The history of the business-to-business (B2B) payments industry is characterized by change. Leaders in this sector must thus focus on keeping up with the latest B2B payment trends if their organization is to survive such upheaval, and today’s whirlwind mix of rapid tech advances and economic difficulties make this more relevant than ever.
The global wave of digitization has not spared the B2B payment processing industry.
According to JP Morgan, the percentage of B2B check payments in North America dropped from 81% in 2004 to 33% in 2022. Globally, only 31% of businesses still make B2B payments by checks.
Similarly, a survey by Pymnts, the global payments media, showed that 64% of businesses now make payments electronically with only 28% still processing manual payments.
Traditionally, ACH (automated clearing house) credits and wire transfers have been the primary electronic means of settling B2B payments, especially for cross-border transactions. However, digital transformation and the search for greater efficiency have led to the likes of virtual cards, real-time payments, and digital currencies, which are changing the outlook for B2B payments.
In essence, the B2B payments market is undergoing a remarkable evolution.
“Since the pandemic began, we continue to see the adoption of a wide variety of digital B2B payment solutions,” said RJ Ancona, vice president and general manager, B2B, of the National Client Group at American Express. “In particular, organizations have really leaned into the adoption of AP [accounts payables] automation solutions and, as a result, we also see their suppliers relying heavily on AR [accounts receivables] automation partners to accept and apply these payments with efficiency.”
Keeping a tab on these trends can be a very difficult task for business executives.
For business leaders to best understand this evolution, it is good practice to study and break down current trends in the B2B payment industry and how they can be deployed to improve business efficiency.
Continue reading for 11 of the most important B2B payment trends in 2023 and how each of them promises to make B2B payments more effective and efficient for all stakeholders.
[Do you want to keep your business on top of B2B payment trends? Schedule a free assessment with us to learn more about how you can digitize your payments]
1. Real-time payments are now universal
The JP Morgan study quoted below shows that 2% of B2B transactions were settled by real-time payments (RTPs) in 2022. In 2019, this payment method was almost non-existent.
Simply put, real-time payments (also known as instant payments) are “payments made between bank accounts that are initiated, cleared and settled within seconds, at any time of the day or week, holidays and weekends included,” according to MasterCard.
A report from ACI Worldwide, a payment company, shows that 70 countries have already adopted real-time payments, with $195 billion worth of transactions being processed through RTP in 2022. They expect a 21.3% compounded annual growth rate (CAGR) between 2022 and 2027 (driven by brand identity, merchant acceptance, and government implementation) by which time $511.7 billion worth of transactions will be processed through RTPs.
Similarly, Grand View Research, a global research firm, valued the US industry at $2.3 billion in 2020 but expects it to grow by 30.9% CAGR between 2023 and 2030.
Grand View attributes this high CAGR to increased demand for quicker payment settlements, greater investment in RTP by financial institutions and governments, and the incorporation of AI and IoT in digital payments.
Speed is among the most attractive features of RTPs. It gives suppliers the ability to receive payments instantly instead of waiting for days for checks to clear or for ACH transactions to be processed.
But speed is not the only thing that RTPs offer. MasterCard believes that “immediate payment reduces the amount of money locked in processing, improving cash and liquidity management for businesses and giving consumers a much clearer picture of their finances.” They also note that RTPs can improve the reconciliation process, make it difficult to renege contracts, and also enhance financial inclusion.
“A full 81% of businesses said that real-time payments will dramatically transform the way they conduct their day-to-day business,” according to Pymnts, “and 66% expect that real-time payments will eventually supplant paper checks and cash entirely.” As a result, RTP support is now the most important factor when businesses choose banking partners, according to respondents to a Treasury Today survey.
2. Virtual cards have surged post-COVID
The Pymts survey quoted above noted that “e-payables via virtual cards” trails behind only ACH transfers in usage. According to the survey, the surge in usage began in the hospitality sector on the heels of COVID-19 when they experienced a 300% increase from the start of the pandemic through May 2021.
But what surged in the hospitality sector has become more popular for supplier payments across various industries and virtual cards (2% of all B2B payments) are getting close to displacing B2B credit card payments (3%) according to the JP Morgan chart above.
“Virtual cards are a type of payment tool that works much like credit or debit cards, except the card numbers are randomly generated and do not exist in a physical manner, adding a level of security that only enhances their appeal,” according to Pymnts.
