By Thayer Stewart, CEO, PaymentWorks, Dec 15, 2020
Everywhere you look, the statistics on B2B payments point to a rapid rise in the adoption of digital payments. Checks are still around, of course (and continue to cost businesses money to process), but according to a report from Statista, ACH credit transactions have taken over as the number one choice for B2B payments.
In 2019 alone, the nonprofit group Nacha found B2B payments on the ACH Network had reached an all-time high citing a whopping $4 billion in B2B payment transactions. Given the impact of the pandemic, this number is sure to rise for 2020 as well.
Despite this progress towards electronic payments, manual processes still drive many underlying B2B payment processes. For every ACH transaction that is pushed out through a financial system, at the heart of it all is a vendor master file that houses the identity credentials for all the various third-party suppliers that an organization makes payments to over the course of a business relationship.
Very often, this critical component – the lynchpin to the entire payments process – is not digitized and is instead reliant on two things – people and paper forms. That manual foundation creates errors and delays that undermine even the best efforts of world-class AP organizations.
What’s ahead for digital payments?
So how do we merge the push for digitized payments with the traditionally manual nature of these processes? Let’s look at three predictions for how this movement will impact the B2B payments market now and in the near future.
Short term prediction: 2021 is the year antiquated vendor forms finally become extinct
It has just got to go. No one who deals with the payments process will miss dealing with antiquated vendor forms. Instead of a paper-based process (often accompanied by phone calls and, yes, even faxes!), all of the credentials will be collected from third-parties electronically. Digitizing the process ensures the credentials will go through various identity proofing and verification before being incorporated into a financial system workflow, and payments are ultimately made.
Near-term prediction: The digital B2B payments process will rely on business payment directories.
The world is already moving towards this model by enabling people to verify bank account ownership for a business entity. In some instances, this already exists in pockets, but this will expand more broadly in a global registry format in the future.
To make that a reality, these directories will have to overcome a reluctance to store all that sensitive information in one place. A distributed blockchain would be one way to mitigate the problem as the information itself would not be stored in the blockchain but would point to a trusted data source.
In short, companies storing banking information in their systems will be a thing of the past. Instead, payment instructions will be sent to the bank where there are tokenized credentials. The bank then goes to the trusted authority, this business payments directory, to verify it is a valid business and should be paid. Companies can register with the trusted authority in advance (showing proof of identity through bank accounts, passports, insurance certificates) to streamline the process. Remember, banks don’t care where the money is going – as long as it’s not a criminal organization – they simply want to complete the transaction and pass the payment through.
So, where do these trusted authorities come from? Private enterprise has an opportunity.
Long term prediction: We create a federated identity infrastructure
As enterprises tire of bearing the burden of managing identity during the payments process, the industry will eventually move to a Visa/Mastercard model. Today, this model has merchants on one side, issuers on the other, and standards in the middle. Enterprises will demand something similar to alleviate the pain and catastrophic risk potential as they conduct business with hundreds of thousands of third-parties. Shifting risk to intermediaries who bear the risk of the accuracy of the information will be inevitable.
When that occurs, the industry will begin to mirror a consumer marketplace. Consumer identity is already moving towards comprehensive digital identity, complete with an identity wallet, public key pair, and private key pair. In the not-so-distant future, the content of the credentials will be digitally signed by appropriate authorities. Business identity will evolve in much the same way. One trusted authority will serve as a clearinghouse for identity proofing credentials creating a desperately needed federated identity infrastructure.
The payment industry is shifting rapidly towards digital solutions. As the consumer market continues to lead us down the electronics payments path, businesses must take note and adapt their process and systems for the future. Streamlining and automating the historically manual processes will help make a difference in the short term and prepare organizations for the major changes to come in the future.
Thayer Stewart co-founded PaymentWorks in 2014 to help enterprises move from maintaining separate vendor master databases to a central “vendor master in the cloud” where payees could manage their identity and credential information and share them with customers on a permission basis. Stewart is CEO and responsible for the overall strategy and direction of the Company after 25 years in procure-to-pay at OB10 (acquired by Tungsten Corp), Employee Matters (acquired by Intuit), and American Express.
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