Types of B2B Payments
In the world of B2B Payments, there are 3 kinds of payments system: those that completely replace traditional banks (or finance companies), those that work with banks and other financial companies catering to the "long tail" (the customers that large banks cannot cater to), and those that use electronic payment networks such as ACH or SEPA to process payments. In the first subset you find companies like TradeCard. In the second, solutions are offered by the likes of Orbian, iPin and so on. In the third category players such as E Check 2000 and others come to mind.
Characteristics of a B2B Payment system
A good B2B payment system can help speed up transactions on financial exchanges and including those conducted between existing trading partners. Regardless of the model, it is expected to see the following qualities in a proper B2B payment system:
- Assessment of creditworthiness (of buyer to seller) or guarantees the payment by the buyer to the seller
- Offers a certain level of guarantee to buyers that goods will meet quality specifications and these will be delivered (escrow-type service)
- Allows sellers to perform business transactions with unknown entities without fear of fraud
- Provides faster collection of payment - usually at a discount rate - to the seller; may extend the payment window of the buyer (for a free)
- Eliminates expense, hassle, and security risks due to manual transactions (after the initial setup)
- Provides reporting on: delivery of goods, approval, invoicing, payment, collections, etc
If your primary market are businesses, you are likely well aware of all problems that such systems intend on solving. Of the many solutions available we have selected a few so you have a good basis to start up - and have all categories covered. We recommend that you do additional research, call vendors and get recommendations from trusted parties. In a free market - as we know - the best not always wins. The fact is that often those with the most supporters often get the most investment and as such extend the likelihood of their own success. We expect that this market will keep on changing as more and more newcomers take chunks of the market with innovative technologies and those that do not react will perish because they won't achieve critical mass. Players with financial backing by large technology or financial partners may stand a better chance.
What makes a strong candidate for the future of B2B electronic payments system
Let's start with pricing. As margins get tighter and tighter and high quality competition makes sure only the best survive, pricing is a critical part of the leverage that expands the likelihood of a b2b electronic payments system to expand acceptance. Automation is another critical factor as driving efficiencies becomes more and more relevant in multiple markets. Nobody is willing to process payments manually, for starters. In-house processing also is off the table because significant human resources are needed to processing and reconciliation. Finally, security is the crucial factor in the world of business and commercial card payments. As suppliers continue to avoid all things manual, only those with highly automated routines stand a chance.
- Actrade: the multi award winning company Actrade stands alone as the largest player in the market. It has a different take on the finance company model: clients issue E-TADs to vendors (electronically generated checks drawn on accounts with Actrade), who then are sold back to Actrade for a cash payment. Actrade handles the risk. After initial KYC, everything is digitally handled with the extra security layer of secure certificates which reside on the issuer’s computer which is a guarantee of authenticity.
- Tradecard. their system does transaction procurement, fulfilment, risk management, payment decision-making and settlement. With TradeCard’s platform, virtually all types of transactions can be initiated, tracked and settled.
- eRevenue: they aimed squarely on exchanges. This system enables exchanges to offer their clients accounts receivable, collections, and credit guarantees. It also includes workflow systems. Interfaces are available for all parties involved: exchanges, buyers and sellers.
- eFinance: this is a complementary system to any B2B payment systems. With it it is possible to build credit scorecards and then score prospective customers to make the best credit decisions. It also has a fraud-screening as an option, which allows b2b payment systems to set rules so only certain transactions are automatically approved and others go into quarantine and other states.
- eCheck2000: this is a good aimed at SMEs engaged in B2B commerce which permits businesses to accept funds directly from a customer’s checking account using ACH. They have a relationship with the Federal Reserve Board so transactions do not go through an intermediary member bank which reduces costs. Both making and accepting payments is very simple. Setup costs are much lower than other players and overall cost competitiveness is worth it. Quickbooks is integrated.
The elephant in the room
Will traditional banks be prominent in the future? All payment systems we described aim to eliminate a bank's role, reducing costs and increasing revenues. Some people suggest that banks won't go out without a fight. Just as PayPal dominates the C2C and B2C payments markets without an offline bank in the background, it is possible to imagine that B2B payment systems will achieve the same level of success.
We think that there are other major forces at play and that banks will either comply or partner with large players and start offering their services as part of their collection of services. We reckon it is important to pay attention on how you bank is reacting to new technology as this may be the difference maker for the future of your business.
Virtual Purchase Card
There is an offer by called Virtual Purchase Connection which does something very interesting: it enables banks & financial service providers to offer their clients the ability to see if a prospective customer has the ability to pay before the decision to accept a payment has been made. Invoicing is all about trust and banks that implement this system give their customers the ability to make and accept financial transactions directly through their accounts: it is like both had the same bank. This reduces risks and processing costs.
Orbian
This is a service similar to Actrade they are a key player in the market. THeir supply chain finance systems are they are a joint venture of Citibank and SAP, so expect robustness and functionality at the outset.
VCHEQ
This is a solution offered to banks which permits them to retain their business relationships and offer immediate settlement for global transactions.
PitneyEscrow and PitneyPay
This is a escrow service and a hybrid ebilling system. Working together they make it possible for businesses to guarantee the quality of purchases with an escrow account. Buyers then have the opportunity to approve goods before the funds are released, pay with ACH debit, and pay multiple parties as a single transaction.
Wallet21
This is a payment system for auctions. It includes an escrow service. Funds are not released until products are satisfactorily received.