Juniper Research, a global market research firm, valued the transactions done by virtual cards at $1.9 trillion in 2021. More importantly, they now expect that $6.8 trillion worth of transactions will be done via virtual cards by 2026, of which 71% will be in the B2B space.
The US market will grow by 20.7% CAGR between 2023 and 2030, according to Grand View Research.
For Grand View Research, the security feature of virtual cards (via tokenization) will be the most important driver of adoption and growth: “By integrating tokenization within these cards, merchants can transfer data between networks while protecting their customer’s vital information.” Furthermore, “tokenization technology within virtual cards offers multiple benefits, such as a better user experience, reduced costs on protection, and others for both businesses and customers.”
Matthew Shanahan, VP of Strategy at Sage Network, a connected accounting company, also adds that the connection of virtual cards to a specific digital wallet rather than to the business’s bank account reduces the risk of data exposure, payment fraud, and accidental payments.
Furthermore, “[virtual cards for AP processing] creates a lot of efficiency, a lot of traceability, a lot of control and security as a result of that. And it’s very convenient. It’s less expensive when you’re doing it that way.”
Pymnts also emphasizes other advantages like:
- Elimination of operational disruptions
- Fast purchases
- Availability of spending data
3. Digital currencies are hitting the B2B mainstream
Bain and Company believe that digital currencies have the potential to affect 5%-10% (or more) of the global payments industry by 2030. This is on the eve of increasing interest in digital currencies from central banks, global banks, and digital native Fintechs.
By digital currencies, Bain and Co refer to Central Bank Digital Currencies (CBDCs), stablecoins, tokenized bank deposits, and cryptocurrencies like Bitcoin and Ethereum.
Digital currencies can be advantageous for B2B players by providing instantaneous settlement (just like RTPs).
According to Bain and Co, digital currencies improve liquidity and automation, provide richer data sets, and are most cost-efficient. The use of smart contracts also helps to make payments more conditional and programmable.
One area where digital currencies can make an impact is B2B international payments (cross-border payments). “We still need several intermediaries to conduct a cross-border payment, which makes the process slow, costly, and fraud-prone,” said Britta Döttger, Group Treasurer, Hoffmann-La Roche, a pharmaceutical company. “However, if central banks were to introduce token-based CBDCs, this could change. Central banks should play a key role in reshaping the future of money.”
No wonder that 87% of Central Banks are already researching CBDC with Europe making the most progress.
Regarding digital currencies as a whole, Visa, and MasterCard are already attempting to blaze the trail through collaborations with players such as Coinbase, Bakkt, Gemini, and BitPay. The aim is to use digital currencies for everyday payments on their networks.
The future potential of digital currencies is also tied to developments around Web3 since the former will be used for transaction processing in the latter.
However, unlike the other trends we have considered so far, the future of digital currencies is closely tied to the regulatory decisions of governments. The chart below shows what adoption and regulation look like at the moment:
It remains to be seen how all of these will change in the coming years. Nevertheless, the benefits of digital currencies and their potential to transform B2B payments (especially cross-border payments) are not in doubt.
4. Half of B2B marketplaces are using BNPL
Buy Now, Pay Later (BNPL) is one of the top developments that have come from the embedded payments and embedded finance ecosystem.
Though it’s seen most success in the B2C market, the application has been extending to B2B use cases as well.
BNPL allows businesses to purchase supplies now and pay for them over multiple future installments (through the same digital channel). This is different from a typical trade credit which requires full payment at a particular date.
According to Order. co, a procurement and payment management firm, B2B BNPL is advantageous for suppliers and buyers (especially small businesses). Suppliers are confident that they will receive full payment for their supplies (since the third-party channel managing payment guarantees it) and buyers who are short on cash can quickly get the supplies they need and arrange payment terms that will match their cash flow.
Other benefits of B2B BNPL include safe and fast transactions, better cash flow management, faster business growth, and fewer invoices.
There are already many players in the US and European markets extending BNPL to the B2B market and experts expect the trend to continue.
In 2022, Alex Moazed, CEO of Applico, a business consultancy firm, noted that about 50% of all B2B marketplaces have started or planned to roll out a B2B financing solution. Similarly, Hokodo, a BNPL provider, highlights Citi, BNP Paribas, and Deutsche Bank as the top banks already working on partnerships with B2B BNPL providers.
