To remove the frictions inherent in B2B transactions, there will be no one rail to rule them all to connect corporates as they transact. But in pursuit of the ultimate goal of bringing buyers and suppliers together more seamlessly, there are many ways to get there. Tech-driven Interoperability and collaboration will finally bring trillions of dollars into the digital age, Kevin Phalen, head of global business solutions at Visa, told Karen Webster in a recent interview.
The conversation marked the capstone of a month-long series of panels and individual interviews with a range of companies as part of PYMNTS’ deep dive into the state — and future — of B2B.
It’s About More Than Just Adding Rails
There’s a time and a place for all rails, and in an age where faster payment schemes are multiplying across the globe, it may seem that the payments ecosystem is simply on a never-ending treadmill of adding rails and never taking them away.
But according to Phalen, we’re indeed on a path to rationalization even amid the infrastructure add-ons — and, importantly, interoperability — that eliminates the frictions that have long bedeviled B2B payments. Removing those frictions will give rise to collaborative commerce, echoing comments Phalen made in the interview with Webster that kicked off the month-long B2B deep dive earlier in October.
At a high level, the collaborative approach involves buyers and suppliers using tech and payment tools — and a range of choices — to make commerce and payments more bilateral. Collaborative commerce is in its infancy, he said, but will move quickly toward maturity as we head into 2021.
But there’s no collaboration (and increasingly, in the digital age, no commerce) without connectivity. And there’s no connectivity without the networks and technology that underpin it all.
“Buyers and suppliers don’t really care about the network, but they want to have the payment. They want the data [and] they want the information,” said Phalen. Data flows and transparency can help corporate treasurers and chief financial officers act strategically in day-to-day cash management and optimize working capital as they break down silos within their own companies.
Depending on the use case and the corporate need, he told Webster, supporting different rails makes sense. Interoperability will get a boost with messaging standards such as ISO 20022. Thus there’ll be no need to pivot to a single set of rails. Corporates — who really may not be concerned with the rails and mechanics that underpin transactions — will be able to make and receive payments in the manner they want, intuitively and with flexibility.
“If you want to originate on a card network, but pay out through an ACH network, let’s do it. If you want to originate an ACH and pay directly to an account, we can do that as well. That’s fundamentally the way we’ve got to remove the friction for buyers and suppliers and corporates,” he told Webster.
SMBs Need Help … And Eliminating The Check Is A Good Start
Removing friction is especially urgent for smaller firms, he said, who have been hard hit by the pandemic and economic headwinds. Getting up and running — online, and with a range of payment choices with the aid of platforms such as Visa’s Small Business Hub — is crucial for small- and medium-sized businesses (SMBs) headed into the holiday shopping season, and beyond.
The most immediate points of friction, of course, are tied to paper checks, where, as has been noted in past discussions, $20 trillion in paper checks are floating through the U.S. B2B space. In fact, as discussed in another chat between Webster and Deluxe CEO Barry McCarthy, paper check volumes are poised to increase when the recession is in the rearview mirror.
Moving fully into the digital age, maintained Phalen, will require a behavioral shift from the mindset that, for lower value disbursements, the quickest way to pay and get paid is through the check.
That shift will come, he predicted, rails are in place that can move those low-value disbursements very quickly and efficiently with the data that’s required.
“Even though big check disbursers are saying they’re growing, I fundamentally believe that in two years, we’re going to look back and we’re going to see that pivot down,” he told Webster. Visa’s own volumes show that checks are being displaced with Visa Direct and other transactions.
Digitalization will hasten the verticalization of payments, which is sorely lacking in segments such as healthcare, contended Phalen. Visa’s partnerships with FinTechs can help cut down on the paper that has clogged that system across a range of interactions, such as when hospital groups pay Big Pharma, or when insurance companies pay doctors individual disbursements for services rendered (leveraging Visa Direct for account to account payments).
Delving Into Digital Currencies
Beyond the most immediate challenges, we’re headed into a longer-term evolution where digital payments are paving the way for the adoption of digital currencies, spanning, as Webster noted, crypto, digital bitcoin, digital dollars and stablecoins.
Phalen noted that the discussion is accelerating around the creation and adoption of digital currencies — with some important stakeholders getting on board.
“Central banks around the world are now talking about it, discussing, looking for solutions,” he told Webster. “And once you have the central banks behind digital currencies and understanding the applicability, the usage, the capabilities, Visa as a network can come in and say, we can connect those dots for organizations around the world.”
Digital currencies, of course, have the potential to impact cross-border transactions. J.P. Morgan, for example, has said its JPM Coin is available for commercial use. Visa has recently teamed up with Ternio to help cryptos build on- and off-ramps from fiat to cryptocurrencies.
Improving Cross-Border Flows
But even now, with the rails in place, the capability is there to streamline and speed cross-border trade and transactions.
Before the pandemic, noted Phalen, where supply chains were interrupted, inefficiencies were glaring. Cross-border payments were multi-faceted endeavors that involved (and of course still involve) wire transfers, a lack of transparency, and the vagaries of shifting FX rates.
Through networks such as Visa B2B Connect, he said, platforms can bring together messaging, payment capabilities and settlement to address credit and trade financing activities.
“That’s where the market’s going. That’s where we’re investing,” he said, noting that “smaller firms, in the past, maybe had one or two partners outside the home market. Now it’s many more, and we’ve got to be able to facilitate trade for them.”
Looking ahead, 2020 will be a year that has been marked by payments innovation, bringing B2B ever closer to digitization and verticalization. But among the several paths to get there, he said, the overarching theme has been one of purpose-driven mission.
“It’s been very focused — with a way of getting rid of the things that don’t matter. You tear down your internal walls, you try and tear down some of your competitive walls,” he told Webster. “You figure out how to work together and you do it for a purpose. Fundamentally that’s a good thing, and hopefully we can carry it into 2021 and beyond.”