When thinking of B2B payments, one might very well picture an antiquated back office, paperwork piled high to the ceiling and a phone ringing off the hook with vendors demanding to know where their cheques have got to.
Yet increasingly, savvy businesses are shaking off this image and are looking beyond paper to advancements that bring the back office into the twenty-first century. Trends poised to transform B2B payments include: Straight-through processing, cross-border and real-time payments, E-Invoicing, cloud-based automation and the potential of APIs, multi-bank networks, and virtual accounts. And for those not ready to give up their paper-based ways just yet, mobile capture and digitisation of cheques, too. All these technologies can ultimately improve working capital, boost security and reduce inefficiencies/friction in procure to pay and supply chain processes.
However, it’s easy to see why FinTechs have largely stayed away from B2B in favour of B2C. While going to market with an end consumer in mind is relatively straightforward, accessing key decision-makers of a corporate is far more challenging and time-consuming, particularly without pre-established Treasury relationships. The incumbents, through the blood, sweat and tears of many a corporate RFP process have, over the years, established those key relationships to build up trust and awareness. FinTechs are often in no position to knock on the boardroom door.
In addition, unlike the consumer journey, the decision-making process to implement a new technology is lengthy and complicated. There are often legacy systems to consider and additional costs associated with implementation, along with varying and sometimes conflicting needs of multiple stakeholders across departments. What works for the CFO does not necessarily resonate with the CPO or Head of Accounts Payable, and vice versa.
We often hear about the “consumerisation” of technology, that the interaction we have with technology in our personal lives will radically transform the professional expectations we have of technology in the workplace. Of course, there’s no denying the attraction of a mobile capability, user-friendly interface and a lot more convenience. However, let’s not kid ourselves that, given the risk and cost associated with overhauling or even enhancing a payments infrastructure, a better user experience alone is going to cut it. If the offering does not improve the working capital/bottom line of the company, and does not sufficiently improve supply chain relationships and efficiencies, it’s going to be a non-starter for any commercial decision-maker.
Yet despite the greater complexity to access and convince decision-makers, the reward is potentially huge moving forward and less tapped than the consumer side. For instance, it is estimated that by 2020, global B2B e-commerce revenues will be double those of B2C.
Collaboration: Key considerations for FinTechs and Incumbents
FinTechs looking to get a piece of the pie may struggle if they don’t collaborate with incumbents. Partnering with an incumbent may help solve some of the challenges FinTechs face in accessing and serving commercial clients, which include: a lack of proven track record, limited global reach to serve multinational operations, a relatively superficial understanding of financial services and a blinkered view of wider customer needs beyond the particular pain point they are trying to solve.
Incumbents suffer less from these limitations, yet often struggle to keep up with the fast-paced changes in technology that commercial customers are (or at least should be) calling out for; reputation comes at a cost and investments in compliance and core functions are necessarily prioritised over innovation. The FinTech’s fixation with using technology to improve one part of the value-chain, while a limitation in some respects, enables the incumbent to give those customer needs the proper attention they deserve.
Given these relative strengths and weaknesses, collaboration will be key moving forward. Yet if not done right, there are a number of pitfalls. Cultural misalignment can lead to frustration on both sides; there should be mutual tolerance around the expectations of pace and risk appetites. The incumbent must be firmly committed to innovation and be willing to treat the FinTech as a partner, not a technology vendor, if the collaboration is to be truly effective. In addition, serious consideration needs to be given to what extent the FinTech and incumbent’s offering are complimentary versus competing and the scope of the partnership clearly defined from the outset to ensure mutual benefit.
A further word of warning; for commercial customers who want to be bank-agnostic, FinTechs need to be able to maintain the customer relationship if the incumbent’s Treasury relationship gets swapped out. Riding coattails is a good way to get a foot in the door, yet can also be a fast ticket out of there if you don’t know when to hop off. Likewise, incumbents need to leverage the FinTech relationship to differentiate their Treasury offering and increase their own stickiness, without risking their account should the partnership fail.
The viability of different partnership models and focus areas for collaborative efforts also varies according to in-market local conditions. Regulatory environment, payment trends, differences across segments and industries and attitudes to innovation all impact the ways in which FinTechs and incumbents do and should work together in different regions.
In upcoming posts, we’ll be looking at the specific opportunities and pitfalls of FinTech – incumbent collaboration in the commercial payments space in Asia, the Americas and Europe.