5. Open banking is safer than ever
Open banking is a system where third parties can freely access banks’ data to provide improved services to their customers. This interfacing between banks and third parties is done through the use of APIs.
Accelerated and secure payments are two of the top benefits of open banking. By allowing payment processors to quickly access the banking data of users, transactions can be completed in no time. There is also a reduced risk of cyber attacks since payers no longer have to input their bank details into payment processors.
Open banking can also make bank transfers cheaper than card transactions thanks to lower processing costs. To summarize, “with the payment initiation side of open banking, businesses could use payment products that improve cash flow, lower costs, increase visibility and control, and reduce fraud,” according to GoCardless, a digital payment company.
Allied Market Research, a market research firm, valued the open banking market at $13.9 billion in 2020; they expect it to become a $123.7 billion market in 2031 (at 22.3% CAGR), with payments and banking and capital markets the main players and drivers of growth.
They attribute this expected growth to the increase in the use of new wave apps and services, and better collaboration between financial service providers (traditional and fintech), among others.
6. Payment Orchestration is making life easier for B2B firms
Report Linker, a market research firm, expects the payment orchestration (PO) market to grow by 22.4% CAGR and attain a $3.7 billion valuation by 2028.
Electronic Payments International, a media platform dedicated to all things digital payments, defines payment orchestration as a system that “allows businesses to route payment flows from all its payment service providers (PSPs) and payment methods (such as card and digital payments), into a single place.” It “tackles payment complexity by connecting businesses to several PSPs through a single efficient integration.”
PO works with multiple payment methods including virtual cards and open banking (and the others we have discussed). Its main appeal is how it can make life easier for businesses that only have to manage a single platform (the Payment Orchestration Platform) irrespective of the number of payment methods their customers use.
It also reduces transaction failures (by routing transactions through the most appropriate channel) while automating the reconciliation process and providing important analytics and reports.
7. Payment option flexibility is the “future of e-commerce”
“Flexible payment technologies are the future of e-commerce, and those who embrace the future are the ones who will succeed in the long term,” said Big Commerce, a firm providing tech solutions for e-commerce platforms.
Payment option flexibility means businesses are providing their customers with payment methods that they are most comfortable with (be it virtual cards, credit cards, BNPL, digital currencies, contactless payment, or RTP). Instead of offering one or two of these options, businesses offer them all, allowing customers to choose whichever suits them.
This approach has already been embraced with embedded payments, PO, among other innovations.
Though embedded payment became popular with B2C marketplaces and platforms, usage has been extending to B2B companies. “The introduction of new payment technologies such as blockchain, digital wallets, and mobile payments has enabled payments to be integrated directly into business processes, eliminating the need for manual processes, and increasing efficiency,” said Finance Magnates, a financial and business news website.
With embedded payments, B2B consumers can pay for B2B orders from the supplier's website without being redirected to a separate website. They can also use multiple payment methods while remaining on that site.
8. Cybersecurity is embracing advanced technologies
Cybersecurity is arguably the thorniest issue within the world of digital payments.
Origin Stamp, a blockchain timestamping firm, identifies three main classes of cyber threats: data breaches, phishing scams, and ransomware attacks.
Businesses and financial institutions have been embracing various cybersecurity strategies including multi-factor authentication, biometrics, and other AI-driven fraud control systems to protect themselves.
Artificial intelligence especially has been an important component of cyber security in recent years. Merchants and financial institutions now use AI “to streamline operations and beef up anti-fraud efforts,” according to Pymnts. This is because “AI, in combination with machine learning, can analyze large data sets in real-time, giving firms the information they need to safely execute payments or stop them.”
In addition, US financial institutions and businesses that accept credit card payments must comply with the Payment Card Industry Data Security Standard (PCI DSS) while payment providers must also comply with the Electronic Fund Transfer Act.
Compliance with AML (anti-money laundering) and KYC (know-your-customer) directives is also vital for all types of businesses.
As long as innovation in digital payments continues apace, then concerns over cybersecurity will always remain.
According to Fortune Business Insights, a market research firm, the global cyber security market will grow from $172.32 billion in 2023 to $424.97 billion in 2030, at a CAGR of 13.8%. The adoption of machine learning, IoT, Big Data, and cloud technology, and the growing number of e-commerce platforms will drive this growth.
