Crypto as a practical solution to B2B payments

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Cryptocurrencies have gone from a speculative asset to a practical asset. The current business-to-business (B2B) payments space is one area where crypto can serve and improve.

In a recent PaymentsJournal podcast, Daniel Artin, Vice President of Strategic Partnerships at Boost, and Elly Aiala, Head of Compliance at Boost, joined Steve Murphy, Director of Commercial and Corporate Payments Consulting at Mercator, to discuss how businesses should consider adopting blockchain. technology, and more specifically stablecoins, to ensure the transparency, traceability and security of their B2B payments.

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Crypto as a practical solution to B2B payments

PaymentsJournal Crypto as a practical solution to B2B payments

Current status of B2B payments

First, let’s define the current state of B2B payments. Even with all the innovations the payments space has witnessed in recent years, B2B payments are still fraught with pitfalls.

This payments niche in the market is littered with weak spots, Artin said, mostly due to expensive fees, late payments, poor data management, inaccurate data entry and often a lack of market education on innovations to solve these problems. Buyers and suppliers are used to late payments [and] frequent disputes between them and there is a status quo of mistrust between business partners. Given that the B2B payments space is a trillion-dollar addressable market, we believe this is a great digitalization ramp.

Artin blamed inertia for the delay in adopting new ways to accept B2B payments. Many companies continue to use legacy systems put in place decades ago despite their inefficiency.

And organizational leaders don’t like to step into the unknown. Many CFOs and treasurers looking to optimize payouts are naturally risk averse, Artin added. You take systems, processes and workflows that have been working for 60-70 years and ask now [business leaders] to migrate that to a new digital form that you may not fully understand or know.

Cryptocurrencies are still shrouded in mystery, which is why they need to be unboxed to reveal how they actually work and discuss successful use cases.

But before we dive in, let’s discuss the challenges surrounding cryptocurrencies today.

US regulations: a stumbling block to adoption

You can’t start a conversation about cryptocurrency without mentioning regulation. Regulation has been pervasive ever since the popularization and growing adoption of cryptocurrency began.

Our [U.S.] The approach of cryptocurrencies and other technologies in this space has accelerated, Aiala said. But it is very much in development and exists primarily as a combination of both enforcement and draft legislation and frameworks. This has an impact on institutional adoption. In order to know why US regulation is where it is today, you need to know what cryptocurrency and blockchain technology is doing to the existing financial infrastructure.

Aiala used the analogy of gathering the best soccer players in the world to play a game without rules or compliance. The result is that the game will not run safely or efficiently. The current arbiters, or two regulatory parties, competing to win the post of top regulator for cryptocurrencies are the Commodity Futures Trading Commission (CFTC) and the United States Securities and Exchange Commission (SEC).

Aiala asserted that without historical knowledge and experience in using crypto and blockchain technologies, it is difficult for policy makers to create regulations that will stand the test of time. Technology, as well as its use cases, is never static but constantly evolving.

The way around all the fear, mistrust, and misinformation is for leaders in the crypto space to remain diligent in educating policymakers, informing them so that the appropriate regulatory frameworks can be developed. It’s not just about growth and innovation in the crypto space, it’s also about ensuring that end users use this technology securely.

Although changes are coming and more and more policy makers and consumers are being introduced to this new financial technology, the current lack of official rules prevents many institutions from adopting crypto.

Why Replace Legacy Systems with Blockchain Technology

There are many benefits for companies to integrate and replace their current infrastructures with blockchain technology. These include transparency and traceability, consensus mechanisms, security and auditing, and smart contracts.

With transparency and traceability, companies would have the advantage that all participants within the network see the data as it is updated in real time.

Also known as consensus protocols, consensus mechanisms would allow companies to verify transactions and provide blockchain or protocol security.

Blockchain is incredibly secure, making accounting and auditing easier and eliminating human error. Blockchain also guarantees the integrity of its records. Another important factor is that the ledger is immutable. No one can modify a transaction after it has been submitted. This includes record owners.

Smart contracts are programmatic rules that can be executed automatically in the blockchain once certain rules are met.

We live in a world where buyers and suppliers have established pre-negotiated terms of trade, Artin added. In addition to contractual penalties, early payment discounts, [or] trade finance, there is no way to enforce these rules blindly by buyers and suppliers. Hence the disputes. But with smart contracts, these terms and conditions can be programmed and automatically fulfill these obligations between the two parties on their behalf. It’s contactless, it’s automatic, and it instills a new level of trust between parties who otherwise [was] not here.

A significant use case is Walmart Canada, whose fleet of 2,500 ships annually generates seven billion bill swaps, and whose 70% of freight contracts result in disputes. When Walmart Canada implemented blockchain, billing disputes dropped to less than 2%.

Our research goes back five or six years, and one of the first use cases we identified for blockchain was international and domestic commerce, Murphy said. His [blockchains] is going really fast. International trade and the use of smart contracts is a brilliant use case.

Future prospects for B2B payments

The use and adoption of cryptocurrency is still at an early stage. And companies are certainly not clamoring for its adoption either. What we do know is that blockchain has the necessary mechanisms and infrastructure for businesses to dramatically improve the current state of B2B payments.

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