Thanks to improvements in technology, innovative businesses like Melio are bringing B2B payments into the 21st century. This week, Melio launched Real-Time Payments, supported by J.P. Morgan. The service allows businesses to hold onto their funds for as long as possible when paying and to get them quicker when awaiting payment, including on weekends and holidays.
Melio supports FedNow and the Clearing House’s RTP networks. It connects with QuickBooks Online and Xero. Data is available on both dashboards.
Business payments are more complex than consumer ones
VP of Payments Strategy Aharon Levine said Melio is a response to the dichotomy between the experiences business people have in their personal lives, where payments are constantly improving, and their business lives, where many still mail paper checks. Melio helps businesses simplify their workflows and improve their cash flow capabilities.
More complex workflows are why businesses cannot use consumer apps or even banks. Some corporate solutions target bigger companies. Their back-office automation tools overwhelm small businesses.
Both sides maintain a choice
Levine said businesses manage how they pay and how they get paid. Think of it as an hourglass, with all possible payment options for the payor at the top and all possible payee options at the bottom. Melio and J.P. Morgan are in the middle, providing functionality and convenience.
“I can choose that I want to pay digitally with ACH even though my vendor insists on a paper check,” Levine said. “Or I can earn rewards using a credit card. My vendor can still receive an ACH, wire or a paper check. We unlock the ability for a business to choose how they get there while not interfering with how their vendor receives the payment.”
Melio can be used directly or embedded within platforms. Levine said Melio enables the Capital One payment experience. Businesses can pay vendors through their preferred method from within the Capital One platform.
Functionality extends beyond payment. Businesses can plan payments, manage workflows, communicate with accounting, and prepare tax information.
The consumer payments path helped B2B – a little
While creators can glean some lessons from consumer payments, Levine said the two experiences differ in many ways. Consumers either pay with cards or digitally, trusting enough to pay even though they likely know little about the business. If a problem arises, folks believe in the dispute resolution process.
Consumer transactions also tend to be one-offs, while 80% of payments are recurring in business. The trust paradigm differs, as recipients can receive goods before paying. With larger average tickets, risk in B2B is much higher.
“B2B is not like a checkout point of sale,” Levine explained. “There’s a workflow happening both on the AR side and on the AP side ordering, printing, and managing those cycles within the business. The larger the business, the more complex it is. So they’re very different.”
The interesting process is in the middle of that hourglass, where Melio and J.P. Morgan convert payments. Levine said it involves logic, risk and compliance management and is more complicated when the receiver doesn’t have a direct relationship. A credit card company might have several restrictions that must be adhered to.
However, some aspects of the consumer experience are available. Vendors can be offered additional payment and receipt options. Levine said a company can receive an email offering instant payment. It’s not a classic RTP play, as one side can choose instant payment without the other’s participation.
“We’re seeing that grow significantly,” Levine said.
Adding context to RTP
Levine added that RTP capability via J.P. Morgan allows businesses to capitalize on a flash sale or avoid a cash crunch. In standard systems, that needs to happen outside everyday workflows. Not with Melio.
“RTP has been around for a few years, but servicing it contextually made that work much better,” Levine added. “Offering it to each party independently brought to light that option of choosing money instantly. Or I can choose when I need to push money instantly to my vendor. I can opt into it whenever I need to.”
B2B ripe for innovation
Levine said the innovation potential within B2B extends well beyond simply moving money. He’s excited about merging that process with full workflows. Providing more remittance information with payments, so there is more information about what is being paid—assistance with team management and payment scheduling.
Levine said that anything that can improve a business’s cash flow addresses not only what is the biggest pain point for many but also the number one reason why businesses fail.
“Beyond the money movement, bringing the full context of the pain and the business logic and bringing that into streamlined experiences is going to continue to grow,” Levine said.
This growing functionality will also benefit banks by allowing them to give customers transparency and insights into their finances from within their accounts.
It takes significant effort to get there, but innovators know what they must do.
“We all agree cheques won’t be here in 20 years,” Levine said. “But the way there is not only digitizing workflows, it’s also better, more sophisticated networks and payments.
“But it’s not enough. You need… instant payment networks. There’s a lot of logic, infrastructure, workflows and capabilities to make it a safe, secure and usable product. Trillions of dollars of B2B spend. You need to build better security protections and risk mitigation.”
Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.