Each year, Ardent Partners conducts a series of market research studies focused on the accounts payable (“AP”) and P2P markets. Our most recent of these looked at the state of business-to-business (“B2B”) payments and captured the key findings in a report called “The State of B2B Payments 2015: Emerging Business Value.” The report captures the perspectives, experience, and performance of more than 200 AP and finance leaders, and also examines the key trends impacting the market; as with all of our state of the market reports, it also includes a series of recommendations. The full report is available for download by clicking here (registration required).
One of the more interesting things about this area, from a technology standpoint, is that while electronic payment (“ePayment”) solutions are not new, they have matured and advanced significantly in recent years, lowering many of the major barriers to driving adoption. In fact, a majority of suppliers (52%) are now willing to accept payment electronically, which is the highest percentage Ardent Partners has ever seen in the decade plus its analysts have conducted AP-focused research. We expect this number to grow in future years, making supplier (or B2B) payments a larger consideration in overall supplier relationship management.
For context, it is important to realize that traditional ePayment methods like Automated Clearing House (“ACH”), commercial cards, and wire transfers have existed for decades. Even network-based payment solutions, one of the “newest” methods, have enabled transactions for more than 10 years.
In terms of emerging capabilities, ePayment solutions, by and large, offer the ability for enterprises to craft more nuanced supplier payment strategies. Electronic payment tools, such as network-based payment solutions, afford enterprises deeper visibility into upcoming supplier payments as well as precision in payment execution. A huge byproduct of this visibility is that it allows AP to share important payment data such as amount and status with internal stakeholders and suppliers, in addition to eliminating the need for AP to seek out status updates
As a likely a result of this newfound accessibility through emerging capabilities in this maturing slate of solutions, a majority of enterprises state that they have an active plan to increase the amount of ePayments made to their suppliers in 2016.
So, which ePayment platform will grow the fastest in 2016?
- ACH payments top the list, with 39% of enterprises actively planning to increase the amount of payments made using this technology. Another 34% expect to enact a plan in the next year. ACH (and its regional counterparts) are arguably the most widespread ePayment method in the business world—every enterprise that offers direct deposit on employee paychecks already uses ACH, in fact—so it is easy to see the attractiveness of expanding this method into supplier payments. The main benefits of ACH and other, similar regional payment initiatives (think SEPA in Europe and CNAPS in China, etc.), tend to revolve around their speed and low per-transaction costs, which makes them attractive to businesses looking to increase their percentage of ePayments. While there are usage and cost benefits to ACH, limitations, in areas like remittance handling, also exist and have kept it from becoming the de facto standard in the US.
- Commercial cards take the number two growth spot with 36% of enterprises currently working to place more spend on their cards in 2016. Commercial cards take many forms—purchasing cards, corporate travel cards, single-use virtual cards, and so on—which offers significant flexibility in terms of payment. Historically, however, cards have shown the most value for either one-off purchases of indirect materials or for high-frequency, low-value purchases. “Low-value” is something of a misnomer here; what this means is that a budget holder may spend $2,000 on a plane ticket with a corporate card, but would not typically try to settle a $400,000 direct materials invoice with one. One reason for this is the percentage-based transaction fees borne by suppliers
- Network-Based Payment Solutions, such as business or payment networks, are next in line with 29% of organizations planning to increase their network-enabled payment volume in 2016. A “business network” in this context is a web-based platform that enables interconnected buyers and sellers to trade, communicate, and collaborate with each other. Payment networks are a subset of this that specialize in automating and facilitating the payment process (and frequently the invoice process) between trading partners. Ongoing changes in the business world, including the proliferation of social tools and the tightening of supply chains, have resulted in increased interest in these types of networks. An additional benefit here also comes from the “network effect,” where each successive enterprise that joins the network allows for the development of more and more complex webs of interdependent trading partner relationships. There has been huge growth in this marketplace over the past decade.
- At 20% of enterprises, wire transfers bring up the proverbial rear. Part of the reason behind this is that wire transfers are already fairly ubiquitous in B2B commerce—especially when discussing cross-border payments. Wire transfers are also the oldest of the major ePayment technologies, having been invented in the late 1800s when Western Union sent payment instructions over telegraph wires (incidentally, this is why the method is still called “wire transfer” to this day). Wire transfers tend to be used most often for high-value transactions; payment moves fairly quickly through these systems, especially if the amount stays in-country instead of crossing international borders. Unlike ACH payments, wire transfers do not require enterprises to store supplier financial information, which makes them attractive from a security standpoint.
There are a variety of ePayment technologies that exist and offer compelling alternatives to the paper checks that once dominated the B2B payment landscape—especially in North America. Selecting which one to use, however, depends on factors that can include geography, transaction costs, supplier acceptance, and implementation costs among others. And while Ardent Partners research indicates that the overall amount of electronic payments is expected to grow significantly over the next decade, AP, finance, and P2P teams would be wise to spend some time evaluating the different platforms and ultimately developing a strategic plan for this expected ePayment growth.
Download “The State of B2B Payments 2015: Emerging Business Value” today and find out more about the state of payment automation technology in the B2B marketplace.