Easing The Payments Innovation Deficit

Innovation in the consumer payments sector vastly outstrips innovation in the business payments sector but that need not be the case according to BottomlineBusiness Payments Roundtable participants.

The business payments (BP) sector has laggedthe consumer payments segment when it comes to innovation andnot for want of opportunity.

B2B payments in the U.S. market alone will rise to $23 trillion annually by 2020, according to Deloitte. Moreover, the estimated revenues available to banks, payment networks, and fintech providers globally is $2 trillion, said Brian Greehan, VP Channel Partner Sales, Bottomline Technologies, speaking at Bottomline’s June 12 Business Payments Roundtable. Yet 53% of businesses report usingpaper-based payment processes in whole or in part.

There are reasons why paper-based payment processes endure in the B2B sector.Business payments are more heterogeneous than consumer paymentsnoted Ben Ellis, SVP Strategy, Visa Business Solutions, Visa, another speaker. There are also a greater number of complicating factors involved such asdomestic versus cross-border, pay now versus pay later, one invoice versus multiple invoices, full versus partial payments, and situations where payments are not completed because services have not been delivered in a satisfactory manner.

And that’s all in addition to the challenge of moving money into distant lands. It is hardenough moving money over the major international corridors, like New York to London, but when off the beaten track where obscure regulations come into play, doing so can be confounding.

“The B2B space is just harder,” said Greehan.

However, Greehan has seen a “mindset shift” recentlyin the willingness of the three key business-payments players—banks, payment networks, and fintechs—to work together to solve the BP innovation deficit.

Banks are recognizing that they should not feel threatened by every fintech that comes along. Fintechs can accelerate banks’ time to market, their time to revenue. Fintechs, for their part, are beginning to appreciate that “banks are good at what they actually do—managing risk and managing credit,” Green said. Meanwhile, the payment networks (e.g., Visa) are as stable and secure as they have ever beendespite periodic threats from ventures like Apple Pay.

Still, pain points remain. “All our customers want something that’s easy to use, they want the best user experience, and they want speed,” said Uma Wilson, EVP, Director of Product Management, UMB Bank (UMB), another roundtable participant. One key challenge: Everyone assumes the payments’ receiving party has a clear understanding what they gave the payment for, but that is often not the case, said Wilson. The commercial payments industry has still not created a harmonious way to send as well as post payments.

“It’s not all about driving efficiency. We’d rather talk about quality in our discussions with customers,” said Wilson. This goes beyond moving from checks to electronic payments.

Quality? Data needs to be flexible, Wilson explains. “You can’t just go in with a cookie cutter and say, these are the number of characters that you can key in. People tend to abbreviate communications so that it often doesn’t make any sense to the receiving party.”

The roundtable followed byVisa’s announcement of a new blockchain-related payments initiative, B2B Connect, to accelerate cross-border business payments. The technology utilizes the open source Hyperledger Fabric framework from the Linux Foundation, in partnership with IBM.

Participants were asked:Where do banks stand today with regard to blockchain technology? Are they still evaluating it? Implementing it?

Banks have been asking themselves, “how can we use blockchain as a technology to solve problems?” according to Ellis . Visa’s new distributed ledger technology is permissioned, unlike Bitcoin, the best known blockchain use case, which requires proof of work, and faces scalability challenges. “A lot of the banks I’ve seen are evaluating it, they’re experimenting with it, they’re willing to engage, but they are not going to do it just for the sake of doing it; they’re going to do it to solve a problem.”

“Despite what banks may say externally about blockchain,” added Greehan, “quietly they’ve become the largest patent holders of blockchain-related technology.” For her part, Wilson noted that UMB is looking closely at implementing blockchain technology in part of its consumer lending space.

Overall, continued progress in BP innovation requires more trust and collaboration. Fintechs are now a part of the payments ecosystem, said Wilson, and the quicker banks accept that, the more rapid BP innovation will become. The mentality five years ago was “us versus them,” she says. “I think that is fading away.” With regard to fintechs, “the one thing they excel at is problem solving, and they have really taught us to remove barriers.”