Unlocking Economic Growth: Why B2B is The Last Frontier of Digital Payments
Mita Srinivasan
10x Industry

Unlocking Economic Growth: Why B2B is The Last Frontier of Digital Payments

The digital payments landscape has rapidly evolved in recent years, with new technologies and innovations simplifying and streamlining the payment process. While the focus has been on business-to-consumer and peer-to-peer payments, one area yet to fully embark on the wave of digital transformation is business-to-business payments. This presents a major opportunity for growth and innovation, particularly in the MENA region says Gillan Shaaban, Chief Commercial Officer of Paymob.

The global B2B payments market, largely processed through cash and check transactions, was valued at over $125 billion in 2021 and is expected to reach over $313 billion by 2031. This growth is due to rising global trade, an expanded business sector, and increased cross-border transactions. However, B2B payments are burdened by outdated manual payment methods that are expensive, prone to errors, and pose significant fraud risk. Consequently, a worldwide effort is underway to digitize, automate, and enhance the security of B2B payments.

Digital transformation of the B2B value chain

B2B payments present a huge opportunity to boost economic growth and drive financial inclusion and the sector is ripe for innovation. To fully address outdated legacy payment processes, digitization must extend beyond payments to encompass the entire value chain and include related processes such as procurement, invoicing, and inventory management. This would lead to increased efficiency, reduced costs, and more transparency across the supply chain. Therefore, B2B payments digitization is just one aspect of a more comprehensive digital transformation required for the full value chain.

MSMEs have the most to gain

Digitizing B2B payments can bring significant benefits to businesses of all sizes in MENA. For large enterprises, cloud technology and automation can reduce costs and improve efficiency, allowing businesses to focus on scale and innovation. For micro, small and medium-sized enterprises (MSMEs) - the backbone of emerging economies and the largest contributors to GDP - digitization is crucial to compete in a global marketplace.

Benefits of digitization include:

  1. Improved cash flow management: By digitizing their B2B payments, MSMEs speed up the invoice-to-payment cycle, reducing the risk of late payments and improving cash flow management. This can be crucial for businesses that are operating on tight budgets and need to access working capital to fund growth opportunities.

  2. Enhanced financial visibility: Digital payments provide businesses with greater visibility into their financial transactions, allowing them to track payments in real-time and identify potential issues or discrepancies more quickly, enabling them to manage their finances and identify opportunities for cost savings and revenue growth.

  3. Access to more financing: Financing becomes more accessible to MSMEs as digital transactions provide lenders with a transparent and auditable record of transactions representing an alternative way for lenders to assess creditworthiness and make lending decisions. This serves to drive financial inclusion among merchants who may be unbanked or underserved.

  4. Increased efficiency and productivity: Digital payouts help merchants reduce the time and resources required for manual payment processing, allowing them to focus on other aspects of their business, leading to increased efficiency and productivity.

  5. Improved security and fraud prevention: Digital payments are generally more secure than traditional payment methods like cash and checks, as they are less susceptible to fraud and theft.

Regulation and innovation are key drivers

Regulatory authorities in Egypt, UAE, and KSA continue to enact policies and regulations that encourage the adoption of innovative solutions. The Central Bank of Egypt has launched an initiative to promote digital payments and reduce cash reliance; the UAE Central Bank has introduced various initiatives to support development of a digital payments infrastructure; and in KSA, the Saudi Arabia Monetary Authority has launched a comprehensive strategy for digital transformation in the financial sector - including the development of digital payment systems to promote financial inclusion and support SMEs.

These initiatives provide a conducive regional environment to grow and adopt digital B2B payments, especially for MSMEs who have the most to gain from these solutions.

Payment giants such as Mastercard and Visa are also attempting to address the market gap. Mastercard’s Track Business Payment Service facilitates B2B payments and automates reconciliation data between buyers and suppliers. Visa’s B2B Connect facilitates cross border payments for corporates. In MENA, Mastercard partnered with Bahrain's Electronic Network for Financial Transactions to launch a digital B2B payment platform offering cost-effective transactions for businesses. However, an end-to-end solution digitizing the entire B2B value chain, tailored to the needs of MSME’s in the region has yet to emerge.

Fintech Partnerships pave the way

The MENA region has also seen a surge in innovative fintech startups and scaleups partnering to create solutions that embrace digital transformation and unlock new growth opportunities. Recent partnerships in the region have created end-to-end payments and fulfillment ecosystems that enable MSME merchants to digitize their payments acceptance as well as payouts to vendors and suppliers thus optimizing their supply chain and enabling data-driven decision making. Other use cases include enabling MSMEs to digitally pay salaried employees and freelancers as well as utility companies to further digitize their businesses operations.

Digitization of B2B payments is a major growth and innovation opportunity in MENA. To fully realize its massive market potential, digital transformation of the entire B2B value chain is essential. Regulators, financial institutions and fintechs must collaborate to facilitate this transformation, while businesses of all sizes need to embrace new technologies and solutions to unlock the full potential of the B2B payments market, ultimately driving growth, innovation, and economic prosperity in our region.

About the author

Gillan Shaaban is Chief Commercial Officer of Paymob with more than 13 years of professional experience dedicated to fueling SME growth in the digital economy, 5 of which spent leading commercial roles in the Fintech industry.