The late Harvard Professor Clay Christensen was and is famed for the “jobs to be done” theory of business innovation.
In a nutshell: Companies (and even consumers) “hire” goods or services to get where they want to go, to make progress, to satisfy goals.
Kevin Phalen, head of global business solutions at Visa, told Karen Webster that the consumerization and the digitization of the B2B space are enabling firms to get the job — moving money — done with efficiencies previously unknown.
The great digital shift is upending B2B payments, pushing them away from the age-old reliance paper checks toward digital options. The movement to a distributed remote workforce has forced treasurers, chief financial officers and payments executives to rethink the very nature of B2B payments and the relationships between buyers and suppliers.
But the solutions they deploy, maintained Phalen, must be fast. Flexible. And above all: Safe.
“This year has seen a major, major shift,” he said during the keynote address for PYMNTS ongoing series on the transformation of the B2B landscape. “There have been changes that, if you would have asked me, sitting together last year, what we would be selling and thinking about, it’s very different.”
The walls are coming down between accounts receivables and payables between buyers and suppliers in a $120 trillion global commercials payments market.
At a high level among the key selling points for digitizing B2B payments, especially for small business and lower-middle-market companies, can boil down to one word: Safety.
“In our small business space and lower middle market spaces — who would have thought we would be thinking about selling safety, safety for buyers, for individuals, trying to figure out how to do what they need to do from a payment infrastructure perspective? “
Beyond The Safety Factor
The examination of underlying infrastructure comes as smaller firms have also been forced by the pandemic to rethink the way commerce happens.
We are amid the consumerization of B2B payments unfold in real time, mirroring and taking a cue from the mobile-driven ways that we get so much of daily life done.
In consumer-led commerce, mobile devices, apps and lightning-fast interactions online have become standard and expected. B2B is poised to make the same leap. In many cases, enterprises have had to build out eCommerce operations to connect with buyers and suppliers in new (touchless, paperless, work-from-home) ways.
Size-Agnostic Ripple Effect
We’re still a long way away from an end to end digital experience governing how corporates pay and get paid.
But, Phalen noted, the continuing deployment of tech-enabled accounts payables and receivables solutions (helped along by APIs) has gotten the ball rolling — and will prove sticky even after the pandemic is over and we return to office environments.
Phalen predicted a ripple effect for the consumerization of B2B payments, washing over corporates of all sizes, aided by advanced technologies such as machine learning, artificial intelligence (AI) and application programming interfaces (APIs).
“This is going to continue to accelerate as you move up into the more complex, upper-middle market enterprise-wide, large corporates,” he said. “It continues to evolve. But the pandemic really forced organizations to say, ‘I need to move into this digital environment because nobody is going into offices.’”
The Rise Of Virtual Cards
As the office doors remain shut, the doors have opened for other new, digital payment methods to take root. Drilling down a bit, while virtual cards may have been stuck, effectively, in limbo, now they’re increasingly on smaller entities’ radars.
“Virtual cards have been the fastest growing form factor within the card networks,” remarked Phalen. “We expect that that’s going to continue. The shift has been is that in that need to get paid, all of a sudden, the supplier sees the benefit, the buyers see the benefit.”
Delivering on change and making that change stick are two different things.
And, as Phalen noted, different stakeholders across the B2B ecosystem need to see different levels of change to feel entirely comfortable with digitization.
“For financial institutions and the conversations we’ve had especially during the pandemic, it’s been very much around AP and AR,” he said.
That’s a broadening from conversations a few years ago that focused solely on integrated payables. “It’s a connected or collaborative commerce [mindset] — that financial institutions need to bring together all components of the AP and AR side of their organizations and bring those solutions to organizations in a very collaborative way.”
The Growth Of Collaboration
We’re in an age when every buyer is a supplier and every supplier is a buyer.
And in the move to modernize B2B functions, noted Phalen, back-office initiatives “in the past it may have been focused on integrated payables. I really think now it’s collaborative commerce and it requires both the AP and the AR sides of FIs to get together.”
That collaborative shift has left FinTechs well positioned to deliver integrated cash flow management offerings to their FI and corporate clients, noted Phalen, helping break down silos within companies and between them.
Looking ahead, he said, corporate chief financial officers and treasurers are still trying to figure out how to embrace digital payments not only survive the pandemic, but to make sure they can thrive well into the future.
“I don’t think we’re going to go back to the way we were at the beginning of 2020. So, I do think this change is going to continue to be fundamental. I do think the pandemic also highlighted a lot of supply chain issues around the world, that payments are central too. So, I do think what’s being deployed will continue to be deployed and be accelerated as we move on.”