Digitising consumption in Africa has made significant progress. But digitally transforming boring business processes like how businesses pay other businesses has remained largely unchanged. However, now that entrepreneurs and investors are prioritising profitability over hyper-fast growth, business-to-business everything is sharply shifting into focus globally. One result is that paytech companies are now aggressively courting the drab world of B2B payment flows to find fintech fortune.
But what it will take to unlock fortune from how businesses manage everything from invoicing and accounts payable to the treasury is far from certain.
To understand why payment companies want to consumerise payments made by large, small, and medium-sized business concerns, you have to understand just how much businesses pay to other businesses each year.
Globally, a lot of B2B payments happen offline in banking halls between businesses scattered all over the world—sometimes in cash. US fintech-focused investment banking firm, FT Partners, puts the value of B2B payments in the US at a whopping $29 trillion—including payments from large corporates. It is generally accepted that globally, more than $120 trillion moves between businesses each year.
It is this $120+ trillion in global business payments flows that ambitious fintech teams are keen to collect market share on. For context, consumer-to-business payments top off at around $20 trillion globally.
To bring the conversation closer to home, a 2016 World Bank report suggests that excluding large corporates, micro, small, and medium retailers (MSMRs) in sub-Saharan Africa paid their suppliers as much as $1.5 trillion in 2015. These businesses and retailers are a non-trivial percent of Africa’s entrepreneurial pool and, despite recurring economic setbacks, continue to serve as the mainstay of economic growth.
The challenge of digitising how businesses pay
B2B payments have remained stuck in time because it is more of a complex series of administrative work than it is actually making a payment.
To pay for what’s in your Amazon cart, you simply checkout with your credit or debit card. A B2B payment transaction starts from the point where a purchase order is initiated. Then a back-and-forth ensues between vendor and business to settle payment terms. As there is no definite payment flow which all businesses follow, each business has different payment rules and admin processes related to it.
Furthermore, B2B payments are push payments, meaning the payer has to remember to send the money as opposed to the receiver being in control of collecting funds (pull payments), as is the case with consumer payments.
The friction, costs, and potential for mistakes and fraud associated with B2B payments combine to affect the cash flow of businesses. A Quickbooks survey of 3,500 businesses in 6 countries last year reported that 23% of small businesses receive payments late. When suppliers and vendors are not paid on time, they have to find capital from other sources to meet their business obligations. Where they cannot find the money, the business may die.
This potent mix of problems combined with advancements in payment technology and the fact that individuals are simply used to making near-seamless consumer payments has made tackling B2B payments more attractive. “We’re seeing that businesses are relying less and less on cash,” Yele Oyekola, co-founder and CEO of Duplo, a business payment firm in Nigeria told TechCabal.
On the other hand, while some of the problems with B2B payments can be resolved by streamlining payment terms, getting businesses to use one-size-fits-all payment terms is a near impossibility. Because, among other reasons, businesses, like vendors, also have to manage cash flow. In the Quickbooks report mentioned earlier, 79% of small businesses surveyed said they struggled to meet their payment obligations due to cash flow problems. One effect of this late-payment loop is further divergence in how businesses collect their money. Thus, businesses adopt different payment terms that prioritise which supplier receives what payment and when.
This is partly why business payment needs are too diverse—even compared to consumer payments.
To get around late receivables, Nigeria’s Duplo advances payment to vendors and takes over collections for a fee in much the same way factoring works.
Fixing B2B payments
The evolution of consumer payment methods is spilling over and putting pressure on businesses to change how they make and receive payments. According to Duplo’s B2B payment report, this shift is visible in how the amount of cash handled by businesses is on the decline.
“When Duplo started, we had about 10 FMCG businesses that made 96–97% of their payments in cash. Over the past five or six months, we’ve seen that number go down to about 70%,” Oyekola said.
To be fair, cash lost its throne for B2B payments long ago, especially for the large to mid-sized businesses that Duplo targets. Most of these businesses use cheques or bank transfers to pay their vendors.
Getting businesses to adopt uniform payment processes is impractical because business payments is a wild diverse space. So B2B paytechs tend to build solutions for specific use cases in accounts payable, accounts receivable, bookkeeping, treasury, and taxes. But there’s a catch. Building fragmented pieces like this may end up making the entire payment process too much of a pain. At the same time, while you may reasonably customise solutions for the 400 African firms generating revenues in excess of $1 billion, or the 700 who earn $500 million per year, you cannot really build a custom solution for every one of sub-Saharan Africa’s 44 million MSMEs.
But these businesses can be grouped into large classes and even then, they remain big enough to justify being classed.
While small businesses value consumer-style payment solutions, quick invoice settlement and intuitive reconciliation, large enterprises expect sophistication, without compromising simplicity or efficiency. Larger businesses will value integrated solutions that are simple and efficient. “They are trying to reduce their channels, systems, connection points and contracts,” wrote Visa’s global head of business solutions, Darren Parslow, on LinkedIn.
To meet this need, B2B paytechs need to build solutions that efficiently reduce the admin touchpoints or latch onto existing systems without creating additional complexity while remaining secure.
Africa’s business payment firms may also discover that solving for one side of the payment transaction is incomplete. Ultimately, they will need to solve for all sides of a business transaction. This means enabling the buyer to pay how it fits them, or with minor compromises, and empowering suppliers to receive money how and when is best for their business.
In other words, payment fintechs tackling B2B payments will need to deeply understand the businesses of their customers in order to build solutions that serve them best. It may also mean leveraging—instead of displacing—traditional financial institutions to build meaningful relationships with their customers. Duplo for example is piloting a scheme that allows buyers to get stock up front and pay later.
Far from simply fixing payments, digitising B2B payments is really about transforming a huge part of the back-office of a business transaction. “A potential blindspot is forgetting that payments are part of the larger transaction experience, and it’s likely the one people don’t want to deal with the most,” Stephen Deng, co-founder and partner of DFS Lab, a venture capital outfit, said.
With real-time payment becoming much more widespread, simply facilitating payments cannot be enough. The real opportunity may well lie in providing context-informed solutions that cut across treasury management, invoicing, reconciliation, and internal compliance controls.
“You can design a very interactive, branded, and strong payment UX, but if people really want a brilliant transaction experience with minimal (fast, cheap, reliable) payments experience, then you’ll have overengineered the wrong part of the solution,” Deng added.