9. Digital invoicing is a key growth market
None of the advances in B2B payments can be realized without digital invoicing.
For B2B customers to pay their suppliers digitally, they must receive invoices digitally.
“Digital invoices contain links that allow buyers to pay online using ACH, a payment card, or an online payment provider like PayPal,” said Jot Form, a platform for creating professional forms. It is through this form that links to a website, POP, or other payment platform can be embedded.
It’s not surprising then that digital or electronic invoicing has been growing with other B2B payments technology. And like them, the expectation is even more growth going forward.
IMARC Group, a market research firm, expects a 20.32% CAGR in the market, taking it from $11.2 billion to $35.9 billion between 2022 and 2028.
10. 50% of B2B payments will be made via APIs this year
Instead of building their own payment infrastructure, many businesses are now embracing API integration with platforms providing the solution they are looking to integrate.
In embedded payments, for example, many platforms, marketplaces, and independent businesses are using payfac-as-a-service instead of the platform-as-payfac model (building and managing their own embedded payment infrastructure).
The same thing is evident with PO. As we have seen, businesses use APIs to integrate with a POP that will help them streamline payment processing.
Open banking, as discussed above, also depends on APIs for its effectiveness.
No wonder then that in 2022, Pymnts reported that half of B2B payments will be done via APIs by the end of 2023.
This shift will lead to faster transactions, easier reconciliation, and better data aggregation. As Opus Consulting, a payments technology consulting firm, puts it, “In the payments space, APIs drive real business value in the form of improved customer experience, reduced costs, and innovation.”
How big will the API management market be? Precedence Research expects a 31.05% CAGR that will move the market from $5.37 billion in 2022 to $46.74 billion in 2030.
11. Customization and personalization have been brought to payments
The need for customization and personalization has been emphasized over the years in advertising, marketing, and customer experience trends.
In recent times, the emphasis has also been extended to the world of B2B payments.
One example is white label payment gateways. With this, businesses are customizing their payment gateways with their own brand identities and requirements by working with third-party facilitators. This reduces the need for them to set up their own payment gateways from scratch while also improving enhancing their brand image and improving their brand awareness.
Another trend in this regards is the growing popularity of white label prepaid cards. These are branded and customized cards that businesses can create and give to their customers or suppliers. They can preload these cards with specific amounts that can be used once or reloaded from the company’s platform.
The global prepaid card market was valued at $2.5 trillion in 2022 by Allied Markets Research and they expect it to grow by 19.5% to become a $14.4 trillion industry in 2032.
Since 2020, virtual prepaid cards have especially been on the rise. Accordingly, Juniper Research expects a 280% growth to take the market from $2.4 trillion in 2022 to $9.1 trillion in 2027.
Moving with the trend: Getting started with B2B payments
Providing digital and electronic payments for your B2B consumers is essential to survive in today’s digitized environment.
At Berkeley Payment, we help B2B organizations across various industries collect and make payments in a quick, cost-efficient, and safe manner.
We do this by helping them deploy real-time payments and branded virtual cards. You can make payments with our virtual cards and you can receive payments with our real-time payments solutions.
We also provide various cybersecurity solutions for our users including KYC and AML compliance, as well as fraud detection and prevention. Furthermore, we provide personalized, flexible, and scalable solutions that will meet your business’s payment needs.
Accessing our platform (and our suite of solutions) is easy. All you need is to integrate our API with your company’s existing solution/software/website.
By using Berkeley Payment, you will be joining a list of elite companies like Coca-Cola, Nestle, Hyundai, and Volkswagen who trust us with their payment needs.
[Are you ready to stay ahead of B2B payment trends and digitize your payment system in the most effective way possible? Schedule a complimentary assessment with us so you can learn more about how we can transform your organization with our payment solutions.]
Takeaways
- Paper checks are playing a less significant role in the B2B payments landscape thanks to various digitization efforts.
- The digitization efforts continue with real-time payments, virtual cards, digital currencies, BNPL, open banking, and payment orchestration, among others, expected to become more dominant in 2023 and beyond.
- These B2B payment trends promise to make payment faster, less expensive, and more secure for all involved.
- Businesses in the B2B world must get ahead of the curve by incorporating these B2B payment trends into their own payment structures.
