B2B payments ready to be disrupted amidst growing digitization in rising markets
In a nutshell
While consumer payments are fairly digitized, most business payments are not. Companies in rising markets are increasingly going online for both purchasing and selling, but payments in the B2B space are not digitizing as quickly.
Companies complain about the lack of payment options for B2B transactions, the impossibility of paying in local currency, time-consuming invoicing, and high fees. Overall, around half of B2B invoices are overdue, per a 2023 survey.
B2B payments must level up with their B2C equivalents, becoming more intuitive, timely, and connected with day-to-day methods.
The rise of B2B marketplaces is driving the need for digital business payments in emerging markets, especially for cross-border purchases — where North America, China, and Europe are the leading trade partners.
The uptake: Offering local payment options can raise approval rates, speed up payment transactions, and help companies reach a larger addressable market in rising markets.
The last few years have been transformative for rising markets when it comes to digitization
The last few years have been transformative for rising markets when it comes to digitization: people have access to financial accounts, digital payments, and online services at their fingertips — but while consumer payments are fairly digitized and easy to use, most business payments are not. Therein lies the challenge of B2B payments in rising economies.
Whether it’s a business in Latin America engaging with a global SaaS provider, or an African mom-and-pop store importing from an e-commerce gateway, most companies and entrepreneurs in rising markets rely on complex, time-consuming, and non-digital payments. Typical B2B payments take up to 14 days to be confirmed and involve up to six intermediaries, with low visibility and high fees.
This pain point is shared by small, large, and enterprise companies, and is particularly frustrating for international transactions. "[B2B] is a market only now becoming digitized, with a huge business opportunity," says Lindsay Lehr, Managing Director from PCMI (Payments and Commerce Market Intelligence).
Estimates from Capgemini Research Institute show that the B2B digital payments market should expand by 11% annually through 2027. Rising markets Latin America, Asia, and Africa are developing at a 14% annual rate and are expected to reach 40% of the global volume by 2027.
The volume of B2B digital transactions tends to grow as more and more businesses go online — especially small and medium companies. SMBs (small and medium businesses) are the backbone of rising economies: they contribute up to 40% of national income in emerging markets and are responsible for 7 out of 10 jobs, per the World Bank. As they go online, a latent demand for digital products and services is being unlocked. And yet, their payment needs are still unfulfilled.
Businesses go digital, and so should payments
The surge in demand for digital B2B payments is fueled by companies acquiring online software licenses, cloud services, travel reservations, and an increased reliance on digital finance. Notably, placing online orders has become a more prevalent practice among companies compared to receiving online orders, as indicated by data from OECD and UNCTAD.
28th October 2024
is the scheduled launch date of Auto Pix
Around half of businesses worldwide make purchases through the internet, a percentage that reaches 63% in India, 64% in Brazil, and an impressive 85% in Colombia.
Most companies today are also connected to the internet (97%), have a website (78%), are on social media (63%), or use cloud computing services (45%), per OECD numbers.
Companies in rising markets stand out when it comes to e-commerce adoption. The percentage of businesses making extensive use of online sales has jumped aggressively during the last decade, as has online purchasing. In Colombia, Brazil, and India, more than 70% of businesses will make online orders by 2030, significantly above the global average of 49%.
However, most of the B2B payment flow is still conducted offline. A recent estimation says that only 30% of B2B payments are digital, compared with nearly 70% of B2C, per Capgemini.
"An increasing share of business spending is getting transferred digitally, but most of it is still done manually and using traditional bank transfers. This isn't a simple web checkout; it's wire transfers, invoice instructions, and other complex and time-consuming procedures," says Lehr.
International trade pushes demand for B2B digital payments
Businesses in rising markets also make significant use of international purchases. A World Bank survey shows that nearly 70% of firms in Latin America and 60% in Sub-Saharan Africa use supplies of foreign origin, and approximately 15% have technology licensed from foreign companies. In Africa, even food is imported, and cross-border small traders are common across the region.
