Noel Smith, Business Development Director, Transact Payments
Clearly, the fintech industry is currently in an exciting (and booming) age. Fast-scaling startups are offering a plethora of innovative services and products to meet the ever-growing demand from consumers, who now have the ability to instantly (and seamlessly) move money.
The pace of change is simply staggering. In less than ten years, venture capital (VC) investments in fintech companies worldwide increased from $1.89 billion (2010) to $53 billion (2019). Even more profound, 69% of adults, roughly 3.8 billion people, now have an account at a bank or mobile money provider, an important step in making banking as inclusive as possible. More recently, the impact of the Covid-19 pandemic has even pushed the most hardened devotees of notes and coins to rely on digital payments at last. Within this innovation revolution, more and more hyper-targeted and personalised products and services are launching each day.
When it comes to such business-to-business (B2B) products and services, the same, currently, cannot be said. In fact, the market has been quite overlooked in this fintech frenzy. For instance, digital B2B payments, across all industries, have lagged significantly behind consumer payments globally. Digital payments aren’t the only laggards though. Critical business financial processes, like reconciliation, invoicing, lending and reward have also struggling to see innovation breakthroughs.
Yet consumer fintechs are finding it increasingly difficult to truly differentiate themselves, due to such rapid innovation. Thus, the B2B market offers a real opportunity to innovate given businesses’ need to use digital solutions. This is especially driven by desires to optimise operational processes, obtain a competitive advantage, and also meet fairly significant regulatory requirements. With this in mind, it is safe to predict that the B2B market is likely to see a similar boom experienced within consumer fintech.
The fintechs most likely to succeed in this evolving B2B market are those that understand and build products and services which directly solve the inter-dependent needs of businesses. Currently, the financial operations of businesses are complex and siloed, leading to lost revenue and time. Fintechs which address this combination of needs, while also operating within the latest regulatory frameworks, are likely to be champions of this market transformation.
However, I believe four key innovations will help to change the B2B financial landscape in the coming years.
Digital payments become the new standard for businesses
There is already wide availability of technology that enables B2B digital payments. Yet, the majority of finance and accounting departments, within companies, have held steadfastly onto tried and tested payment methods like cheques, cash and traditional credit cards. Change can’t be put off forever though, as such methods have become unmanageable due to the swift rise in contactless, digital payments. We are already seeing a swift shift by many businesses to products, offered particularly by non-bank disruptors, that address their virtual needs.
Virtual expense cards become part of the (digital) wallet
In essence, virtual expense cards are prepaid cards for employees. This innovation enables a more sophisticated level of control for finance departments at companies, because these cards, in effect, approve a transaction before it takes place. This is because a unique card number can be generated for use on specific purchases. Thus, card details are protected from fraud as they are not shared with employees or merchants. The vast applications are obvious and virtual expenses look set to become a mainstream product that businesses of all shapes and sizes will rely on.
Barriers to borderless business lift
Today’s economy is truly global, creating a deep need for fast and secure cross border payments to suppliers and employees overseas. Currently though, just a minute fraction of the nearly $10 trillion cross border B2B payments every year are digital. Businesses are left with frustrating delays in making and receiving such cross-border payments, which in turn impacts heavily on day-to-day cash flow.
Beyond digitisation of cross border payments, innovations that can simultaneously solve multiple business problems will play a crucial role in driving much needed change. Integration of payments will need to be part of a full workflow solution, encompassing other elements including Smart contracts, financial management and accounting systems. This fully integrated approach will have many benefits, such as automating operational flows, improving internal processes and reducing the allocation of unnecessary resources.
Lending to businesses
Small to midsized businesses are often at the mercy of laborious and complex application processes when it comes to accessing funding, especially in the wake of the 2008 financial crisis. Fintechs are increasingly jumping into this space thanks to a streamlined application process, matched with swift underwriting decisions.
Running through all these exciting developments within the B2B space is the capability to offer a suite of tangible (and harmonious) business benefits. While many fintechs may be eager to offer such solutions, the payments ecosystem is underpinned by a requirement to understand the regulatory landscape before even launching these products or services.
Thus, experienced, well-connected payments solutions providers are the crucial first port of call for fintechs. Working with such a partner allows fintechs to transform an idea into a viable product or service that businesses both want and need.