The global business-to-business (B2B) payments market has grown considerably through the last decade, and it will continue to do so. A report by Goldman Sachs found that B2B payments account for $127+ trillion in payment flows and are expected to reach $200 trillion by 2028.
That’s over five times the transaction volume between businesses and consumers (B2C).
In this regard, the B2B payments market towers over its B2C counterpart like a giant. But with manual, paper-based processes and outdated payment methods all too common with B2B payments, it can be seen as more of a slow, lumbering giant of mythology when compared to retail payments, which have seen sizable innovation in recent years.
Granted, B2B payments are far more complicated than retail, requiring longer decision-making processes and more complicated payment terms. This makes the process of modernizing these payment systems much more involved. Nevertheless, people now expect more convenience and ease during the payment process.
And it is people who make the decisions behind B2B payments.
Businesses are catching on, and those in the payments industry are lending a hand by creating solutions backed by blockchain technology. Mastercard, for example, created a solution involving blockchain that improves supply chain traceability and streamlines B2B payments.
In this blog post, you’ll learn some key advantages (as well as some potential challenges) of using blockchain and enabling cryptocurrency transactions for B2B payments, highlighting the need to modernize B2B payment systems using blockchain technology.
1. Lower Transaction Fees
One of the biggest features of blockchain technology is decentralization. No centralized entity is needed to act as a trusted third-party for transactions, meaning no third-party processing or maintenance fees. There are still transaction fees for crypto payments, but they are lower than those of wire transfers and credit card transactions.
2. Faster Settlements
The removal of third parties also makes for faster settlements. Blockchain transactions need to be confirmed only by the blockchain itself, so transactions can be confirmed in an hour or less. This is especially significant for cross-border transfers, as those can take up to five days using traditional means.
3. Automated Transactions
Transactions can be automated using smart contracts. Smart contracts are a property of blockchain technology that make it possible to execute a transaction when predefined conditions are met. This can speed up payments even more by doing away with manual invoicing and payment processes. Smart contracts can even be combined with IoT devices to replenish materials. For instance, a manufacturing plant sensor could detect when a new part is needed and initiate a purchase with predefined pricing and payment terms.
4. Improved Security
Transactions on a blockchain are immutable, meaning that, once confirmed, they cannot be undone. The blockchain becomes the single source of truth for the buyer and the seller, which mitigates fraudulent activities. In addition to this, data stored on a blockchain is incredibly secure. Unlike centralized databases, data on a blockchain is stored across shared ledgers and protected with built-in cryptography, making it much harder for a hacker to access or change the data.
5. Flexible Payment Options
While even checks (which come with their own headaches) are still widely used in B2B transactions, it won’t be long until payment options like crypto, virtual cards, and buy now, pay later become the norm — just as they are gaining rapid adoption in the B2C sector. Blockchain technology can accommodate flexible payment options like these, which can encourage faster payments as well as improve customer satisfaction and loyalty.
Challenges of cryptocurrency as a payment method
Though the ability to accept cryptocurrency as payment — both in a B2B and a retail context — has many benefits, it’s not without its challenges.
Time for transaction finality
Transaction finality describes the state of a transaction on a blockchain when it is considered complete and irreversible. Bitcoin, for example, has an average time to finality of 60 minutes. Layer 2 solutions are an answer to this. These solutions, like the Bitcoin Lightning Network, seek to increase the speed and efficiency of blockchains by processing transactions on a different layer (layer 2) on top of the first layer without compromising the integrity of the blockchain.
Volatility of value
Cryptocurrency values can be extremely volatile, which is a major reason why cryptocurrencies have not seen more adoption as a form of payment. The worry for businesses is that after accepting a form of cryptocurrency in exchange for a good or service, the value of it could drop sharply. To ease this worry, stablecoins can bridge the gap between fiat and crypto. Stablecoins are cryptocurrency designed to maintain a stable price by being tied to a real-world asset such as the U.S. dollar.
Widespread modernization of B2B payment systems through adoption of blockchain technology will take some time, but it’s essential in order to gain the benefits of lower transaction fees, faster settlements, automated transactions, improved security, flexible payment options, and more. Moving away from traditional processes and legacy systems is needed for this, but it takes intricateknowledge of digital infrastructures in addition to payment processing, so it’s often advised to work with a trusted partner during these modernization efforts.
We’ve Been That Partner
One of our clients, a fintech startup, was looking to release a peer-to-peer, mobile-based lending application. They enlisted our help to do it. The application needed a way to perform direct bank-to-bank transactions and to securely store sensitive data. To those ends, we developed a scalable and high-performance blockchain-based solution. With it, the application could integrate with banks through Open Banking APIs and PSD2, as well as securely store credit information, trust scores, and transaction data.
The client was also able to automate the lending, borrowing, and trust management process using smart contracts on the blockchain. This resulted in real-time settlement and auditing with reduced processing times.
What Relevantz Can Do for You
To get your organization started with blockchain, Relevantz can conduct a Design Thinking Workshop in which we show a demo of our accelerators and prototypes and identify use cases that fit your needs. To see how blockchain solutions can be a business enabler for you, your customers, and your partners, talk to our experts today.