This article first appeared in Digital Edge, The Edge Malaysia Weekly on November 22, 2021 - November 28, 2021
Over the past year, fintech firms that are involved in person-to-person (P2P) and business-to-customer (B2C) payments saw a boom in business — as evidenced in the rapid adoption of e-wallets, online payment gateways and QR code payments. When it comes to the business-to-business (B2B) sector, however, the digital payment adoption rate seems to be lagging.
Small companies in rural communities still rely heavily on cash and cheques as primary payment methods, experts tell Digital Edge. Urban B2B companies fare much better, preferring transactions via internet banking and credit transfers through financial networks such as RENTAS and SWIFT. Still, market experts all agree that more B2B payments can still be made digitally, with plenty of room for improvement.
Much of the slow adoption in rural areas is attributed to the lack of familiarity and awareness surrounding digital payments, says Dr Zokhri Idris, director of external relations at the Institute for Democracy and Economic Affairs (IDEAS).
The lack of digital infrastructure and internet access may no longer be the bottlenecks for rural B2B businesses. Rather, many of them are simply not exposed to online transfers as the default payment method. Zokhri says the rural location and circumstances determine the business owner’s lifestyle, which in turn affects their perceptions and readiness to adopt digital payments.
More importantly, unlike B2C payment systems, which focus on ease of use and accessibility, B2B payments have to take into account all the intermediaries along the industry’s supply chain. For instance, it will be difficult to opt for digital payments if the company’s suppliers and customers are not keen to make the switch. In fact, some businesses may prefer to stick with the status quo.
“This is where we look at the motives of the company and their strength in corporate governance. Some companies would not want to go for digital payments because they are afraid of the transparency associated with it,” says Zokhri.
“How it works in Malaysia is that if one company is not ready for digital payments, it will affect the whole supply chain. The decision to opt for digital payments is very dependent on the company’s approach to corruption, bribery and corporate governance.”
The payment methods themselves are perhaps not ready for massive B2B onboarding either. For e-wallets, local regulations still put a maximum cap on the total amount of funds transferred, limiting its use case for large transactions often found in B2B businesses.
Subscribing to payment gateways also involves a lot of physical appointments, Zokhri explains. Not only does the process require biometric authentications, it also involves a lot of bureaucratic paperwork, much of which has yet to be properly digitised. Just setting up a business bank account is difficult, let alone the effort required to set up payment gateways, he adds.
In this regard, financial institutions should review their digital payment frameworks for individual and business clients. These frameworks should smooth the process for clients from beginning to end without sacrificing security.
E-wallets have seen higher B2B usage among those in the gig economy during the pandemic, observes Yennie Tan, PwC Malaysia’s deals strategy partner and fintech commercial due diligence lead.
She says the pandemic has led to a surge of new entrants in the gig economy, many of whom are millennials and small micro business owners working from home. These include graphic designers and filmmakers creating content for corporations.
These newcomers already have a strong digital mindset, making adoption of mobile wallets a less complicated proposition. The transaction amounts are also smaller in comparison, and do not reach the maximum transfer limits.
Digital wallets can be a useful and cost-effective payment option, offering merchants preferred built-in cash-flow money management tools and financial dashboards, says Tan. There are also instances of small businesses paying employees their salaries through e-wallet transfers as well.
“Many of the medium and larger enterprises are well taken care of by the banks, and thus more comfortable with internet banking for transfers and business remittance. On the other hand, freelancers and micro businesses, which are still largely underserved segments of the market, value the simplicity and transparency that digital solutions such as mobile wallets offer,” she adds.
Tan says Bank Negara Malaysia has done well to promote the use of digital wallets in Malaysia by merchants and customers through the DuitNow QR code system, made possible under the Interoperable Credit Transfer Framework (ICTF).
She believes, however, that the general adoption of B2B digital payments is still rather low, and the industry needs to be more proactive in promoting its growth and greater use.
Speed and cost efficiencies can be key motivational drivers for companies to make the switch. The ability to receive and send payment in real-time, 24/7 availability and cross-border transfers can reduce the cost of transactions relative to traditional methods such as cash and cheques.
