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B2B payments in the US

Coffee break with Markus Edström – B2B payments in the U.S.

Markus Edström is the CEO at Commercial Finance Americas at Siemens Financial Services. Markus comes with over 20 years of experience within banking and finance and was recently the CEO of same division for Siemens in the Nordics. Markus comes with a unique perspective of having been deep in the market on both sides of the Atlantic Ocean. He is interviewed by Stefan Backlund, CMO at Payer which is a B2B payments scale-up. Stefan has about 10 years in the payments industry at companies like Klarna and Trustly.

The topic is B2B payments in the U.S. Let’s go!

Stefan: Markus, what’s your focus as CEO at SFS Commercial Finance Americas for the years to come?

Markus: My focus is to build a much larger and successful business in what we call Siemen’s domains (or markets) in the US, investing in systems and automation to digitize processes and even more important investing in our people to better serve our customers. The future success is defined buy the customers use of our services. 

Stefan: You have been in your position for two years now. From a Swedish/European perspective, how easy has it been for you to integrate into American business?

Markus: When you pass the first administrative learnings it has been relatively smooth. Key as always in today’s business environments is to listen to what is really said when interacting with colleagues and customers, learn and adopt to certain local codes and behaviors but then make up your mind what you want to achieve and start driving towards set objectives. I also believe it’s important to be humbled and adjust your opinion and style as you learn

Stefan: What’s the state of digital b2b payments in the U.S. 2021?

Markus: It’s still early days but there are a lot of activity in the market addressing this topic right now, accelerated by the pandemic. I personally think it will still take some time before we see fully automated end-to-end solutions dominating as in the consumer segment e.g. PayPal or Klarna, the concept of self service is less attractive if there is no real benefit for the end-user. With that said the demand for simplicity and speed increases dramatically also in B2B so no doubt strong growth is expected in this space.

Stefan: Could the prospect of gaining operational and/or financial efficiencies be an equally strong driver for digitalisation in payments for merchants?

Markus: For sure the automation and thereby the efficiency gains for merchants is a key driver, in many ways like any product or service where technology is ahead of customer behaviors or needs. For example, when I was working for Swedbank back in early 2000 the industry moved from magstripe & signature to chip & pin, or when Internet banking was introduced to reduce traffic in bank branches – both examples was driven by technology/efficiency gains not customer demands. Today this is the norm, and we now see how even plastics being replaced as technology make it possible to pay with your cellphone.

Stefan: On your comment regarding an increased digital activity due to the pandemic: it is also my observation. NACHA reported numbers for the second quarter earlier this summer and B2B payments across the ACH network accelerated with a 28.7% growth. The speed of the ACH network has seen some great leaps the last few years. Settlement times have been reduced from 2-5 business days to same day settlement for credit transactions.

Instant payments in B2B, is this a topic that keeps you up at night?

Markus: We already see solutions in the market for Instant payments so its happening also in the B2B space. As the market matures the solution that will win, I think, will be where there is an open solution where seller and buyer can perform the purchase and payment without a meeting or, not even need to know each other like in the B2C world. Technology like blockchain would potentially help to overcome roadblocks in this space

Stefan: If some of our readers want to understand how the U.S. banking system works, I can highly recommend a both entertaining and educational NPR podcast on the topic. Find the link in the end of the article.

Stefan:  With a long executive experience in the financial service industry on both sides of the Atlantic, how do you think the U.S. digital payments scene compares to the European one

Markus: In many ways not much on a higher level. However the US market is more fragmented and there is a need to try to standardize the US market in some areas to further make it financially viable to roll out solutions without too many local adjustments. What many non-Americans might not know is that each of the 50 states have a relatively high level of own discretion.

Stefan: Earlier in July this year, President Biden signed an executive order with the aim to make it easier for U.S. bank customers to access and share their banking data. This has been heralded by some open banking advocates as a key to open up the relatively closed US banking system.  How many years will it take until we will be able to see the same type of harmonisation of the U.S. payment market as in the EU under PSD2?

Markus: In some parts never, as there is a much more dynamic and open competitive market here in the U.S with less regulations. But the flip side of that is that when something works well the market quickly adopts. If the evidence is efficiency and a better customer experience then harmonization happens.

