Payment Solutions

B2B Payment Methods Roundup

PastPay Team

October 20, 2022

As a webshop, you are probably more than interested to learn about the newest trends and innovations in the eCommerce industry. We’ve collected the latest trends for your convenience. Which payment method would make the most sense for your business and what are the increasingly popular options? And what risks do they create? 

With our comprehensive guide, you can gain insight into the newest trends and their individual benefits and drawbacks to be able to make the right decisions for your business. 

Please read on to learn more about the sector trends. 

Contents
  • What is the definition of B2B payments?
  • Different types of payment methods
  • Common decision criteria for businesses
  • Effects of the COVID-19 pandemic
  • Current trends
  • Possible changes

What is the definition of B2B payments?

As defined, business-to-business (or B2B) payments are a form of transfer of currency from buyer to supplier for either goods or services. This can be either a recurring transaction or even a one-time one, which depends on the agreement or agreements between the parties. 

Now moving on to the different types of payment methods…

Different types of payment methods 

There exist a number of different types of payments used by businesses between each other. This number is ever-growing with new innovations hitting the market. However, the most common types in Europe are paper cheques, wire transfers, credit cards and cash. 

  1. Cheques

Cheques remain the most common type of payment method among businesses in the B2B sector, despite technological advances. According to PYMNTS.com, cheques make up around 80% of all business-to-business transactions.

  1. Wire transfers

Wire transfers represent less than 1% of all B2B payments. However, because of their high-value transactions, they make up to 93% of the total amount being exchanged for goods or services, according to Glenbrook.

  1. Credit cards

Based on a 2019 report by Payments Journal credit cards are not favoured as a payment method between businesses. The basis for this lies in the 3-4% processing fee that credit card companies charge for business transactions. Even though these payments are infrequent, Payments Journal found that 93% of small businesses accept Visa as of 2019.

  1. Cash

The use of cash amongst B2B payments remained surprisingly common, with 70% of small businesses still accepting it as a payment method and 45% of companies still pays by cash for their purchases.

These trends can be traced back to the different benefits and drawbacks of different payment options. Therefore, let us continue and look at the common reason and criteria that businesses use to determine which payment method to offer and use in practice. 

Common decision criteria for businesses

The 2021 survey report and whitepaper by Stampli collected responses across the B2B sector regarding businesses’ preferences and reasons for using specific payment methods. 

The survey demonstrated the reasons why companies prefer a specific type of payment across the industry, i.e. cheques, card payments, wire transfers, etc. These reasons can differ and vary depending on the cost of processing, accessibility, main customer base, size of the business and many others. However, let’s talk about the main reasons: 

Firstly, let’s take a look at the cost of processing. 

The Stampli survey indicates that most companies have some form of tracking to analyse the cost of processing for each of their used payment methods. The data indicates that the most expensive method on the side of the companies is cheques, outside of wire transfers. 

Surprisingly, the survey found that most companies do not base their preference for payment methods on the cost of processing. Solely less than half of the survey’s respondents, about 46% choose cost as the deciding factor. 

However, as per another survey, the Mercator Advisory Group’s most recent Insight Summary Report, the primary reason for a preference of payment method lies with the ease of handling. 65% of businesses included in the report prefer convenience to lower cost; only 4 in 10 respondents mentioned the latter. This is also indicated in the fact that most small businesses, at 70%, get their merchant services from their primary bank.

These trends have further been shaped by the Covid-19 pandemic and the changes, especially digital advancements it has brought with it. 

Effects of the COVID-19 pandemic

The past two years have seen immense changes in the eCommerce industry. 

In January 2020, Deutsche Bank research published a three-part report The Future of Payments ahead of the new decade. The first part of the report especially focused on European B2B companies and their payment needs. 

Their research showed an extreme decrease in the use of cash payments during the pandemic across Europe. The most prominent data with this indication emerged from the UK where the number of sellers using digital payments jumped from 8% in February 2020 to 50% in April. Furthermore, by August, the number of UK-based businesses using solely digital payment systems had settled at 33%.

Figure 1: B2B companies that use cash and cheques as methods of payment

Figure: B2B companies that use cash and cheques as methods of payment 
Source: dbDIG Primary Research, Deutsche Bank

Marion Laboure, an analyst at Deutsche Bank Research, stated at the beginning of the pandemic that “Covid-19 might be the catalyst that finally brings digital payments more fully into the mainstream”. This was due to the fact that the virus forced countries to reconsider the use of physical money, which possibly contributed to the spreading of the virus. Alongside this, many central banks created their own digital currencies, which have been under constant development over the past few years. One of the forerunners of such has been the People’s Bank of China. 

However, the policies around cash and digital payment methods vary from country to country. As an example, even before the pandemic, Sweden announced that it aims to become the first cashless society by March 2023.

In August 2020 another study conducted by Mastercard showed the same developments in the B2B sector. The study showed that with 68% of surveyed parties saying cash and check deposits took too much time, small businesses have decreased their use of these methods during the pandemic. The issue of time has been stated to be a reason for the decreased use of cash and check payments and more than half of small businesses further reported the increased use of digital services for B2B payments. 

Furthermore, 82% of the surveyed companies reported a change in the way of payment methods due to the pandemic.

Current trends

Based on Mercator Advisory Group’s most recent Insight Summary Report, Small Business Payments Acceptance: More Payment Options Creeping In, in 2019 more small businesses have been selling online, at 59%, than in physical stores, at 47%. 

To look at statistics and numbers a little more in-depth, the report indicated that:

  • 70% of small businesses accept cash.
  • 93% of them accept Visa.
  • Only 63% of small businesses accept cheques.
  • These numbers did not differ majorly based on the gender of the business owners, regarding what payment type the business accepts. 

Possible changes

One of the emerging trends among small and midsize businesses has been the various BNPL options available. This increasingly popular payment option is a form of deferred payment for businesses operating on eCommerce platforms. Its use in the B2C market has been increasingly popular and well-known among the consumer base in Europe, however, B2B businesses are yet to benefit from this method. 

The BNPL option, in short, allows customers to defer the payment when purchasing goods on eCommerce platforms of businesses. The service is integrated into the online platform of businesses through new service providers. However, the process might seem complex or complicated. Therefore, a little explanation will follow:

There are a number of reasons for its popularity amongst businesses. 

One of the most important benefits is that the service is free of interest and default charges and free of charge to the customers. The process is accessible in a few clicks, simpler than card payment, as customers don’t even have to give their card data. 

BNPL, however, is not only beneficial to the customer. Based on the latest research by PastPay, BNPL can improve webshops’ conversion rates by up to 30%. BNPL offers a safe and simple solution for battling abandoned items in the shopping cart. Besides improving conversions rate, customers reportedly spend 10 to 40% more if they use the BNPL payment option over credit card payment. 

Closing thoughts

Based on research conducted by multiple companies, including Visa, Mastercard, and Deutsche Bank among others, these are the key takeaways regarding the current trends in payment methods used by B2B businesses. 

  • Most of the B2B payments prior to the pandemic were conducted via cheques, regardless of the digital advancements. 
  • Even though the majority, 93%, of businesses accept Visa, only a small percentage of the business transactions are conducted via credit cards, due to the processing fees providers charge. 
  • This number has since changed significantly during the pandemic. 
  • The preference for payment method lies in convenience, simple and safe solutions are preferred for B2B transactions. 
  • Amongst the current trends, BNPL providers are emerging and are used with increasing frequency. 

If you’re interested in further information about the new payment solutions for businesses, read more about what the future holds.

AUTHOR

PastPay Team

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