The middleware approach is the key to modernizing B2B payments

billtrust CEO way of flint predicted that B2B modernization would not happen all at once, underpinned by a global standard – a data language, so to speak – that directly connects buyers and suppliers, AR and AP departments.

“There are just too many people who should change the way they do things,” he told PYMNTS CEO Karen Webster, “and no one wants to come first.”

Here’s something else that won’t happen: the impending demise of checks – well, not anytime soon.

“They will continue to decline, and with the continued invention of better mechanisms to provide electronic payments, that decline is going to accelerate,” Lane said. “There won’t be a complete disappearance of paper checks – unless the post office starts charging a lot more for postage.”

Some behaviors are just too ingrained to let go completely. There are too many unbanked people in the country and too many businesses that love their checks and for some reason opt not adopt electronic means of transaction.

There’s another reason checks are proving so sticky, as Webster observed: they’ve become easier to process. Although they are fraud magnets, there are enough systems, technologies and software in place to make them easier to use, mainly through automation.

Indeed, for businesses that are determined to use them, it’s a case of “out of sight, out of mind” when paying by check, Lane said. These paper payments are routed directly to the bank’s vault, and the FIs have implemented automation around checks, also with automatic envelopes, scanners and OCR technology.

Also destined to decline but not to die: payment portals.

“They’re a hugely inefficient way to automate things,” he said, as companies send out invoices to customers. Portals will be favored by small businesses, which still act like consumers when looking to make payments online, but are not optimal for large businesses with thousands of suppliers they have to pay. In fact, Accounts Payable (AP) teams spend time and money building what are essentially robots that send thousands of payments through these electronic portals.

According to Lane, there’s something better than taking a piecemeal approach to automating parts of the B2B payments workflow: not having to automate in the first place.

If there’s one trend that will ripple through B2B, it’s digitization, as businesses present invoices and pay, and transfer billing and remittance data back and forth – and don’t have to tinker with back-office workflows.

The middleware approach

What B2B really needs, Lane said, is a universal translation layer — a set of middleware to streamline data and connectivity. He gave the example of the ATM network, where a multitude of different networks are still operating across the world – but regardless, there is middleware running through it.

In B2B, a translation layer “promotes interoperability between businesses to allow them to exchange electronic payments – and more importantly, electronic payment information is key to success here,” Lane noted.

He added that rich data feeds allow providers like Billtrust to go beyond traditional AR and AP routes and bring net terms, working capital and cash flow management to a platform. form which is essentially an innovation loop.

Look forward

“We believe that every business will need a digital address that does not yet exist,” he said, “so we are investing heavily in [Billtrust’s] Business Payments Network to establish a standard around digital addresses so that every business can be paid electronically easily without going through a complex discovery process.

Lane said there’s a 50% chance the ACH network will become the rails on which these digital payments travel and a 25% chance other infrastructure will gain favor – maybe real-time networks or maybe be something else. Public blockchain and stablecoins can be an option, with the latter pegged to the dollar for added stability.

“There are a lot of vendors on the accounts payable and accounts receivable side that automate both of these functions – but we rely on these archaic payment rails that don’t discount…and it’s not impossible that vendors come together and build a network,” Lane said.

And as the rails themselves modernize, buyers and suppliers are increasingly finding value in finding new ways to pay and manage net terms more efficiently, Lane predicted. So, with interest rates soaring, a 2% discount for paying in 10 days becomes an attractive way to manage cash.

“If interest rates continue to rise, not only will net terms return, but credit cards will become more attractive,” he said. In fact, there’s a 25% chance that credit cards will be a big part of the coming digital transformation, as checks continue to decline.

The big shake

As digitization takes over, the very landscape of vendors themselves will change. There will still be value in maintaining customer relationships on the AR side of the B2B transaction (and therefore a need for human staff) but AP will see a reduction in staff as tasks are taken over by machines.

It also means that the number of vendors of AP technology and solution companies will shrink amid a shake-up. There is not enough funding to keep all of these businesses alive, not in the current capital environment.

As Lane told Webster, “There are probably 15 of us focusing on accounts receivable. There are probably a hundred that focus on accounts payable – so it’s hard to think there won’t be consolidation there. They’re all chasing the virtual card swap, and it’s going to end. Not in three years, but at some point the party is over.