How Fintech is Revolutionizing B2B Payments

In just a couple of years, fintech advancements in Banking-as-a Service have brought significant changes to the way we make payments for products and services. Among the sectors that have been revolutionized, the business-to-business (B2B) payments space is a prime example of this progress. 

Today, B2B transactions are less expensive, more efficient, and more secure than ever before. This transformation is largely due to fintech innovations that are driving growth and progress in B2B payments. 

But how are startups so drastically altering the B2B payments space? 

To understand that, we’ll have to take a closer look at traditional B2B payment methods, the areas where these options fall short, and discuss how fintechs are creating more holistic digital alternatives for businesses.  

Traditional B2B Payments

A B2B payment is the transfer of money from one business to another in exchange for goods or services. The payment may be a one-time transaction, a recurring payment, or fall somewhere in between, based on the agreed-upon terms between the supplier and the buyer.

Compared to business-to-consumer (B2C) payments, B2B payments are generally more intricate. The processing of B2B payments involves more protracted periods of approval and settlement, which can take days or even weeks longer than B2C payments which are usually processed instantly.

Traditional B2B Payment Methods

Businesses have access to a variety of B2B payment options, but there are five types of B2B payment methods that are commonly used, including:

• Checks
• ACH payments
• Wire transfers
• Credit cards
• Cash

Each of these payment methods has its own set of advantages and disadvantages when compared to the others.

Checks

Traditional paper checks are the most widely used method of B2B payment, accounting for 80% of all B2B payments.

Pros:

• Traditional and widely accepted form of payment
• Low processing fees compared to credit cards
• Provides a physical record of the transaction

Cons:

• Risk of fraud and bad checks
• Slow processing times
• Potential for lost or stolen checks

ACH Payments

Automated Clearing House (ACH) payments are projected to soon make up around 50% of all B2B payments, according to NACHA. Currently, ACH payments account for 93% of payroll direct deposits.

Pros:

• Fast and secure
• Lower processing fees than credit cards
• Eliminates need for physical checks

Cons:

• Possibility of incorrect or fraudulent transactions
• Processing times may vary
• May require additional setup and processing fees

Wire Transfers

Wire transfers are used in only 1% of total B2B payments but account for 93% of funds transferred between businesses. Wire transfers can be executed through Fedwire, CHIPS, and RTP.

Pros:

• Fast and secure
• Reliable for high-value transactions
• International transfers available

Cons:

• High processing fees
• Lack of transparency in the transaction process
• May require specific bank account information

Credit Cards

Credit cards are not the preferred method for B2B payments due to the high processing fees of 3-4%. However, despite this, up to 93% of businesses still accept credit card payments.

Pros:

• Fast and convenient
• Can help build credit history
• Fraud protection measures in place

Cons:

• High processing fees
• Risk of fraud and chargebacks
• May not be a preferred method for larger transactions due to transaction limits

Cash

Although not a typical option for B2B payments, cash is still used by up to 70% of small businesses for transactions.

Pros:

• Fast and convenient
• No processing fees
• Provides a physical record of the transaction

Cons:

• Risk of loss or theft
• Limited documentation and record-keeping
• May not be a preferred method for larger transactions due to security concerns

Each traditional B2B payment method has its own set of disadvantages. With ACH payments, wire transfers, and credit cards, various fees can add additional costs to B2B payments. Traditional paper checks, while widely accepted, have archaically slow processing times. Outside of cash, each of these traditional B2B payment methods is open to some form of potential fraud, and security measures vary greatly between them. 

In the realm of traditional B2B payment methods, no one option truly hits the sweet spot between cost-effectiveness, efficiency, and security. And that’s where fintechs are making an impact. 

Advantages of Digital B2B Payments

The advent of digital payments has revolutionized the way businesses make and manage payments, offering a range of benefits that have transformed the payment landscape. From increased cost savings and efficiency to improved security, digital B2B payments provide businesses with a more streamlined and effective way to handle their financial transactions.

Cost-effectiveness

Digital B2B payments are generally more cost effective than traditional payment methods. For example, wire transfers, and even ACH payments, can be expensive due to transaction fees and processing costs.

Efficiency

Digital B2B payments are much faster and more efficient than traditional payment methods. It can take days for an ACH payment to go through and up to several weeks for a check to clear. Quicker, more efficient transactions help businesses improve cash flow and support their operations.

Security

Digital B2B payments are more secure than traditional payment methods, which are susceptible to fraud and human error. Digital payments are protected by advanced security measures, such as encryption and multi-factor authentication, which help to prevent fraud and ensure the integrity of the payment.

Now that we’ve discussed the advantages of digital B2B payments over traditional methods, let’s look at how fintechs are creating solutions to leverage these advantages.  

Fintech’s Impact on B2B Payments: 3 Ways it’s Changing the Game

As previously mentioned, B2B payments can be hindered by their lengthy processing and settlement times, as well as their high cost and lack of security. In recent years, fintech companies have been working to enhance B2B payments by implementing various improvements, which include:

• Cheaper tools for digital payments 
• More efficient software
• Modernized security

Below, we’ll take a closer look at each of the ways fintech is improving B2B payments. 

1. Digital Payments and Automation Reduce Costs

By creating low-cost digital payment solutions, such as virtual credit cards, startups are eliminating the need for traditional paper checks and wire transfers. The digitization of payments reduces the overall effort required to process payments. This reduces overhead for the payments provider, which, in turn, can be passed on to the business in the form of low-cost, or even zero, fees. 

Another way fintechs are creating savings for businesses is through the development of automated tools. Software and tools that automate B2B payment processes streamline operations and reduce the need for manual labor, which can ultimately lead to cost savings.

2. Better Payments Software Increase Efficiency

Improved B2B payment software has become a priority for fintech companies, as it allows for more efficient and streamlined payment processes. Many businesses continue to rely on outdated software for managing payments, which can be a significant hurdle. 

Fintechs have developed modern payment software that simplifies payment tracking and management, providing reminders for payment due dates, and offering a range of payment options and financing solutions. This increased flexibility makes it easier for lenders to connect with businesses in need of funding and simplifies the funding process for businesses as well.

3. Data-Driven and AI Improve Security

Security breaches and data hacking incidents have plagued both the B2B and B2C spaces, leading to concerns about the adoption of new payment platforms. This is particularly true for businesses that have traditionally relied on cash or check payments.

To address these concerns, fintech companies have been focusing on enhancing the security of B2B payments through innovations in AI and data analytics. By implementing real-time fraud detection systems, these technologies make digital payment methods more secure, and thus, more viable for B2B transactions.

Final Thoughts

The fintech industry has brought (and will continue to bring) significant changes to the B2B payments landscape. The old methods of making B2B payments are flawed, in one way or another, and fintechs are working to eliminate these issues.

With the advent of digital payments, businesses have gained access to more cost-effective, efficient, and secure payment options that don’t suffer from the shortcomings of traditional B2B payment methods. By implementing these solutions, businesses can be faster, more fine-tuned, and worry less when it comes to B2B payments. That’s the kind of innovation that supports their building a better business.

Frank Gogol

A seasoned SEO expert, Frank has a long history of working with and for startups. Starting in mid-2018, Frank served as the SEO Strategist for Stilt, a fintech startup that provided fair loans for immigrants in the US and other underserved markets. While with the company, he scaled site traffic from zero to more than 1.5 million unique visits per month, driving the bulk of the company’s lead generation until it was acquired by J.G. Wentworth in December 2022. As employee #5 at Stilt, Frank was witness to, and part of, the successful building and sale of a fintech company, uniquely positioning him to create content for founders about all things startups.

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