Recent trends have made it clear that the future of business-to-business (B2B) commerce is both digital and collaborative. B2B buyers continue to expect more flexible payment experiences and want to engage with businesses and make purchases the same ways they do in their daily lives as consumers.
Those concepts of ease-of-use and connectivity, coupled with the pandemic further accelerating digitization efforts, means we're seeing the B2B purchasing experience morph right in front of our eyes. The demise of the paper check is fast approaching. Finance leaders are coming to terms with just how much power consumers hold in the transaction process.
A new age of B2B commerce is fast approaching—in fact, some might argue it’s already here.
In this podcast episode, Craig O’Neill, CEO of Versapay, and Karen Webster, CEO of PYMNTS.com sit down to discuss how companies can accelerate their modernization efforts in 2021 and beyond. If 2020 taught us anything, it’s that the future is anything but certain, but these five key trends are promising indicators of how the B2B payments landscape is evolving.
Hit the play button to begin listening to the podcast. Continue scrolling if you’d prefer to read the transcription.
The following transcription has been lightly edited for clarity and readability.
When looking out onto the B2B payments horizon, the question is, will paper checks still be around, let's say 10 years from now. Despite their stickiness, checks likely won't be a sustainable tool as buyer-supplier relationships evolve. In this PYMNTS original podcast, Versapay CEO, Craig O'Neill, spoke with Karen Webster (CEO of PYMNTS.com) about the biggest trends ahead for buyers and suppliers, and the need for payments to smarten up in order to facilitate a more connected collaborative ecosystem.
Hey, Craig, thanks for joining me today. I'm looking forward to our conversation about B2B payments trends in 2021.
Thank you for having me, Karen. Looking forward to our conversation today.
Trend #1 — Check usage is significantly declining
I want to organize the conversation around five themes. There are many more themes, but let's focus on these five today because I think at the core, they’re driving some of the trends that certainly are reshaping the B2B payments landscape.
Let's start with one of our all-time favorites, Craig, which is paper checks. We obviously know that paper checks are a big target with the digital transformation that businesses are undertaking—and CFOs and treasurers are really trying to move away from them—but they're going to be around for a while.
I was looking at the earnings call from Deluxe—which is obviously a big paper check supplier—and they are just ‘checking it’, taking check orders right and left, because there are a lot of new businesses starting and new businesses need checks to pay their bills. So I mean, here we are, we're just continuing to perpetuate the paper check.
Do you think that this is a short-term, medium-term, or long-term goal of really getting rid of the paper check?
Yeah, we think it's relatively short term. Now, of course, many, many pundits have said that for years, and it's surprising there’s as many paper checks around as there currently are. But we really think, in large part because of COVID, that the paper checks that remain in business-to-business—which are still really the largest form of payment between businesses, which is crazy to even say that— it's going to change quite rapidly over the next few years.
For us, receiving a payment by check means that one of our finance folks—either in Atlanta or Toronto—has to run the gauntlet to go downtown to the city, to our office, to pick up a stack of checks. And, in Toronto right now—which is where I live—we’ve been locked down for over a month, and that will likely extend a little bit longer. So, we haven't processed a check in over a month.
Of course, it's not going to be like this forever. But I think it's really opened the eyes of finance professionals to say, “We're still dependent on being in-person and having somebody physically open up an envelope. It's just way too old school, and it needs to change.”
I think you can add to that the growing demand—the growing expectation—of employees. I just saw another example with Salesforce this week, where employers are saying, “You never need to go back to the office if you don't want to, or you can go back one or two days a week.” I think that's going to be the new normal.
Checks just have to go away. I think it's going to go from 40-ish percent of B2B payment volume down to a much, much smaller percentage, over the next few years.
Yeah, I mean, it will take a while—to your point—to address the long tail. But there are so many checks circulating and banks are also responsible for perpetuating the check, because when they do bill pay, they often send checks. So, there's a big supply chain/value chain that has to change in order for checks to be history.
That's right. And I think there's a number of reasons why checks have stuck around. One is inertia, which is the fact that finance leaders aren't necessarily getting up every morning thinking about how to change their processes. They're pretty comfortable with routines. That's a big part of it.
We often hear from our clients and potential clients that prior to working with us—with Versapay’s software or even a competitor’s software—it was actually much easier for them and more straightforward for them to process a check than it was to receive an electronic payment.
This was for a whole bunch of reasons, and no one's really been trying to solve that problem for the supplier—the receiver of the payment—until the last few years.
Trend #2 — Customer experience is an integral part of B2B payments
That’s a great segue into the second trend, which is this notion that B2B payments now has to be about the experience. And it does play off the point that you say, which is that there hasn't been a big fix to replace/displace checks, which are not necessarily the best payment experience for the supplier.
Why all of a sudden are we now talking about the experience? And who are we talking about making the experience better for: the payer or the receiver?
The short answer is yes, it really should be for both. And I think where the digital payment industry—I'm talking about all forms of payment—has made a mistake in the past, is they've really focused on the buyer experience of the actual making of the payment. But they have not focused on the seller—the supplier’s experience of receiving the payment.
