B2B e-commerce payments get stuck in the past
Millennials now represent more than a third of the workforce. Defined as those born between 1981 and 1996, they are the first generation to have been raised entirely on the computer. And they are rapidly moving into middle management and even senior management positions in companies.
The generation that fueled the business-to-business (B2C) e-commerce boom is rapidly changing the business-to-business landscape. A DHL Express white paper earlier this year said that by 2025, 80% of all B2B interactions between suppliers and buyers will take place over digital channels. The company cited the introduction of tech-savvy millennials into the workforce and the rapid acceleration of digital trends due to the COVID-19 pandemic that has forced large segments of the workforce global to switch to remote work.
B2C e-commerce volumes grew 40% year-over-year in 2020 across the DHL network. The company said it delivered 484 million shipments in 2020, about 9% more per day than in 2019. The increase in volumes led to record results for parent company Deutsche Post DHL Group. DHL Express saw its turnover increase by 11.9% in 2020.
As B2B e-commerce changes business, the way businesses transmit payment for such purchases is lagging behind. Bar Geron, co-founder and CEO of Balance, told Modern Shipper that the millennial influence in business is starting to drive change.
“Tradition is tradition,” he said. “B2B [was] built in a certain way with a certain type of people. Today 82% of business buyers are millennials, so things need to change as they have [a new] way of working and living.
Read: Millennials Fuel The B2B Ecommerce Landscape
Read: First retail, now B2B: face-to-face transactions collapse
Geron said more than 90% of global trade continues to be done offline – that is, through invoices and paper-based processes. Geron said that while B2C e-commerce is still only a very small part of overall e-commerce, B2B represents the bulk of the opportunities. Companies like Libra are therefore needed to make these transactions more fluid and transparent. B2B e-commerce in the United States will reach $ 9 trillion by the end of 2021, according to Forrester, compared to less than $ 3 trillion for retail.
“If they don’t use it offline, they won’t use it online,” he noted of the use of business credit cards.
Most companies still prefer to manage invoices, which is not a feasible solution in a digital market. They add time and complexity to a process that should be similar to the consumer experience with Amazon in which payments are made instantly, Geron said.
Balance allows businesses to pay themselves “easily and instantly, as if it were a card payment all the time,” he noted.
The company, based in New York City and Tel Aviv, Israel, charges businesses a nominal fee, which Geron says is typically around 35% lower than traditional credit card fees, to handle transactions. The company ensures that the transaction between the parties goes quickly and smoothly, which is important in today’s business environment where supply chain disruptions have forced some companies to seek other suppliers. This onboarding process can take months, however, through traditional channels.
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“You can carry out transactions with third parties that you do not know without facilitating [previous] confidence, ”said Geron.
Traditional payment in B2B commerce is “milestone-based,” said Geron. A shipper is paid when the item arrives at an agreed point in the supply chain – and so do lower level suppliers along the supply chain.
“It’s a whole different game,” observed Geron. “Now there are invoices… and an internal payment and approval process that you need to take care of. And there are payment terms. On the merchant side, you have a whole accounts payable process.
In the B2C world, businesses hire companies like Stripe to facilitate payments for consumers, who will pay Stripe, who pays the business, often before they even receive the consumer’s funds. Libra does the same thing, making payment to the business before the merchant makes the payment.
“Every type of service you provide has to be consumer grade,” said Geron. “It sounds like a cliché, but it’s important.
Geron said the transition to the B2B payments space is “not a good thing to have, it has to happen”.
“I think when you look to the future and try to say what’s going to happen next, what’s the next change and think about the potential of what it means to take the economy and move it into space. online and making it seamless like the Amazon experience is not only fun, it’s probably the next industrial revolution, ”he said.
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