B2B payments revolution on Russian e-commerce soil
Like in the US and many EU countries, business-to-business (B2B) payments experience in Russia is lagging behind business-to-consumer (B2C) fintech innovations.
Adoption of online payments and peer-to-peer (P2P) transfers has increased impressively: according to the largest bank in Russia, Sberbank, online B2C payments has grown tenfold since 2008. As of Q4 2018, the percentage of online B2C payments reached 56% and is foreseen to be 66% in late 2019, states the Central Bank of Russia.
But B2B payments acceptance is quite a different story.
For years B2B transfer has been a really painful process in Russia and still can take up to three days. During this period a merchant is waiting for the payment to be approved by a supplier that results in downtime. Thus, conversion rate of sales and turnover of the businesses are being frozen for all paper and bureaucratic process is ongoing till a vendor receives payment and a buyer picks up their order. Manual payable process makes the accountant department be heavily involved into paperwork, reconciliation and tax records, and the whole labor productivity is decreasing.
The perspective of digitalisation was rather week for B2B payments: on the one hand, it was difficult enough to move buyers and suppliers away from usual and ubiquitous paper checks towards online payment methods. On the other hand, commercial card solutions that are popular in the US, still stand for less than 1% of all B2B payments made by card in Russia. The reason is that businesses are unfamiliar how to audit the bank card reconciliation and pay taxes after all.
Meanwhile the volume of B2B payments industry is much bigger than B2C – and a few steps behind in terms of e-commerce market. In particular, B2B vendors take very little benefits from online sales channels: in most cases, a B2B supplier settles for a landing page with a call to action (CTA) button requesting a callback.
Currently this industry is operating like it is 2000s. In conditions of lack of infrastructure, B2B e-commerce is based on manual labour that decreases effectiveness in general. In the overwhelming majority of cases a human is the core of all the processes: sales, workflow, shipment and delivery. The B2B payment experience is also manual in terms of money transfers and their registration in accounting systems. It is often impossible for a merchant to estimate their conversion rate and define the moment a buyer interrupts the purchasing process.
Transfer of B2B payments into online space has been long-unfulfilled as it was necessary to implement a large number of complex integrations with all banks for creating a unified platform. No market player was big enough to distribute such an innovative solution, on the one side, and meantime wasn’t a competitor to the banks to integrate with.
In 2018, Yandex.Checkout and Sberbank introduced online B2B payments to Russian market. Yandex.Checkout has a wide distribution base of more than 106,000 merchants, and Sberbank provides the services to over two million corporate bank accounts. The cooperation of the largest bank in Eastern Europe and the most popular PSP in Russia let the B2B payments market transform in its core and become an online experience.
The two companies developed a platform allowing a legal entity to pay online for goods and services via invoicing. That enables notifications of the payment made both to a buyer and a vendor. Together with a notification, a supplier receives a guarantee of the money receipt. It means that a seller can deliver goods or provide services immediately after this notification, no need to wait for another confirmation of successful money transfer. Yandex.Checkout identifies a merchant in the process and send their bank details to a vendor that can now generate accounting documents online skipping thus a lot of paperwork.
This solution has every chance to revolutionise Russian B2B payment market and make it similar to B2C or even better. The timeframe of the payment process is reduced from one to three days to just one to three minutes. Simplified payment process for B2B invoices increase payment conversion rates that will help B2B e-commerce grow fast. The turnover of warehouses is growing while the downtime is being reduced.
This innovation is particularly relevant to e-travel industry. Not every travel agent is ready to serve businesses, as basically travel B2B sales are based on deposits. In case of SMEs it is often cost-effective to remove some money from circulation in order to make a deposit. Another example is e-commerce players that have to hold goods on warehouses till the payment of invoice is confirmed.
Many of us remember very clearly how the era of online B2C payments started. Now we witness that this experience is truly native in Russia. That is why we suppose that the same crucial changes will happen in the industry of B2B payments. The distribution is already begun, and the feedback of the B2B e-commerce market is positive. Of course, meeting businesses’ consumer-like payment standards also means that payment service providers (PSPs) will have to be as patient as they had been when disrupting B2C payments in Russia.
By Oksana Korobkina, chief commercial officer, Yandex.Money