Fintech companies targeting the B2B segment should focus on three key areas, says Tan. For micro and small businesses and the gig economy, many business owners still conduct transactions using their private bank accounts or cash. Fintech players can help enhance the access of micro businesses to digital infrastructure, help small business owners increase their familiarity with digital payments and address cybersecurity concerns.
In addition, fintech companies should focus on providing cash management and monitoring features. Digital payments may enhance the visibility of transaction data and help merchants better track their day-to-day cash flow. Small businesses also need additional support such as accounting, financial and tax advisory services, Tan points out.
These solutions should be user-friendly and combine offline and online channels, just as how some banks have adopted chatbots as a way of interacting with customers, in addition to face-to-face customer support services.
Finally, small companies witnessing rapid growth aspire to scale up. The payment solutions need to be viable and scalable to support businesses at multiple stages of growth. For example, the ability to facilitate larger cross-border remittance amounts in real-time within Southeast Asia can support businesses as they scale regionally.
Fintech companies should also consider introducing more advanced cybersecurity features for digital payments to give business owners more confidence to undertake digital transactions with their regional counterparts.
Although market adoption has been slow, the fintech space itself is buzzing with activity. Ling Kay Yeow, partner at Ernst & Young Consulting Sdn Bhd, says there are interesting trends within the space that may drive the future of B2B payments not only in Malaysia but the region as a whole.
“In Asia-Pacific, players are building B2B payment systems on the blockchain. Visa is developing a new platform known as Visa B2B connect, which is a simple, fast and secure way to process cross-border B2B payments,” says Ling.
“Kasikornbank is the first Thai bank to be included in the pilot programme. Built on blockchain technology, Visa B2B Connect is designed for the exchange of high-value international payments between participating banks on behalf of their corporate clients.”
He explains that blockchain-distributed ledgers have witnessed more payment applications due to the rise in demand for international payments. Corporate clients are asking for faster payment processing, easier reconciliation and greater transparency on fees, all of which can be resolved through blockchain.
Another major trend would be the increased adoption of e-invoicing, which reduces the amount of paperwork and manual labour required to process transactions. According to Ling, governments across the region are rapidly adopting e-invoicing to combat tax evasion and fraud, as it provides greater visibility on trades and transactions.
In 2019, Singapore launched its national invoicing system through the European PEPPOL infrastructure and became the first country outside Europe to use the network for the exchange of electronic invoices between private companies. The Philippines and Vietnam are introducing mandates for the use of e-invoicing among companies as well.
“The B2B space is also moving into Buy Now Pay Later (BNPL) models. The BNPL facility provides the seller with an effective tool to capture more sales and reach new customers while providing affordability,” says Ling.
“According to Afterpay Ltd, around 83% of retailers experience a decrease in shopping cart abandonment when they offer a flexible payment option. So, BNPL services have immense opportunities to grow. The number of BNPL providers has grown at a [compound annual growth rate] of 34% from 2012 to 2020, which sets the base for an increased use of BNPL services in the B2B space.”
Still, these trends have yet to resolve the low awareness of digital payments among small merchants, hampering adoption efforts. Financial institutions and local authorities need to play a much more active role in addressing these issues.
Ling cites the example of AmBank Group, which introduced the nation’s first fully end-to-end electronic business current account opening service, allowing businesses to set up accounts without physical interactions. He also looks forward to Bank Negara’s issuance of digital banking licences, which is expected to streamline the digital onboarding experience and banking transactions for small and medium enterprises (SMEs).
Bank Negara has gone to great lengths to incentivise digital payment adoption. Since 2017, it has waived online instant transfer fees, which were originally 50 sen, while increasing cheque-processing fees. It has also beefed up the national e-payment infrastructure, mainly through Payments Network Malaysia Sdn Bhd (Paynet).
“With this, SMEs are financially encouraged to move towards digital payments. Paynet, the national payments network and shared central infrastructure for Malaysia’s financial markets, aims to build inclusive, accessible and efficient payments and financial ecosystems for Malaysia,” Ling says.
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