That was one part. There's been a kind of long-standing issue with that. The other part of it is that the large segment of business-to-business payments are done after the fact. They're not done at the time of the order; they're done on credit, paying after the fact. So really, the whole billing and account information process—and the documentation around it—is very important to facilitate with the payment as well. And there hasn't been enough focus on that.
But back to your question. The main point is that it's a two-way street: buyers and sellers have to interact and they both have to embrace whichever form of payment is going to be used. And so, the experiences of both need to be taken into account.
The irony is, in some ways—in today's world with cloud-based services, and the way we all operate as consumers and so on—there are a lot of reasons why, with a bit of time and attention, suppliers and buyers can both have a great experience. In fact, they can have a much better experience than with paper.
It can really be a win for them both, and we're beginning to see that now. There are vendors—several different vendors on the AP side and the AR side—that are starting to do some great things, which I think are going to help facilitate a more rapid change.
Trend #3 — B2B companies are embracing collaborative commerce
I think that's another great segue—you're doing a great job teeing these things up for me. The next trend is this notion of collaborative commerce, where there’s this experience that is driving the transformation of the flows in and out of an organization. There is this focus on trying to make that process better: more collaboration and more opportunity for the incentives that underpin payments to be more rationalized.
Receivers always want to get paid faster, but buyers are like, well, that's maybe good for you, but not so good for me. Talk a little bit about how to actually operationalize this notion of collaborative commerce.
Yeah, we love the idea of it, we think it's a great sort of target state, and we do think it's doable. Again, it comes back to both buyers and sellers being willing to embrace working together. And we think there's two layers to it: it’s embracing the idea of systems talking to each other, but also systems facilitating people in talking to each other.
We kind of see it a little bit already—CRM vendors like Salesforce and others, did a great job of helping companies wake up to the idea that they needed to collaborate inside of their four walls. They needed to have one place where customer information was stored and all the interactions around selling to and servicing a customer should come in one place and allow the team to collaborate around that data.
We actually see transacting between buyers and sellers as similar. Right now, we've got collaborative tools inside of buyers and inside of sellers, but they don't cross the divide between themselves and other companies. We think collaborative commerce that crosses the divide and allows you to collaborate across your own four walls of your company, that deals with business issues that can't be handled by systems automatically, is a really effective way to work.
So, you've got the systems-level connectivity—which of course, takes standards and takes a lot of integration (all stuff that exists today, but there needs to be focus put to that). Then you've got the human element layered on top of that. We think that's a really winning combination—and it's a combination, which is going to really change how companies do business together in the coming years.
Trend #4 — The birth of the network of networks
A proof point of that is the next trend that I've been dialed into recently. That's this notion that these marketplaces where buyers and suppliers come to discover each other and often take the business of doing business out of the marketplace—offline—are now beginning to bring payments inside of those marketplaces.
I was chatting with one of the CEOs of one of those marketplaces just the other day, and they're doing something that takes that to an even different level. They recognize that doing business as they always do is great, but why not create tradeshow-like environments/events—instead of physical tradeshows—that provide a situation where buyers and suppliers can actually look at a trade-show-type world and purchase within the virtual tradeshow format.
I think that's fascinating. And it really goes to all the points that we're talking about—digitizing payments, buyer-supplier collaboration, having the tools that facilitate that—but also gives humans the opportunity to engage when necessary.
That’s right. And when you think about the consumer side of things, there's so many examples—like Facebook. I heard Mark Zuckerberg say that Facebook's fundamental mission in life was to connect people. And that's what they do. They connect people to effectively collaborate, to share information, and to stay informed about each other.
I don't think anybody could have foreseen all the things that have happened and what people have done on Facebook, as a platform for connecting people. We see collaborative commerce as something similar; it's about connecting businesses—and of course, with businesses, it's more complicated than just connecting individuals.
But I think that these marketplaces are kind of an early example of that—it's different companies coming to one place, about some shared interest, and that really works. It's very effective. And they're now expanding their reach and getting into payments, along with the sharing of information, and ordering and so on.
We think over time that's going to happen sort of more generically. Rather than a marketplace about one area of interest, there will be a sort of a network of marketplaces and a network of networks—if you will—but still somewhat transparent to the customer and the supplier.
Buyers will be able to get online, and through the systems they're using, get connectivity with the vendors they serve—or vice versa—and share information. Individuals in the AP and AR department, in sales, in service, and elsewhere, will be able to collaborate and see what their peers have said and done for that customer or with that supplier. All those sorts of things that as individuals we’re used to doing on Facebook, sort of translated to a business form.
I think that's where marketplaces will ultimately go.
But again, it takes standards, it takes really good integration, it takes security—one really important thing is smarter payments. When we think about digital payments, the big issue with them is that the instruction to move money is separate and distinct from all the information informing what the payment is for. So, payments need to get smarter; those two domains of information need to get brought together.
There are some things that need to happen, and we think they will happen broadly in the future. We think there are vendors like us—well we know there are vendors like us—and some others that are doing some of these things right now—obviously not for every company in the universe, but for a kind of domain of clients and their customers (or their suppliers depending on which side of the buy-sell transaction they're serving).
