B2B firms have been steadily moving toward digital payments for years as paper checks and other manual payment processes become less viable.
Rather than making these digital payment moves in a vacuum, however, they are reexamining the strategies and solutions that surround them as well, Oliver Kidd, CEO of Australian corporate card provider Archa, said in a PYMNTS interview.
“Banks have never really had an appetite to serve the small business space when it comes to broader corporate card programs, which is really the only area that you can expect to see even a little bit of that helpful functionality when it comes to virtual cards,” he said. “That said, most banks in Australia just do not supply useful expense management or virtual card tools when it comes to corporate card programs, so we are seeing a massive shift in terms of not just the mechanisms by which companies might approve expenses or issue permissions to spend or reconcile after a spend but also just a shift in mindset about how businesses think about expenses and the level of autonomy that they give to employees.”
This change in mindset could have profound effects on how businesses manage their B2B payments as services vie for customers’ attention in an increasingly competitive online market. Pairing traditional corporate card solutions with automation or other emerging technologies is one way in which B2B card providers, their payment processors — Archa works with global cloud-based processor i2c Inc. to underpin payments — and other partners can successfully compete in the space.
Opening Up The Digital B2B Ecosystem
Australian small- to medium-sized businesses’ (SMBs’) growing need for B2B tools that enable faster payments and more transparent spend management has not gone unnoticed. FinTechs and other firms in the country are offering new products and features to expand SMBs’ access to lending and other financial solutions. Kidd said that the ongoing global health crisis is highlighting the manual inefficiencies many businesses — especially SMBs — continue to grapple with as they make payments and track spending.
“Whether we are talking about people in trade — so plumbers and electricians — or even smaller professional service firms [like] law firms and accounting firms, [they] really have struggled to move to [electronic processes],” he said. “While payments have always been run electronically, their processes around those payments have really been affected by the pandemic because there is a lot of residual work that does need to happen in person in the ways that those businesses are set up.”
This forced adaptation has also given SMBs new opportunities. The near inability to conduct certain B2B processes manually in the current climate has pushed many to go digital, effectively expanding the online B2B payments world. This could significantly impact the financial services space itself as more financial institutions (FIs) take a back seat to FinTechs that offer robust, interconnected digital payments tools.
Traditional banks typically underserve SMBs looking for automated tools to replace their age-old manual B2B payment processes, Kidd explained, especially companies that are just starting out. He noted that new firms lack the 12 to 24 months’ worth of financial statements that most FIs require for financing and said that they can experience other roadblocks that hinder them from staying on top of their incoming and outgoing B2B transactions. Expanding online access to these SMBs is paramount to their survival, he added, and that is one of the main reasons Archa employs automated tools such as artificial intelligence (AI) and machine learning (ML) solutions to better evaluate potential clients.
“We look at ML and AI as a way to improve underwriting and improve our ability to serve customers that we perhaps would not otherwise serve, and that goes to new businesses,” Kidd said. “And for new businesses, getting access to tools that help you manage expenses, help you manage trade credit, help you manage all aspects of your business, can be really challenging when there is a credit element involved. … We see AI and ML as mechanisms that will allow us to serve areas of the economy that we otherwise would not have served and where no one currently serves.”
Opening up the digital B2B payments ecosystem to newer companies could also affect how firms approach payments in general. Kidd said that more businesses are growing interested in subscription payments, for example, as their familiarity with online solutions and virtual corporate card features expands.
The Dawn Of The B2B Subscription Age
Subscriptions established themselves in the B2B payments space with the dawn of Software-as-a-Service (SaaS) solutions, but the global health crisis is prompting companies across industries to try their hand at offering subscription-based payment models. These payments allow businesses to make recurring transactions with less hassle, and these transactions can also be more easily tracked when combined with emerging digital payment processing and expense tools. Archa itself recently launched a subscription management tool in anticipation of a growing market, Kidd said.
“We think that the use of subscription expenses is going to grow materially over the next 24 months, and that ranges from companies getting access to new subscription expenses as well as existing expenses that companies are turning [into] recurring subscription pricing,” he said. “We think that a lot of businesses will start to turn their pricing models to subscriptions, and that will increase the amount of subscription expenses that our clients are paying for as well as [increase] their appetite as a client to use more services like Zoom and Google Workspace, or whatever the [case] may be.”
Staying abreast of these and other changes will prove crucial for B2B payment players over the next several months. They must keep pace with changing payment strategies and structures to keep their own cash flows moving as B2B automation rapidly continues.