The Future of B2B Payments and what it means for Scotland

By Euan Andrews

11 Aug 2020

Business to business payments have so far withstood a lot of the fintech revolution but just because it's a hard nut to crack, doesn’t mean there aren’t plenty of companies trying to crack it.

Whichever companies are able to build up engagement in the payment space can easily deepen that relationship with other products and services ranging from money transfers to management to payments.

Where the real shake up is going to come from, is fintech’s ability to cut through red tape and use its faster approval times, deeper understanding of customers to undercut the existing stalwarts with business models and competitive rates. This could lead to a move towards big data and active bank data, like that provided by DirectID.

Payments Disrupted! The Emerging Landscape

Banks are facing challenges from up and coming Fintechs across the financial landscape and by failing to be as fast moving and innovative as their more agile competitors, they could involuntarily become the financial world’s utilities providers and face much lower margins.

The banks, however, aren’t taking it lying down and industry collaboration has been identified as the best course of action by payments experts. These collaborations could be across the board (and won’t necessarily not be with fintechs) and have banks looking at payment providers that offer more streamlined solutions.

This collaboration is against a backdrop of increasing competition from payments providers, who, once established can move into other critical banking services including lending, foreign exchange and money market funds. Tighter regulations on banks have also created more favourable conditions for payment focused providers and fintech firms.

There is large scale disruption seemingly poised to happen in the B2B payments sector and it leaves banks with a set of questions and things to consider, including how likely a continuation of the status quo is a new oligopoly, utility model or parallel payments infrastructure.

Beneath all of this, there are some trends that are starting to emerge across AI, Identity and blockchain, which will help to shape the future of B2B payments across the board.

The Biggest Emerging Trends

There are emerging trends that will shape the race for building the biggest market share across B2B payments.

Some of the biggest trends are looking at completely reinventing the way businesses will send and receive money and handle payments.

AI and Machine Learning

Reducing human error and increasing efficiency are among the most important focuses of business today. Automation and machine learning promise to do that in the payments area to help produce fewer errors and train AI to analyse machine learning and detect and prevent fraud detection and cybercrime.

The knock on effect of this is the increase in virtual assistants that will ease procurement through speeding up processing times and reducing errors.This way businesses can expect fewer issues with invoicing and pricing and are able to expedite mission critical information needed by partners and collaborators.

Integrating Accounts Receivable, Accounts Payable and Straight Through Processing will help optimize and minimise the B2B payment cycle.

Identity and Authentication

As IoT becomes more prolific than ever, so does its integration with identity and authentication. Not only does the device need to be identified but the company that owns the device, its location and whether or not that device has sign-off authority, creating an identity tree that has down-to-device delegated authority.

There are a number of services and businesses working towards creating seamless authentication experiences. Digital KYC is enabling challenger banks like Monzo and CashApp to digitally verify customer identities with government issued documents (such as a passport) and Onfido works similarly, combining photo identification and facial biometrics.

This level of authentication for payment service providers will become heavily interlinked and enable an extra layer of security and identity information that will help with reconciliation for the business making the payment and the one receiving it.

The net result is a payments infrastructure that’s streamlined and integrated with banks (and holding structures) to help produce a level of information sharing that can enable human centered payment decisions to become a digital binary.

Blockchain and Smart Contracts

Imagine a world where the next iteration of DocUSign is a smart contract that can automatically transfer assets at an agreed time and then register those transfers.

Smart contracts, hosted on the blockchain, can do exactly that. Existing on permissionless blockchain, means that control over the agreement is removed from the hands of a single party (for example, a bank) and is therefore not limited to a closed system. It sounds like chaos but with proper execution of the contract and monitoring of the blockchain for compliance, it could quickly become the way business gets done.

Existing on a decentralized system, being the blockchain, means there’s no need to pay or engage with middlemen which would cut down on conflicts and costs. While the technology is a work in progress, blockchain is undeniably faster, cheaper, and more secure than traditional systems and banks and governments are already starting to implement it.

Smart contracts can then be underpinned by payments through SWIFT, which already handles approximately 33.6 million transactions through the network.

What does this mean for Scotland?

None of this - the challenges facing banks and the emerging trends of innovation - are a million miles away from what’s happening in Scotland, as fintechs of all sizes work to develop B2B payment solutions.

Across the board, the Scottish Fintech cluster is making waves with one of the most recognisable examples being Modulr’s investment of £20 million in the Edinburgh tech scene and the creation of 50 high skilled jobs.

It follows a strong year of funding and investment in 2019, where The Royal Bank of Scotland boosted Fintech with £40 million investment that went to four locally based fintechs as part of a government mandate to increase competition.

Fintechs across the UK continue to push for innovation in the B2B payments space and as they do so, it’s going to be increasingly important for the banks and financial institutions to build strong and collaborative partnerships to build stronger customer offerings.

But while innovation keeps moving forward and trends start to arise, it’s clear that we’re moving towards a valuable and monumental shift in how businesses handle payments.

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