Business-To-Business Payments At A Crossroad

Guy R. Berg, Vice President Payments, Standards and Outreach Group, Federal Reserve Bank of Minneapolis

Business-To-Business Payments At A CrossroadGuy R. Berg, Vice President Payments, Standards and Outreach Group, Federal Reserve Bank of Minneapolis

Banks, corporations, and their supporting payment processors are at a crossroad for enabling the mass connectivity necessary to support business-to-business (B2B) electronic payments, invoicing, and remittance information exchange. They have the option of continuing down the current path filled with artificial barriers preventing greater connectivity, or find ways toward the mutually beneficial goal of greater efficiency in the exchange of invoices, electronic payments, and supporting remittance information. Industry coordination appears to be key to efficiency in B2B payments.

A model environment provides a level of coordination that enables innovation and competition resulting in decreased costs and improved efficiencies for everyone. Imagine if there was no standard for Internet communication, and instead, businesses relentlessly pursued the idea that their individualized communication protocol would eventually win over all others. Where would the Internet’s capability and reach be today? What if email service providers did not recognize the need to establish exchange standards? What would be the impact on reach of our email systems?

Today, the business payments ecosystem is at acrossroad similar to the one that email and internet stakeholders faced years ago. E-mail and internet providers decided collaboration was the appropriate path to gain significantly broader reach, leading to the mass connectivity we enjoy today with these services.

 Businesses today sell beyond their own borders, and they need systems that have global reach and interoperability 

What barriers do we face in achieving the same outcome forB2B payments Historically, a primary barrier has been the lack of a clear path forward other than central directories. Unfortunately, centralized directories raise valid concerns about ownership and concentration of competitive influence and power. In addition, they generally require businesses and service providers to contribute proprietary contact information that has taken years to accumulate.

For B2B payments, the path to achieving collaboration and mass connectivity may follow the model of e-mail systems. These leverage internet DNS (Domain Name System) for delivery addresses and prescriptive e-mail exchange standards to facilitate interoperability between disparate email applications. A similar path to B2B connectivity can be to leverage the internet DNS capabilities along with federated registries, which avoid the need for a centralized directory. Prescriptive exchange standards would facilitate similar interoperability between business payment systems.

This approach creates a virtual network for connectivity between business systems. The registries leverage the internet DNS to route messages in the same way email systems do. There is no one point of accumulation or storage of sensitive data, but rather a standard communication protocol that enables an inquiry to find endpoints to deliver a business message, such as an electronic invoice (e-invoice). The service providers perform the exchange service role, similar to email exchanges, providing integration services to correctly format the data for ingestion by the target business’ accounting system.

This creates a framework that reduces the number of external connections businesses need to manage, and the corresponding security risks. In addition, prescriptive message standards reduce the data mapping burdens typically required to facilitate information exchanges. Furthermore, the resulting framework of federated registries and virtual networks creates a necessary network effect dynamic for broad reach and connectivity to deliver electronic documents and messages across disparate systems.

This is not a hypothetical concept. Today, the Business Payments Coalition (BPC) is working on prescriptive message standards to establish a U.S. e-invoice exchange framework. The exchange framework leverages federated registries for businesses to dynamically discover where to send an e-invoice. Just like an email server, a business leverages an access point to the virtual network to perform the exchange service.

The U.S. e-invoice exchange framework is not a new idea, but rather seeks to follow modelsexisting in Europe and other countries. One primary objective for the BPC work group has been to leverage what is working in other countries and eventually achieve international interoperability. Businesses today sell beyond their own borders, and they need systems that have global reach and interoperability. A consistent method is needed for sending invoices within, and outside of, the U.S. The work group has been working closely with several international entities on the design of the federated registry protocol, and have incorporated the same message exchange tools and standards used by procurement and e-invoicing systems globally.

Currently, as many as ten service providers are conducting a validation exercise to test federated registry concepts for discovery and message delivery across multiple virtual networks. In addition, the BPC will soon be assessing potential governance models for the U.S. e-Invoice Exchange Framework. We encourage interested parties to go to the Business Payments Coalition website for more information.

The technology is available to facilitate the exchange of messages supporting electronic payments between businesses domestically and globally. Other countries have already implemented e-Invoice exchange frameworks, proving the viability and value. The Business Payments Coalition is nearing completion on defining the standards and operational model for a U.S. e-invoice exchange framework. The industry is at a crossroad and the light is green. The time is now for U.S. industry stakeholders to solve the B2B payment systems connectivity barriers and achieve historically elusive electronic B2B payment processing efficiencies.

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