As the world around us digitizes, payments are no exception. The way we manage money and make payments has moved from physical channels, like cash and checks, to digital methods, like cards and online platforms. Although that’s been a long-term shift, it’s one that’s occurred rather seamlessly.
This isn’t the case for businesses, where the business-to-business (B2B) payments process is considerably more complex, and as a result, almost entirely analog for the majority of businesses. When businesses pay one another, like transactions between a supplier or a buyer, the process is cumbersome, involving invoices, waits of 30-to-120-days, multiple banks and platforms, and phone calls. When those payments happen overseas, even more friction is involved, like letters of credit.
That makes payments a top pain point for sellers and buyers alike, particularly smaller businesses—the population that’s hurt the most by the challenges of the existing system.
However, the barriers preventing firms from digitizing their B2B platforms are starting to erode and business payments are slowly catching onto consumer payment trends. As consumer technology becomes more available, back-end innovation is becoming simpler, and cheaper, for payments companies. And as consumer-side digital payments adoption begins to stagnate as the market saturates, B2B is becoming an increasingly palatable greenfield for companies looking for a new, lucrative market.
- The business-to-business (B2B) payments market is a vast opportunity. In the US, B2B payments reached an estimated $18.5 trillion last year, vastly outstripping the consumer-to-consumer (C2C) and business-to-consumer (B2C) realms.
- The complexity of B2B payments is holding back innovation, but times are beginning to change. Consumer payments innovation and a vast greenfield opportunity are making the space more accessible and more appealing to payments firms, which is translating to broader market availability for merchants.
- But until digitization permeates all stages of the complex B2B payments process, and allows those disparate segments to work in tandem, we won’t see any major steps towards an industry standard.