I think you make some really interesting points, which is the instruction to move the money and then what the money is for. That’s certainly part of the impediment, whether you're doing business in a marketplace or not.
Payments have to be flexible too. Because if these truly become commerce marketplaces, then there needs to be more sophisticated payments and tools to affect credit and things that are part-and-parcel of doing business in these marketplaces—which is often one of the reasons why they do business offline.
So, there's an evolution, I guess, of how this all happens as well.
That's right. It'll be a kind of a crawl, walk, run— and I think some of the crawling is happening now. But you're absolutely right Karen, it's more sophisticated. There are a lot of things that happen between businesses that don't happen with consumers and there are so many examples.
One of the ones I like to use as an illustration of the differences is that customers will often take a discount, either because of a perceived issue, or because they believe they qualify through a promotional program, or because they understood the salesman to have told them to take discounts or deductions if it's a problem. They may also want to use different forms of payment, and that might be different than what the supplier is willing to accept at different periods of time, etc. So, getting that form of payment right can be difficult.
Even things like where the money goes—one of the big disadvantages of account-to-account transfers are whether it's a direct debit or a direct credit. One side needs to know the account to hit on the other side of the transaction. That should not be the case. It should be that if a buyer wants to initiate an ACH—or something like it—they should be able to send that to their supplier as a business/as an entity, and not have to worry about which account it goes into. That's the supplier's decision, not the buyer's decision.
There are things like that, which are different and more demanding than consumer-to-consumer or business-to-consumer transactions. It’s going to take some time and attention. And again, we're seeing good progress in a lot of those areas, so we think there's a very solid light at the end of the tunnel.
Trend #5 — B2B payments smarten up as most B2B purchases move to subscription models
And I think that there's going to be—I will say, pressure, that's probably the incorrect word—more reason to want to do business this way. It's so efficient, and it's a lot less costly. People don't have to get on airplanes and travel and do it the way that they would have done in 2019 and even in 2020.
Had we not been affected by the pandemic, I think a lot of things would still change. I think this is one of the ones that will accelerate, to your point.
The fifth trend is something that that you guys have written about, and I think this is a rather bold prediction and an interesting trend. You believe that by the end of this decade, most B2B purchases will be on a subscription-type model. Why do you think that?
Yeah. It probably comes down to one thing that we see a little bit of in our experience—but it really comes down to one major trend. That is, we tend to see business-to-business transactions following business-to-consumer transactions. You see what consumers are doing, and how—I'll even go as far as to say—the old model of owning things has been eclipsed by the model of subscribing to things or renting or paying for use of things.
It extends from services that we use online, of course, but even now, it's impacting entertainment and travel and even cars—how we think about our transportation, and rather than buy a car, we’ll subscribe to use a car.
It's happening in the consumer world. And it kind of makes sense, what's happening in the consumer world, because it's very consumer friendly; it puts the onus on the supplier to continue to deliver good value. It's a wiser, probably more efficient—in most cases—allocation of capital for the consumer.
These are all things that make sense. But typically, a supplier would resist this because it just really raises—it elevates—the consumer’s power over the transaction. But it's happening. And as that happens—and this is a kind of trend—we see that as individuals have that kind of experience as consumers, they eventually start to expect that same experience as individuals in a business.
So, that's why we think things are going that way. It does up the ante for sellers—for suppliers—to be smarter and better at how they service ongoing, how they bill—all those sorts of things.
Yeah, it's interesting, because it does suggest—I see it in software—but it does suggest that lots of things will move to an as-a-service model. That is a big business model change for a lot of suppliers, who may resist—yet buyers may want it. But I'm not sure that in every case that that's an easy bridge to cross.
Yeah. It’s going to take some time for sure. But I think that sellers that reinvent their product offerings as service-type offerings, they'll win against competition, which will then drag their competition along with them.
It's a little bit like—I keep remarking these last six months about how all the car companies are embracing and talking about going all electric, because Tesla's had so much success. It takes some time, it doesn't happen overnight, suppliers will resist, but we do think that's going to happen over time, and it ups the ante for them.
But there'll be some that lead and get a competitive advantage by leading and being innovative, and then others will either get dragged along, they'll cease to be, or they’ll be marginal players.
Interesting. The best part about it is that payments is relevant no matter what.
Payments is the connector to commerce. That is what makes the world go round. It’s such a fascinating transformation in the B2B payment space. It's been accelerated, certainly, as you know, since Q2 of 2020 and ongoing—fascinating to see that change.
I look forward to future discussions, Craig, about some of the other trends that you're seeing, and some of the actual deployments that businesses are in fact embracing as they take this journey.
That sounds great, Karen, I would love to chat further about that.
Well, thanks for your time today and we'll talk again soon. Thanks, Craig.
Thank you, Karen. Take care.
To learn more about how B2B commerce is changing and how finance teams can prepare themselves for sustained success over the next ten years of transformation, read our interactive report, The B2B Buyers’ Experience in 2030.
Join the 50,000 accounts receivable professionals already getting our insights, best practices, and stories every month