DeFi Preps For B2B Payments Disruption, Beginning With Data

With blockchain taking further steps into the world of B2B payments, the technology is at a bit of a crossroads.

Driving adoption will require a multifaceted approach. From collaborating with regulators to identifying use cases and value propositions, blockchain-based commercial payment solutions must establish their own path to adoption and industry disruption.

Luckily for these solutions, there are plenty of friction points from which to choose and address in today’s B2B payments landscape. For CoreChain Founder and CEO Chris Aguas, one of the most pressing sources of pain for corporates and suppliers today involves data.

In a recent conversation with PYMNTS, Aguas explored why legacy payment rails aren’t up to the task of solving B2B payments’ data conundrum, even amid so much effort to upgrade the infrastructure. Plus, he explored the potential avenues for blockchain to proliferate in the B2B payments ecosystem as regulators get on board.

An Ecosystem Shift

There is no doubt that B2B payments are on the verge of a major change. While the industry has been marked by a slow and steady, often frustratingly sluggish journey towards modernization, a convergence of market trends and innovations are carving out new paths towards accelerated digitization.

“We’re sitting at the intersection of the old world of B2B payments via ACH and wire and virtual cards, and what we think the future of B2B payments will be,” said Aguas.

That future lies in blockchain. Distributed ledger technology (DLT), he noted, has the power to address a variety of challenges in B2B payments, including what he considers to be the largest pain point today: the inability for existing rails to move a high volume of robust data in parallel with the movement of actual funds.

Aguas explained that today, current infrastructure is forced to separate the paths of money with data, as rails were designed at a time of limited need to move data and when doing so was immensely expensive. By design, he said, they are unable to support what corporates need to streamline and automate reconciliation or integrate and embed valuable information into their own systems.

Expanding The Scope

Data opaqueness isn’t the only challenge that distributed ledger technology is taking on as it finds traction in the B2B payments realm.

The immutability and transparency of transaction, along with the capabilities for straight-through processing, mean DLT infrastructure can offer new safeguards against some of the biggest fraud risks, like business email compromise (BEC). This integrity can also support more efficient reporting, auditing and compliance, he said.

What’s more, the technology is flexible enough to support another expanding trend in B2B payments: the convergence of payments and finance.

“Our approach is an explicit recognition that financing and B2B payments are not discrete products but the same product with different perspectives of time,” said Aguas. “Payment is a transfer of value in an instance, whereas financing is a transfer of value over time.”

Much of today’s B2B payments innovation efforts are focused on one or the other, he continued. Some FinTechs exclusively facilitate the movement of funds from one business to another, while alt-lenders and trade credit firms focus on supplier financing. Infrastructure that is able to support both payments and financing may reflect more appropriately where the B2B payments puck is headed.

Regulators Get On Board

Speaking of that moving puck, Aguas said he is eager to watch the expanded role of blockchain and digital asset technology grow its roots deeper into the B2B payments landscape.

“Digital assets, such as stable coins and central bank-issued digital currencies, will become much more accepted and common forms of value transfer over the course of the next five years,” he predicted. “I would not have said that a year ago.”

Pointing to support from the Federal Reserve and Treasury Department for central bank digital currencies (CBDCs), he said the regulatory climate is showing clear signals that digital assets will have real-world, tangible impacts on the current payments ecosystem — and that includes B2B payments.

In addition to being able to support the movement of data, these digital assets are also able to accelerate transactions. Eventually, the technology could also open doors for non-fungible tokens (NFTs) to make their mark on the B2B world in the same way they’re beginning to in the consumer investor space.

“It’s a relatively short matter of time before they do become much more commonplace,” Aguas said of digital assets’ eventual rise in B2B. “Within the next five years, CBDCs, stablecoins, and other elements of what’s happening in distributed finance will start to become much more common in B2B. They’re barely scratching the surface now in consumer and are not really a factor at all in B2B today, but we think the situation will be very different in five years.”

As is so often the case with B2B payments innovation, much of this disruption will take time and is likely to first occur in the consumer arena before it reaches the enterprise in a meaningful fashion. Yet with digital disruption accelerating and with regulators and innovators placing greater emphasis on the modernization of payments infrastructure, the groundwork is already being laid for blockchain to disrupt B2B payments.