The supply chain issues that surfaced during the pandemic are part of a much deeper problem that also stems from a lack of payment automation.
Business payment technology typically lags what banks offer to consumers, largely because both a supplier and client must be able to use the same methods — consistently and reliably — to move money.
"The corporate entities have different procurement and payment processes, and they may not always follow best practices," said Marco Salazar, director of payments for Javelin Strategy & Research in Chicago. "That makes it hard for banks or payment companies to offer a system that is configurable to meet the needs for a bunch of companies that want to do things their own way."
To streamline business-to-business payments, banks and fintechs are deploying open technology development and blockchain, the distributed ledger technology behind cryptocurrency, to address specific pain points such as currency conversion, compliance, and invoicing.
Rapyd, for example, has acquired payment company Neat; while BNY Mellon is using its membership in the bank-supported trade finance consortium Marco Polo Network to develop cross-border payments technology and financial services.
The Marco Polo Network provides an open platform for trade finance and payments and working capital through a distributed ledger-powered network. By utilizing Marco Polo, BNY Mellon will provide financing to clients and also have real-time visibility into trade finance instruments and their status, such as purchase orders and invoices. It will also collaborate with other banks and fintechs on payment technology.
"In the past, banks wanted to build their own platforms and 20 years ago that made a lot of sense," said Joon Kim, global head of trade finance product and portfolio management at BNY Mellon. "But now with the landscape changing it's critically important to think about leveraging innovation from fintechs."
BNY Mellon is creating a standardized back office for businesses that use different financial services providers, Kim said. "We want to make sure the receipts and the reconciliation are done in the same manner."
One of the main benefits that BNY Mellon hopes to gain through the Marco Polo Network is to calm fears about fraudsters taking advantage of changes to the payment flow.
"There's the potential for fraud that can come from little changes," Kim said. "All the counterparties in a transaction can be legitimate but if there is just one bad player in the middle, they can make a small change to the name of the recipient and redirect the money to themselves."
Frankfurt-based Commerzbank, one of the Marco Polo network's founders, said in an emailed statement that the network triggers payments or trade finance transactions on a digital basis by exchanging and automatically matching trade data, and the Marco Polo distributed ledger network provides transparency regarding the execution of this payment to all parties involved in the trade finance transaction. The distributed ledger can connect to banks’ payment systems through application programming interfaces.
Blockchain companies have been nibbling away at the challenges in automating B2B payments for the past few years, using the distributed ledgers to eliminate the need for local correspondent banks to perform currency exchanges, which add cost and time and are traditionally reserved for larger corporate transfers. But more work is needed, according to Enrico Camerinelli, a strategic advisor for Aite-Novarica in Milan.
"There's a lack of a common standard for the blockchain. On the technical side blockchain works, but there's different protocols that make it hard for different blockchains to speak to each other," Camerinelli said. "Marco Polo is one of the ways that these challenges with blockchain can be addressed. It can create a single platform and can harmonize processing."
While consumer payments have generally migrated to digital channels faster than corporate payments, Forrester Research reports there is rising demand among businesses for automated B2B payments.
Rapyd, a London-based firm that uses application programming interfaces and software development kits to enable companies to connect to disparate local payment networks, has expanded its own technology through acquisition to create a network effect for cross-border B2B payments. Rapyd in the past week closed its acquisition of Neat, a Hong Kong-based company that enables cross-border trade finance. Financial terms of the deal weren't disclosed.
The businesses in Rapyd and Neat's base include micro-nationals, or small businesses that rely on international markets for customers and suppliers.
"Between high costs, cumbersome user experiences, and limited networks to collect and disburse funds globally, these businesses are not well served by the strictly local banks," said Joel Yarbrough, vice president of Asia Pacific and managing director at Rapyd Ventures in Singapore.
It's often difficult for these companies to bill clients or make payments because of a lack of interoperability between payment systems in different countries, or gaps in banking coverage, Yarbrough said.
Rapyd uses APIs to perform the same foreign exchange tasks, and to support other financial functions such as the use of virtual cards and international payment messaging systems.
The combined company will also issue virtual and physical Visa cards that work across Visa's network, an attempt to broaden supply chain payments. Rapyd will also benefit from improved access to Asian territories.
Small businesses "need to be able to collect money in every market where their customers are located, affordably convert foreign exchange, concentrate funds into a single operating payment account that is easy to use, and pay their suppliers and partners seamlessly and affordably," Yarbrough said.