In 2022, the import trade volume in Africa, Latin America, and India reached USD 3.7 trillion, a 10-year record, according to UNCTAD. Manufactured goods, tech and computer services, and professional consulting made most of the imports in these regions. Despite the South-South trade increasing by 13%, North America, China, and Europe stand out as the leading trade partners of rising markets.
Digital trade also expanded: digitally-deliverable services registered a 7% annual growth in emerging economies between 2019 and 2022, per UNCTAD data – almost twice the 4% rate of developed economies. In 2020, at the peak of the pandemic, digital services reached a 45% share of total trade in services in these economies.
Nevertheless, most cross-border trade is still paid non-digitally. In Africa, for instance, 80% of importers use cash to purchase goods from abroad, according to an AfricaNenda report. However, almost half of them accept digital payments for selling goods, and 81% have a mobile money account – which shows a disconnection between how companies pay and how they handle their day-to-day financial flow.
The rise of B2B marketplaces is pushing demand for cross-border digital payments
A particular phenomenon is pushing cross-border payment needs for companies: the emergence of B2B marketplaces. As more sales shift to online channels, large corporations and B2B firms are seeking and building their own online platforms.
In practice, they are true "market makers," matching supply with demand and facilitating transactions, as pointed out by a comprehensive report on digital trade written by the World Trade Organization, OECD, IMF, and the United Nations.
"Often considered as 'catalysts' of digitalization, online platforms have transformed not only retail and wholesale trade marketplaces, but also industries such as accommodation, transport, and food services, as well as many B2B transactions," reads the document.
In rising economies, these marketplaces are present in a multitude of industries like retail, construction, custom-manufacturing, apparel, and even agriculture (where they are connecting food retailers with farmers).
A recent report from Korefusion highlights the importance of B2B marketplaces in these economies. "B2B marketplaces across the world, and especially in Emerging Markets, became a hotspot of growth and investment in the past year. Given the much larger underlying trade flows in B2B, these marketplaces have the potential to overtake their B2C equivalents, as the B2B space catches up with B2C in terms of digitalization."
The report calls attention to India, Southeast Asia, and Africa as hotbeds for B2B marketplaces, serving mom-and-pop shops, informal retailers, and large buyers. In Latin America, the phenomenon has been driven by sizable players in the consumer goods sector, such as Coca-Cola, Unilever, and AB InBev.
In Africa, B2B marketplaces are emerging as a solution to lower logistical costs and eliminate intermediaries. They facilitate connections between manufacturers and small merchants, farmers and retailers, and similar partnerships. These platforms "can undertake bulk payments and deliveries, reducing effort and cost; churn [aka customer attrition] on B2B platforms is also much lower than B2C e-commerce, at approximately 40% versus 80%, which means B2B platforms are much better able to retain their sellers," reads a report from GSMA.
The main pain points of B2B payments: lack of digital options and time-consuming invoicing
Despite all the advances of the expanding market, processing cross-border B2B transactions today is a burden for companies, especially in rising markets. Those who currently use EBANX as a B2B payment partner have said that their main pain points in the past were the lack of local payment options and the time-consuming processes for charging and invoicing customers.
"The B2B space still has a lot of things to develop, especially regarding automation," says Sebastian Fantini, Product Director at EBANX. "Most companies rely on manual processes for both charging and invoicing. There's a lack of interoperability and little or no offer of local payment methods."
Among SMBs, these limitations are even more distressing. Many smaller businesses need multiple relationships to support their cross-border payment needs, having accounts with several banks and payment service providers (PSPs). Documentation requests for compliance and regulatory purposes are overwhelming, especially considering their lean structure, and integrating with multiple PSPs is time-consuming and, most of the time, impractical due to a lack of resources and expertise. Businesses complain of payment delays and are susceptible to fraud and cyber threats, per a Capgemini report.
"There is just a total lack of payment methods and financial services," says Lehr from PCMI. Many of them used money transfer services, which have strict transaction limits and expensive fees. "People would say that they had to get 10 friends, for example, to make each one a transaction to be able to import merchandise worth USD 10,000. It's a massive problem."
