Innovation in payments is a continuum, with incremental to transformational — and even disruptive — results.
B2B payments, long left to languish while their consumer-facing cousins saw upgrade after upgrade, are now finally getting their digital due.
“There are two highly important areas for B2B payments where innovation is occurring,” Eric Foust, vice president of banking partnerships North America at Trustly, told PYMNTS for the “B2B Payments: Outlook 2024” series. “And the first one is cross-border payments.”
With a focus on improving settlement timings, reducing costs and enhancing information transfer, entities worldwide are dedicating resources to revolutionize B2B cross-border transactions.
“[Cross-border payments] have been in the spotlight for more than a decade,” Foust said.
From financial institutions to FinTech startups and incumbent large corporations, the race to optimize and innovate cross-border payments is in full swing around the globe, as organizations chase after the white space that unlocking opportunities for seamless international financial transactions will bring.
The second innovation area within B2B payments that Foust highlighted is closer to home.
He emphasized the domestic significance of newer payment rails such as same-day ACH, real-time payments and the FedNow® Service within the United States, as a critical space to watch within B2B payments.
Launched in the last few years — even ACH, the oldest, has only been around since 2016 — these faster payment options are gaining traction and challenging traditional B2B transaction norms.
“We have these faster payment rails, and there’s been a lot of analysis happening over the last several years, specifically with [real-time payments], on what the impact that they can have is,” Foust explained.
While recognizing the benefits of faster transactions, he pointed out existing limitations, such as transaction caps and the need for both parties to be on the same network.
“As the networks evolve, those things that are inhibiting growth now are going to just naturally fall to the wayside,” he predicted, noting that as they do so, real-time payments could play a more central role in B2B transactions, potentially becoming the primary focus of innovation in the coming years as they bring on more entities.
When it comes to today’s innovations, Foust said, the ability to transact 24/7 year-round, especially during banking holidays or weekends, is reshaping how businesses send and receive payments by offering unprecedented flexibility and efficiency.
However domestic B2B payments are impacted by the global macro environment, and today’s unique landscape is reshaping more broadly the way finance teams view payments.
“If you’re a company that has funds on its balance sheet and it’s able to earn interest, that interest represents real money now,” Foust said, delving into the impact of the current higher interest rate environment on B2B payments.
By turning payments into a cost-neutral or even an earning endeavor, companies can take a new perspective on testing and implementing B2B products without incurring substantial expenses.
“Earning credits on the balances that you have in the account can go directly to offsetting the fees that are generated … at a 4.5%, 5% interest rate market, this can have a significant impact on helping to drive down the cost,” Foust said.
A growing trend of internal collaboration among stakeholders within companies is seeing companies make more strategic investments in digital transformation projects.
As a side effect of this, payment product groups, irrespective of their company’s primary focus, are emerging as knowledge leaders in identifying and leveraging available payment options, Foust said.
“There is value in convenience; it makes customers more sticky,” he explained, noting that there can be a cost-to-utility value trade-off when it comes to certain B2B payments innovations, particularly as the market evolves and matures.
“If businesses aren’t focused on what’s next, they are missing out,” Foust added.
Looking ahead, Foust said he envisions a future of continued collaboration and partnership-driven innovation. He highlighted the excitement of discovering which partnerships will shape the next phase of payment services, as banks, FinTechs and enterprises continue to contribute to and innovate within the B2B payments landscape.
As the industry shifts toward collaboration, the evolution of payment methods promises to be dynamic and transformative, opening doors to new avenues of efficiency and profitability in the world of B2B transactions, Foust said.
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