Card acceptance still requires a highly manual process and really, all invoice acceptance does. “In AP automation they try to provide as much data into the suppliers’ ERP as possible but there are always invoices that are exceptions whether they’re card or check or ACH there are always these exception payments where someone has to email the supplier the payment method, the invoice number and the data associated with those payments and so there’s a great deal of highly manual reconciliation processes and payment processes associated with the B2B space.” 

The third key factor to the B2B chokepoint in AP and AR transactions is the one-off automated technologies that are not universally shared across companies. These one-offs cause logjams and excess wasted production time for staff. “There are these islands of automation that occur in the B2B space (that) just create an overall lack of AP to AR integration. Some buyers are leveraging one AP automation product. Other buyers may be leveraging a second AP automation product. If you’re accepting payments as a supplier you may be seeing payments come to you in language one from AP automation company one and language two from AP automation company two.” What happens is inefficiencies and lost profit as a result of the myriad different tools being leveraged.

We Need Middleware Integrators To Bridge The AP To AR Chasm

We have antiquated and static pricing models within B2B payments, paired with the highly manual nature of payments and the manual reconciliation processes that occur, and what results is an overall lack of AP to AR integration. So what can be done? Aquilina proposes that what is required is for fintechs to adopt the role of middleware integrators and provide the necessary connection points between AP and AR technologies. “Fintechs are becoming middleware integrators. WEX itself has a number of these platforms. We’ve got the card issuance platforms, we’ve got the integrated payables platforms that take in the payment instruction file and route it to the card or check or ACH. WEX has got payment delivery systems that leverage agents, supplier enablement capabilities, and then robotics to deliver payments directly into a supplier’s ERP system. You’re going to need to find participants like a WEX or even like the Visas or the MasterCards where both Visa and MasterCard are trying to create these network of network solutions. You’re going to need some kind of a middleware player that’s going to tie these different islands of technology to different pockets of AP automation technologies. That’s where we’re going to start seeing adoption when we see more of these middleware players that are tying multiple AP automation technologies to multiple AR automation technologies.” Middleware integrators will alleviate the pressure the payments chasm is putting on AP and AR interaction and make the processes and practices more efficient and cost-effective overall.

Payments Changes Due To COVID Are Here To Stay

We’re unlikely to return to the way B2B payments were transacted before the pandemic as COVID-19 has trained a spotlight on B2B payments inefficiencies. WEX approached (E) BrandConnect earlier this year to conduct research into the state of business-to-business payments, and this research had results that reflect this analysis. “Companies are learning how to be more efficient, do more with less, do more with technology and I don’t see that going away post-pandemic. I think these processes will stick. What we’re seeing in the supporting research is that 83% of our respondents agreed that they had to deliver new business efficiencies and new sources of revenue for their customers in a post-pandemic economy. We saw it very clearly in the (E) BrandConnect survey. We’re seeing it in the FI partners that WEX deals with – with the large in-corporates that we’re dealing with.” These companies have historically talked about bringing AP automation software or automating processes into their businesses and the pandemic has created an environment where it makes sense to finally take action and do so. In many instances, companies see that 2020 is going to be a terrible financial year, which ironically makes it the perfect time to introduce new processes. “What they’re saying is, ‘We know we’re not going to hit our goals, let’s use this time that we’re given in this terrible financial year to focus on some infrastructure activity.’ We’re seeing this across in-corporates, across financial institutions, and across large suppliers – instead of them focusing on how to drive the next dollar of revenue in 2020 we’re seeing them – where they have resources – focus those resources on infrastructure projects.” 

What’s Predicted In Payments For 2021?

In 2021 Aquilina predicts we’re going to continue to see more and more of these automation trends be brought into production because people just don’t physically want to touch payments. Digitization will become the norm: “What we’re seeing across the merchants that we touch, the financial institutions that WEX touches, and the large customers that we work with is that they are making investments to their infrastructure that are taking paper and manual practices out of the process.” The trend for payments as we close out 2020 is integration and technology and 2021 will be an exciting year to watch what AP and AR do to coalesce and create better processes for the future.

To learn more about the AP/AR technology gap, click here to listen to Mark Aquilina on the PYMNTS podcast. 

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