Tech companies, such as Apple, Facebook, Square and Venmo, have been moving into payments over the past several years, dramatically changing the way consumers pay for things. Checks and cash are fading as people increasingly pay using their phones or take advantage of in-app payment capabilities. But what about business payments?
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Companies on average are still making 51 percent of their payments via check. For many, it’s much higher. But, that is finally changing. In the last eight years, venture investments have targeted the business-to-business payments space. It’s a market that’s 10 times the size of the consumer payments in terms of volume, and one where solutions are more complex to build and scale. Change takes longer because the challenges are bigger.
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B2B payments are fundamentally different than consumer payments, for three main reasons. First, there is the sheer volume of payments businesses make. A small enterprise might be making 100,000 payments a year on 200,000 invoices, and working with 10,000 different suppliers.
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Second, in order to pay your supplier electronically, you need to know what types of payments they accept, where to send them, what format to send them in, who the remittance contact is and, if they prefer automated clearing house or ACH payments, what their bank account number and routing number are. Once collected, this financial information must be securely stored.
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The third and final thing is the dynamic nature of the data. You have this huge volume of sensitive data that has to be collected, and then it is always changing. Suppliers change, their contact people change, and banking details change. The sheer effort of collecting, maintaining and securely storing supplier information has been a huge barrier to automating B2B payments, but it’s finally happening. Here’s what’s new:
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1. Truly automated payments
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Up until now, most U.S. business have thought of electronic…