Digitizing B2B payments

Outdated payment methods in need of modernization

While B2C is beginning to embrace digital payments in a fairly broad-based way, B2B seems to be lagging behind. There are structural reasons for this (apparent) resistance:

• Increasing diversity of possible payment methods in the B2B sector (bank transfer, cheque, direct debit, etc.), making it difficult to harmonize payments and move fully into the digital age;

• Each company has its own particularities, depending on the sector in which it operates, and payment terms vary according to that sector;

• A longer, more complex sales cycle than in the B2C sector;

• Finally, a certain conservatism that can generate resistance to change.

It's not uncommon for some companies to still operate on the time-consuming all-paper basis. However, professionals are gradually moving towards new uses, which require a complete overhaul of payment circuits. Furthermore, companies that offer their customers digital payment methods have an advantage in accelerating their development and increasing their leads. Finally, "traditional" payment methods suffer from a lack of guarantees and security. At a time when 100% digital and 100% secure solutions are available, this represents a loss of opportunity. All the more so since, according to Fevad ( Federation of e-commerce and distance selling ), 75% of B2B purchases will be made from a marketplace by 2022. These platforms save time and increase efficiency for companies, while enabling competition between suppliers.

The revolution in Open Banking

Fortunately, the banking sector is constantly changing, and so are our habits. The latest innovation is the Open Banking Since the promulgation of the DSP2 directive, this has become an obligation for all banks. This technology is based on opening up banks' information systems and sharing customer data with third-party players in the financial sector. The API (Application Programming Interface) is at the heart of this model. This technological advance enables all banking and financial players to connect to the bank's services and develop their own applications. Customers now have a single banking interface, giving them access to all the products and services offered by traditional banks, fintech neo-banks...).

The European Directive on Payment Services in the Internal Market Second Version (PSD2), which came into force in the European Union in January 2018, has thus helped to shake things up. These regulations aim to The directive aims to "modernize payment services in Europe, to the benefit of both consumers and businesses". As we have already seen, this directive has ushered in a promising new era: that of Open Banking. .

Generally speaking, PSD2 aims to facilitate the use of payment methods by making them safer and more flexible. To this end, it strengthens the security of payment transactions by requiring strong customer authentication and the implementation of enhanced security measures by banks. This innovation should enable banks to open up their information systems and share customer data with third parties, giving customers access to instant or deferred payment. The fact remains that, while the PSD2 directive is a good foundation, it has not yet been deployed to its full potential.

Despite its revolutionary potential, the Open Banking _is suffering from a certain delay in its implementation. Indeed, banks are reluctant to implement data sharing, which is causing difficulties in the effective deployment of this technology. However, _Open Banking would give customers access to new payment options, such as instant or deferred payment. By sharing data, they could also obtain financial products that are better adapted to their needs, and that can help them make better decisions.

When new players make their mark with innovative proposals

The development of _Open Banking _ has enabled the development of innovative new services, designed to modernize the somewhat dusty banking sector.

New players have appeared on the market, bringing with them many new promises.

Payment security (an imperative in the face of increasing fraud), transaction automation, the use of instant payment... All these fundamental issues, which concern business leaders first and foremost, now need solutions that meet their challenges. That's why many fintechs both European and French, have positioned themselves in the B2B payments market.

Driven by the health crisis and the urgent need to develop digital processes, the fintechs are doing well. In 2020, they raised nearly 830 million euros, according to the barometer of the France FinTech association. Payment services accounted for 15.3% of this total.

One of the main ways in which they stand out from the traditional players in the payments market is that most of these start-ups are positioned in a particular niche (digitization of expense claims, mobile payments, etc.), enabling them to devote all their energy and resources to a single theme.

Eddy Combier, manager of fintech Score Secure Payment is certain of this: "Payment is not just a flow, it's a real element of performance and loyalty". _

**Hero founder __Roland _**Jais Nielsen is certain: " B2B payment is a market in the midst of a digital shift that needed concrete solutions." Companies that have just embarked on a digitalization process are becoming aware of this: by relying on digital financial services that enable them to manage their fraud and payment-related issues, they improve not only their internal efficiency, but also their customers' payment experience.

New payment options

But what about these innovative payment solutions? Let's take a closer look at an innovation that promises to revolutionize both the B2C and B2B payment markets: fractional payments.

This is an alternative payment method, which allows customers to purchase the products they want and pay for them at a later date. As a general rule, companies specify to their customers the length of time they are expected to repay their purchases (e.g. weekly or monthly). Visit fintech operating in this market, such as AfterPay, Klarna or Younited Crédit have grown exponentially over the past two years. Between 2018 and 2019, downloads of "Buy Now, Pay Later" (BNPL) solutions increased by 162%, according to a March 2020 tracking report published by Pymnts.com. In other words, this new payment method has a bright future.

According to Gabrielle Thomas, Investment Director at BlackFin Capital, we are seeing " une extension to B2B". Solutions to enable companies to pay in instalments are beginning to emerge, although one aspect in particular remains to be fine-tuned: the regularity of payments. Hero offers a payment solution business-to-business, enabling them to make 3-installment payments free of charge to their B2B customers. It's a way of combating non-payment, securing cash flow and building customer loyalty.

There's no doubt that these new payment solutions, while yet to make their mark, have the potential to revolutionize the B2B payment solutions market.