Stefan: So, the main difference would be that the U.S. market is developing due to the exposure of the elements Supply and Demand rather than regulatory intervention?

Markus: Yes, I would think so. But regulations where it is mandated will require the market to follow even if it might be some state differences.

Stefan: I understand that this executive order is mainly aimed to open for new competition in the consumer market. Has there been any indication that this will also benefit B2B?

Markus: I think only in occasion where B2B becomes close to consumer business eg where micro ticket transactions are dominant. In these cases, financial institutions or similar need to adhere to regulations. Assume more clarity will come as this regulation comes into force.

Stefan: For those of us that aren’t that familiar with U.S. law, will there be room for different interpretations on state level?

Markus: It’s definitely important to recognize that in the US we have 50 different states where state legislation differs. In particular its important to understand micro B2B tickets as there is a differences how states perceive B2B vs B2C transactions. For example, micro ticket B2B transactions require a consumer finance license to operate for financial institutions in some states.

Stefan: I find this interesting, is there a clear definition of a micro B2B ticket size?

Markus: Transaction below $10k is a bench mark but this definition can varrie depending on where you sit in the financial industry.

Stefan: Several recent research reports and white papers from the e-commerce industry are pointing to Customer Experience to be the single most important theme for years to come. The millennial generation and generation Z is expecting an ‘Amazon like’ purchase experience in B2B.  What’s your reflection on this?

Markus: My personal reflection is that the industry, digital native enterprises excluded, is not really prepared for this new customer demand. However, due to the pandemic the need for B2B e-commerce and as a consequence e-payments has dramatically increased in demand so we should expect more initiatives going forward aiming for the B2B market.

Stefan: What do you think is the state of Customer Experience in B2B?

Markus: In general, the B2B vs B2C experience has more to ask for from a user-friendly perspective. The dilemma is though in the more complex nature with regards to tax and accounting treatments where customer journeys need to be smarter designed to fully meet end user’s needs.

Stefan: In other words, the front-end UX is inherently dependent on a smarter designed back-end in B2B?

Markus: You can say that. The important thing I would highlight is that the process end-to-end needs fulfills the customer demands in all aspects. And that process needs to be support by system architecture solutions.

Stefan: How can our respective companies help the industry to evolve into a state where B2B buyers will experience the same simple purchase experience as consumers can today?

Markus: SFS, as a financial service provider, needs to develop products that meets the demands from the customer but also develop back-end process like credit approval processes that provide instant credit decisioning as well as slimmed document handling (e-docs). I think for Payer as a provider for B2B payment solution it’s a lot about latest technology but also in-debt understanding of the eco-system of B2B commerce and different requirements. Only when all stakeholders in the value chain of B2B e-commerce play together then full scalability is possible.

Stefan: Buy Now Pay Later startups is popping up both in the US and in several markets in the EU. While financing has been part of the value chain in B2B for a long time, it’s now being repackaged with sleek interface design and AI decision making for fraud prevention and credit scoring.

Could consumer-like BNPL solutions be a key to solve great UX in B2B?

Markus: I think the needs might differ as well as the solutions e.g., value propositions or different financial solutions like operating or financial leasing, purchase of receivables or simply a loan. For some companies it’s a pure cash flow topic, for some its about access to capital and for others its about on/off balance sheet treatment. So it depends on the type of asset, product or service the seller offer as well as the market needs what type of financial product, payment method if you want, that needs to be offered.

Stefan: If you take a glance in your crystal ball, what will be the most common application of BNPL in B2B?

Markus: I would think we will see several different solutions also in the long run depending on industry. One future feature that I find fascinating will be how machine to machine purchase will develop e.g., the combined use of machine learning, AI and payment solutions.

B2B payments in the U.S. resources:

Siemens Financial Services Americas: https://new.siemens.com/us/en/company/about/businesses/financial-services.html

Payer Financial Services: www.payer.eu/about-us

Podcast: https://www.npr.org/sections/money/2013/10/04/229224964/episode-489-the-invisible-plumbing-of-our-economy

Nacha: https://www.nacha.org/