Meanwhile, in Africa, a Stears survey with over 1,200 companies showed that 64% of businesses had lost a cross-border sale due to a lack of appropriate payment methods.
A look at the B2B payment flow helps to explain why the process is so overwhelming. It is a back-and-forth process that depends on up to six intermediaries. On average, it takes 14 days to pay a single invoice, compared to B2C, which takes a day or two. Invoices are frequently handled and tracked manually, and there is nothing real-time about B2B payments.
B2B Flow
B2C Flow
Performance is another challenge for B2B payments: high-value transactions usually face operational limits within the available payment methods, or they are scarcely approved. PSPs must maintain a close relationship with acquirers and issuers to comply with any mandatory requirements for B2B payments, ensuring adequate approval rates.
"We need to be intimately connected to partners and issuers, knowing how they are setting their product so we can ensure that B2B transaction is going to be approved. Otherwise, it would be impossible to approve it," says Borges from EBANX.
It is no surprise that over half of B2B invoices are past due, according to Atradius. More importantly, the complexity of this process increases costs by 5% per transaction, per Capgemini, reducing the competitiveness and agility of businesses worldwide.
Local digital payments can level up the game in the B2B space
Offering local digital payments, going beyond wire transfers, is crucial for B2B companies that want more timely invoicing and payment confirmation. In rising markets, that means offering more intuitive solutions that mirror what already happens in the B2C space.
"We need to give more instruments for businesses to pay: if you offer Pix in Brazil or bank transfer in Nigeria, for example, everybody will know how to do this, because these are the most used payment methods in these countries," says Fantini, from EBANX. "In other words, we need to level up the offering of digital payments in the B2B flow."
Businesses want more straightforward solutions to pay: a recent GSMA survey showed that cash, mobile money, and bank transfers are the most preferred payment methods among SMBs in Africa. More than this, 40% of SMBs in the region already use digital payments on a daily basis, way ahead of individuals, with only 10% of daily adoption.
Using QR codes or payment links to issue and pay invoices, for example, facilitates payments for customers and gives sellers visibility on the transaction confirmation. These instruments help make B2B payments more similar to a pull payment (when the receiver is in control of collecting funds) than a push payment (when it is up to the payer to initiate the process).
Having well-known local methods (like instant transfers, cash vouchers, mobile money, or local cards) and, more importantly, allowing the customer to choose their preferred payment option eases the process for the payee when compared to a wire transfer. "Businesses want intuitive financial tools that mirror the consumer applications their customers love," says Fantini.
Currently, B2B marketplaces are at the forefront of payment innovation in rising economies, accepting options such as instant payments, digital wallets, cash on delivery, mobile money, installments, and even Buy Now Pay Later proprietary solutions. It is no surprise that they are gaining traction in these markets, given their knowledge of local payment behavior.
Offering local payments generates revenue for B2B businesses
In the end, offering local B2B payments brings revenue to companies and allows them to reach more customers. At EBANX, most B2B sales volume is processed with alternative payment methods, such as Pix, and bank transfers.
"When companies like EBANX offer this, not only dealing with overheads and taking care of all complexities but making local payment options available for B2B transactions, it's tremendous. This is breaking down poor legacy services and bringing more digitization and services to a piece of the chain that has been forgotten," comments André Allain, Vice President of Global Expansion & Market Development at EBANX.
This is especially significant when considering that about half of businesses have overdue invoices, according to Atradius data. Offering widespread, easy-to-use payment methods helps customers pay for their B2B purchases more efficiently. Also, a wide range of payment options allows companies of different sizes and profiles to pay for products and services. By extending the offering of payment methods, B2B companies can address and onboard most of these businesses.
This is why digital payments allow companies to scale their B2B operations. "Once we have a complete portfolio of payment methods that mirrors how businesses are dealing with technology, we'll be able to grow with them," says Juliana Borges, director of Operations at EBANX.
Features such as UPI-PayNow (a cross-border transfer service between India and Singapore) and Auto Pix (a recurring payments feature for Brazil's instant payment system coming October 2024) should further speed up B2B digital payments in rising markets.
