In an increasingly electronically enabled world, paper checks might seem like a quaint vestige of an earlier, slower age. And yet paper checks still account for nearly three-quarters of the $36 trillion in B2B payments. Now, however, new B2B e-payment ecosystems are taking shape that may finally tip the balance of payments toward the electronic side and give buying organizations a "one-stop shop" for managing all their payments to suppliers.
The move to eliminate paper from the payments process is being driven, in part, by the quest to reduce this cost of doing business. "As corporations search for new ways to reduce costs, there is a fair amount of re-examination in how buyers handle their largely manual, paper-intensive business-to-business transactions processes," argues Celent, the financial services advisory firm, in its new report, "After the Purchase Order: Easing Pain Points in B2B Transactions." Celent writes that buying organization are looking to do away with the paper, reduce headcount and put themselves in a position to get cash to suppliers faster. "But, to date, no one solution has proved robust enough to emerge as a clear winner" that could provide a comprehensive payments solution.
Solutions may be taking shape that will address this challenge, however. Forrester Research, in its October 2008 report "A Few Supplier Networks Will Prevail, Thanks to the Need for Interoperability," offers a vision for interoperating payment and supplier networks. The report postulates that the growing supplier network market for will soon be forced to consolidate as players in the market seek economies of scale, buying organizations seek more open solutions that allow greater freedom of choice for their suppliers, and third-party service providers offer solutions that allow networks to coalesce into end-to-end, procure-to-pay systems.
As an example of the latter, Forrester cites the MasterCard Payment Gateway. A gateway, in Forrester's definition, provides "a complete, automated way to pay all of an enterprise's suppliers." MasterCard launched its Payment Gateway in October 2007 with the objective of capturing and processing virtually all of an enterprise's electronic payments, whether through payment cards or electronic funds transfer (EFT).
Shari Krikorian, vice president for advanced payments at MasterCard Worldwide, notes that traditionally companies have been sold different payment products in silos by their banks. "As a result, a single company might be supporting multiple interfaces, multiple workstations, multiple connections and disparate workflows for different payment types," Krikorian says. "So there has been a desire to have all this brought together into a single interface that could handle all payments."
Wells Fargo was the first bank to offer the MasterCard Payment Gateway to its commercial customers. For the bank, the benefit is increased "stickiness" with its customers providing for all their payment processing needs, thereby increasing their own payment volumes. For suppliers, the gateway offers the efficiency of straight-through processing and automated reconciliation thanks to the richer remittance information that can be provided through the system. Buyers gain the efficiency and security that comes from simplifying workflows and eliminating the need to support multiple interfaces to multiple banks for multiple payment products.
Significant obstacles remain to the broader spread of B2B e-payment ecosystems, including the need for various buyer and supplier networks to adopt open systems capable of interoperating with one another. Inertia, too, is an impediment – paper checks and letters of credit have so far withstood the encroachment of electronic forms of payment quite nicely. However, as buyers and suppliers come to recognize the potential for squeezing costs out of inefficient paper processes, and as solution providers offer more technologies that fill gaps in the end-to-end e-payment process, B2B e-payments ecosystems look set to thrive.