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Originally published on August 22, 2023, in Voices, Economy, Finance, Times of India.

There was not a lot of focus on Digital Payments prior to the turn of the millennium. Over the past two decades however, the Digital Payments space has grown exponentially across the globe. In the Indian context, demonetization in 2016, as well as the impact of the COVID-19 pandemic, have further provided a strong impetus to this growth.

Integrated payments, embedded finance, digital currency, etc. have increasingly attracted the attention of large enterprise merchants and businesses, and it’s only a matter of time before medium and small-scale businesses and enterprises start to adopt these capabilities.

While the growth of digital payments in B2C e-commerce has already surpassed industry forecasts, the process of transformation has only recently been observed with B2B payments.

In the payments ecosystem, apart from issuing banks, acquirers (usually banks), buyers (namely, card-members/cardholders) and sellers or merchants, what is now emerging are Technology Solution Providers (TSPs). They are proving to be the critical bridge between the sellers and buyers through issuing and acquiring banks/processors to deliver a satisfactory customer experience while managing payments.

According to Kearney, a global management consulting firm, India’s business spending market is valued at $6 to $7 trillion and could reach $15 trillion by the end of this decade. The speed, convenience and security offered by digital payments instruments, as compared to traditional methods, have been a significant driving force in their widespread adoption. Government efforts to promote digital payments, as part of a move towards a cashless, digital economy, have also played a prominent role in the growth of the sector.

Key Trends in the B2B Payments Landscape
As the B2B payments ecosystem in India continues to evolve, the following trends related to market growth, digital payments and overall market risks need to be considered by industry players while charting this journey.

Enhanced Speed and Efficiency: Digital payment instruments have enabled substantially faster and more efficient transactions. Large-value transactions can be completed without the need for any expensive physical travel or complicated paperwork.

Swift Documentation: Contactless and paperless documentation via digital-based identification systems such as UPI, GSTN and Aadhaar are a key factor in enabling seamless payment experiences.

Simplified Reconciliation: Digital payments are facilitating the elimination of time-consuming and error-prone manual reconciliations, long payment cycles (including missed or late payments) and processing costs by providing system based, authenticated transactions and simplified reconciliation through integration with a business’ ERP or accounting system.

Automation Through Cloud-Based Platforms: Increasingly, cloud-based payments platforms are being leveraged to facilitate swift and flexible B2B transactions. Such platformsautomate a number of payments-related processes, including managing users, onboarding new sellers, invoicing and reconciliation. By offering support for various modes of payment – including commercial or purchasing card transactions one-click-payments – as well as multiple currencies, these platforms enable sellers to receive payments faster, while providing buyers with flexible payment options.  With a reduction of the payment settlement period from over 30 days to a single day, such platforms are highly beneficial to both parties in terms of their cash-flows and financial management.

Increased Payment Options: The years ahead are likely to witness innovations such as voice-activated payments, biometric verification, and sophisticated digital currencies. The steady increase in the adoption of methods such as e-wallets and digital cards (prepaid, debit or credit) will continue to drive growth. UPI, already one of the most widely used payment methods in the country in 2022, will also be a key contributor.

Greater Financial Inclusion: The growth of digital payments has also contributed to increased financial inclusion by enabling small businesses, previously dependent on cash transactions, to carry out frictionless cashless transactions. The ability to make instant payments to merchants, vendors and other partners not only saves crucial time and effort, but also enables these businesses to strengthen their credibility and relationships with stakeholders.

Real-Time Payments: Amidst the ongoing evolution of the payments ecosystem, Real-Time Payments (RTP) have emerged as another game-changer, providing the purchaser of a transaction with instant access to funds. RTP facilitates improved liquidity and working capital management, as well as more efficient e-invoicing and billing.

Business Community Challenges that Need to be Addressed

Most SMEs in India are currently facing issues related to cash flows and working capital. The paperwork required by banks to issue commercial loans is cumbersome and very restrictive and requires security in the form of Bank Guarantees and collateral that’s typically equal to or higher than the loan requested. These are the primary stumbling blocks to easy access to funds. Accepting these challenges as part of doing business and taking high-interest loans has traditionally been the approach these businesses have taken to stay afloat.

There is a need to simplify if not eliminate such securitization of loans for the business community to ensure access to working capital. These are significant challenges that the evolving B2B payments ecosystem needs to address.

Looking Ahead

The ever-shifting nature of the global economy and business environment makes it inevitable that the payments ecosystem will evolve correspondingly. The increasing number of B2B digital payment instruments and the convenience, speed, cost-effectiveness and security that they offer, will drive the continued growth of digital payments in India.  That said, there is a need for issuing and acquiring banks to tap into these new technologies to facilitate the availability of credit to businesses much faster, which will allow SMEs to manage cash flows better. The addition of emerging technologies and new innovative players will only serve to make the payments ecosystem more robust, seamless and inclusive.

Courtesy: Voices, Economy, Finance, Times of India (Dated: August 22, 2023)

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