ABN Amro advances funds on B2B payments to improve customer liquidity

Businesses are struggling with liquidity because of slow payments, and fintechs are rushing in with alternatives for fast access to cash. ABN Amro is responding to this competitive pressure by taking a direct role in moving funds between business clients.

The $380 billion-asset ABN Amro will allow small businesses to use its online banking portal to assign invoices to the bank. If the bank selects the invoice based on internal vetting, 90% of the bill will be credited to the business' account within 24 hours. The other 10% follows after the debtor has paid the invoice. The business pays a 2.4% invoice fee and the bank manages the debt collection process. Businesses can assign invoices between 1,000 and 100,000 euros.

"Due to the coronavirus and the measures to control the virus, we see a different impact on some companies," said Arien Bikker, an ABN Amro spokesperson, in an email, adding the impact often varies within a business sector. "To manage the liquidity position in such times is challenging."

Bloomberg

ABN Amro positions its new invoicing option as a way to avoid loans, which have a longer term and are not useful for the current liquidity problem for many companies, according to Bikker. "With this new service the company has its own money back in one or two days against a transparent fee," Bikker said.

Late payments are a challenge businesses face as they come out of the pandemic. Credit collection research firm Atradius reports that at the end of 2020, 56% of businesses were paying invoices late, compared to 32% at the end of 2019. That tardiness has improved to only 51% at the end of April 2021, suggesting problems with liquidity will linger. More than a third of business executives cite collection of outstanding invoices as a threat to profitability in 2021, according to Atradius.

A PwC survey found 71% of bank executives cited liquidity as one of their top three concerns, beating a reduction on consumer confidence by 30 points and supply chain disruptions by nearly 50 points. PwC also reports banks' retail and commercial clients list reassurance from their bank regarding issues of financial stability.

ABN Amro is using its digital banking rail to reach businesses as it risks losing corporate clients to fintechs that are adding more financial services to electronic payments--and creating speedier processing that's partially designed to address liquidity challenges for cash-strapped businesses.

Writing for PaymentsSource, Denise Leleux, senior vice president of supplier network for AvidXchange, said the process of automating B2B payments is the starting point in helping businesses recover, and fintechs have the advantage.

"For some suppliers, even on-time payments are not enough to maintain success," Leleux wrote. "Many suppliers need cash advances to remain efficient, and fintech solutions are helping facilitate faster cash and lending."

Stripe in the past year expanded its business credit card-issuing network to include most of Europe, providing spend controls, monitoring and supply chain management. Stripe has extended its API to enable merchants, enabling links to Stripe's core banking partnerships with banks such as Goldman Sachs and Evolve Bank & Trust. Stripe's expansion enables it to keep funds in Stripe's system for payments and other financial services.

Square recently opened its bank, allowing the company to offer direct lending in addition to digital payments and Square's existing merchant credit, which extended funding to businesses based on future payment flows.

The opportunity — or challenge — to play catch up with technology firms that offer digital payments for supply chains, dates to before the pandemic, said Enrico Camerinelli, a senior analyst at Aite Group.

There's a group of about three dozen major suppliers that banks primarily do business with, traditionally leaving out smaller suppliers and smaller businesses. But since businesses often engage with hundreds of suppliers, delayed payments or liquidity problems can spread, Camerinelli said.

"The growth of open banking or APIs is the acceleration that was needed for banks," Camerinelli said, adding the banks can use supply chain finance as a way to establish a connection to cross-sell, with products that mitigate late payment issues acting as a loss leader that builds a relationship even if the invoice financing is not profitable.

"The data for the payment is very important. The invoices are a connection to the small businesses for the bank," Camerinelli said.

Other banks are upgrading B2B payments. JPMorgan Chase, for example, created a joint venture called Partior with Singapore-based DBS Bank and Singapore state-owned investor Temasek this year. Partior, or "distribute and share" in Latin, used a blockchain to digitize deposits and streamline processing to enable instant settlements. By itself that doesn't improve a business' financial position, but it does make funds more readily available and removes processing steps and fees for supply chains.

Financial technology firms such as Trans Card and Ingo have made a push into digital B2B payments. And bank technology vendor Fiserv during the pandemic added a program that allows business card holders access to credit lines without an added application, enabling businesses to use funds to pay bills in a shorter time frame. Fiserv aims at small businesses and community banks that are having liquidity issues.

"This is really about having working capital to keep the lights on," Camerinelli said.