Embedded payments have been a mainstay for consumers for several years due to the rise of digital payments via smartphones and mobile apps. As consumers continue to enjoy the speed, convenience, and security of such payments, the business-to-business (B2B) space has been lagging behind.
That is not to say that many businesses are content with this; on the contrary, more businesses would like to see embedded payments featured highly within the B2B payments space so they, too, can benefit from the speed, convenience, and cost efficiency.
During a recent PaymentsJournal podcast, Daniel Artin, VP of Strategic Partnerships at Boost Payment Solutions, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed what embedded payments look like within the B2B ecosystem, why they are growing, the market opportunities available, and how to select the right payments partner to begin incorporating embedded B2B payments.
Defining Embedded B2B Payments
Embedded payments originally centered on such use cases as consumers hailing a ride using the Uber app or ordering groceries via the Instacart app. Both platforms offer fast and convenient ways to pay for products and services with a simple tap on an iPhone, with no need for entering credit card information.
Within the B2B payments arena, businesses are demanding the same perks that come from embedded payments, including enhancing the customer payment experience, automating the processing of payments, and providing protection against fraud.
“When you talk about embedded B2B payments, it’s always within the context of embedded finance, which as we know has become sort of the buzzword, the flavor of the month within the payments and finance sphere,” Artin said.
“So for those nascent audience members listening, we define embedded finance as the integration of financial services and tools primarily to non-financial software platforms. Think of this as incorporating banking, lending, sometimes even insurance into various (software-as-a-service) providers and platforms.
“I’ll be focusing on embedded payments, particularly in the context of B2B payments, which I believe is the edge case of embedded finance.”
Said Bodine: “I see in my research that embedded finance, open banking, it’s really going to be the major disruptor to the legacy banking system. Certainly, things like correspondent banking and getting away from the notion that you have to go through your bank in order to make a payment.
“These are very important, interesting times for the world of B2B payments.”
Embedded B2B Payments on the Rise
As businesses continue their expansion across the world, large multinationals as well as small and mid-market companies are taking their enterprises to a global level. As they move toward a more digital ecosystem, the complexities amplify, especially for back-office processes.
“And of course, we can’t forget to mention the impact of COVID,” Artin said. “I really believe consumer (tendencies) begets B2B. What we saw during those three years was almost a fast forward in the mind of the retail and the regular consumer of wanting simplicity, wanting digitization, wanting a seamless experience and businesses also caught that wildfire.
“What we’re seeing is businesses starting to have a desire and almost demand to move away from an analog swivel chair process into more of a seamless digital experience from a holistic level.”
Even with businesses ready to digitize B2B payments, there are still some businesses that happily embrace the old ways of operating. Bodine recounted a conversation he had with a wholesale restaurant provider.
“We got into the subject of payments, and I said, ‘What does your daily payments file look like? Are you sending a batch file?’” Bodine said. “He went into his drawer and took out a stack of checks about that thick, and I said, ‘Do you mean to tell me that you’re still receiving checks as a primary mode of payments?’
“He said, ‘Absolutely. It’s 90% of how we are paid.’
“It might be that particular industry, but it reminds me of a statistic that still 33% of payments made globally are made by paper check, which every time it comes out of my mouth, it just boggles my mind.”
Artin attributes business’ use of legacy processes to inertia. Businesses that have been writing checks, fulfilling procurement orders, and paying invoices in the same manner for decades seem to have embraced the status quo and feel no urgency to make changes.
The Market Opportunity for Embedded B2B Payments
As B2B payments become more digitized, the opportunities for embedded payments will grow significantly as companies seek a more seamless payments experience.
“In the U.S., depending on which report you’re reading, it’s anywhere between 25 to 27 trillion (dollars) in total addressable market for B2B payments,” Artin said. “What we’re seeing right now is that embedded payments make up roughly 5% of that, so about 2.6 trillion.
“And over the course of the next five to six years, we see that growing considerably upward of $7 trillion, a 170% increase.”
For those SaaS companies debating on whether to incorporate payments into their platform, Artin contends there’s a “first-mover advantage to be gained.”
Companies that adopt payments stand to boost customer lifetime value. Plus, it’s an effective strategy to diversify revenue streams, not only from subscription-based models but also from a basis-points viewpoint. Through the integration of payments, the transaction volume alone will give valuable insights to the sales team, equipping it with a valuable toolkit to help land more clients.
Where Adoption Is Happening
As much as businesses would love to have embedded B2B payments mirror the consumer side, a long road looms ahead. For one thing, B2B transactions are significantly more complex. There are so many moving parts within the B2B space, including invoicing, reconciliation, handling multiple parties, and risk management. Moreover, the amount of money being processed is also considerably higher within the B2B realm.
“While the demand is high, it’s a slow-moving train,” Artin said. “I think one of the narratives that’s being pushed out there is that you’re going to see in the B2B world, at least in the near term, exactly what we saw in the consumer world, which is almost invisible payments.
“If you think about getting into and out of an Uber or booking a payment on an Airbnb, or buying groceries on an Instacart, it’s going to be a long time for us to mirror that type of engagement and automation in B2B.”
Adoption of embedded payments is happening within the accounts receivable space, where previously the focus was on collections and deductions. Businesses are now implementing a “mosaic” of accounts receivable modules. Artin explained that the order to a cash system can now be featured on the tech stack.
He also mentioned adoption within the freight and logistics space, as well as in healthcare. Manufacturing and health insurance claims are also seeing an increase in adoption.
Selecting The Right Payments Partner
Naturally, the B2B space has its own nuances and complexities. Therefore, partnering with a solutions provider that has expertise in the B2B space is a must. Solutions that have served the business-to-consumer (B2C) space will simply be the wrong fit.
“Incorporating a payment facilitator model is a best suggested route here—partnering with an established B2B payment facilitator,” Artin said.
“Here’s a few selection criteria that I would consider. The first: Do they have a track record of playing in this playground, playing in the B2B space? Do they have a developer software layer? Do they have a streamlined onboarding process?
“Once you get customers bought in, are they going to be waiting 2 1/2 weeks to get a congratulations letter that they’re now part participating in the program? Do they have a reliable and accessible customer support?
“Are you going to be resorted to a 1-800 number or a generic listserv or are you going to have real folks in there that can handle issues that are inevitable about coming up? Is there a robust compliance management system?”
Artin said working with a flexible and nimble partner is paramount. Businesses must ask whether their partner can conform to any shifting conditions.
In addition, partners must be able to take into account that all businesses have their own accounting systems and their preferred methods of settling funds into their accounts, whether it be gross settling or net settling. Are they able to offer seamless reporting?
“The good news is that the fintechs that are still out there are really healthy,” Bodine said. “Most of them, because they’ve had to apply austerity measures, they are profitable. They’re actually really good acquisition targets for that reason.”
“Right now, more than ever, I think it’s an ideal opportunity for any forward-thinking SaaS platforms that are out there to consider embedding payments into their platform,” Artin said.
“It’s not an encouragement. It’s a must, and if you’re looking for that sort of expertise, there are folks out there that can help guide and coach you to make sure you’re making the most educated decision.”