B2B companies have exploded in numbers recent years and so has payment volume. B2B payments—or business to business payments—occur when two companies exchange money for goods and services.
Often overlooked by the media, B2B payments power a large portion of our economy. In fact, the US B2B market grew 40% from a payment volume of $16.5 trillion in 2014 to $23.1 trillion in 2020.
The high-growth potential of the middle market is even more interesting. Made up of businesses with revenue from $50 million to $1 billion, the middle market leads the US economy with total revenues of $6.6 trillion.
Middle market businesses in particular face many pain points and unmet payment needs. Below are the key challenges that professional service network Deloitte names as the eight most important issues to solve for middle market companies:
There are several challenges for B2B business owners looking to grow their company. The traditional payment process perpetuates unnecessary expense, loss of valuable time, and other headaches. Fear not: there's a solution out there. And the technology is here today.
Blockchain for B2B Payments
Blockchain—the technology behind Bitcoin—offers a promising solution to B2B payment issues. With a decentralized approach, blockchain strips the middleman (e.g. the banks) and facilitates faster and less expensive payments.
Many people still believe that Bitcoin is only used for criminal activity, money laundering, or pure speculation. This couldn't be further from the truth. With big name financial institutions like Fidelity, MicroStrategy, and JP Morgan deeply embedding themselves in cryptocurrency now, it’s clear that the future of cryptocurrency includes real world business use.
Stablecoins—which are cryptocurrencies pegged to fiat currencies such as the US dollar—eliminate the volatility of digital assets and are a core component of B2B transactions. As the name suggests, stablecoins are well, stable—making them more practical for business transactions than currencies with extreme price fluctuations like bitcoin or ether. Since January of 2020, stablecoins have seen a 343% increase in market cap from $4.1 billion to $23.9 billion in November, 2020.
With the rise of stablecoins and the institutional buy-in from major financial companies like Square and PayPal, it’s easy to see the world on its way to adopting blockchain for B2B payments.
5 Advantages of Using Blockchain for B2B Payments
1. 96% faster payment speed with blockchain payments.
Traditional bank payments take between 1-5 days to send out. If you’re making frequent global payments, this can add up quickly.
By using digital currencies, you can increase payment speed by 96%. With a blockchain-based B2B payment, that same transaction would only take a maximum of one hour. If you’re making frequent B2B payments overseas, then it might be time to consider using blockchain for your transactions.
2. Paying with crypto lowers fees by 75%
Perhaps most important, you can save a significant amount of money with blockchain technology. If you use wire transfers or credit cards, there's a hefty fee involved each time (up to 6% for wire transfers and 2.9% for credit card transactions.) That means if you’re sending a $10,000 payment using a wire transfer, this could add up to a $40 bank fee and a $200 FX fee ($240 total of fees). Multiply that by the number of payments each business might send, and that's a significant amount of revenue eaten up by fees.
If you made the same payment with bitcoin, there would be a $0.10 blockchain fee and a $50 exchange fee. That fee is 75% lower than using a wire transfer for payment.
3. Self-custody: remove the banks and middleman.
The reason you can make faster and cheaper payments with blockchain is because of one simple fact: decentralization. It’s the lack of a middleman intermediating your payments. If you put all of your trust in the intermediary, then you are missing out on a large portion of the economy.
Blockchain gives businesses (small and large) the opportunity to make payments without going through a bank. It opens up doors for smaller businesses to transact with larger businesses who they might not otherwise be able to do business with because of high bank fees. It opens the door to a more inclusive economy.
4. Global transactions
Billions of people across the world do not have access to a bank account. This means they aren’t able to enjoy very simple things that we take for granted: buying or selling anything on the internet. They have been shut out from the global financial system until now.
Blockchain is so disruptive because it empowers people from developing countries to be able to join the fun of the internet marketplace. In the book The Age of Cryptocurrency, Paul Vigna and Michael Casey explain it best:
“At its core, cryptocurrency is not about the ups and downs of the digital currency market; it’s not even about a new unit of exchange to replace the dollar or the euro or the yen. It’s about freeing people from the tyranny of centralized trust. It speaks to the tantalizing prospect that we can take power away from center - away from banks, governments, lawyers, and the tribal leaders of Afghanistan - and transfer it to the periphery, to We, the People."
5. Blockchain-powered accounting
Rather than recording every B2B transaction separately (as we have done for hundreds of years), blockchain enables you to write the transaction into a joint system and create a joint record of transactions. In other words, you’re not only recording each debit and credit; you’re allowing the B2B payment to be verified electronically by nodes across the world.
For accountants, this is a game-changer. If you are being audited in the future (or doing an audit yourself), blockchain will make your life easier and free up your time to focus on more complex issues.
Read more: Triple-Entry Accounting and DeFi
The Bottom Line
Whether it’s lower fees and faster payments or decentralization and an empowered global economy, the benefits to using blockchain for B2B payments is beyond doubt. In the coming years, we'll see more and more businesses join the thousands of companies already transacting with blockchain technology. With all the growth we're seeing in the industry, it will happen sooner than you might expect.
If you’re a business that's looking to improve your payments system, there's no time like the present to learn about the benefits of crypto accounting software. Gilded helps you manage your back-end crypto payments so you can focus on running your business.
Want to learn more about blockchain payments? Request a demo with a Gilded expert to learn how to add crypto to your workflow.
Gilded empowers businesses to transact globally, using blockchain to unlock more efficient business operations. Our seamless invoicing, payment, and accounting software helps businesses get paid faster and more transparently, with dramatically lower fees.
Founded in 2018, Gilded is backed by Techstars, the Association of International Certified Public Accountants (AICPA), and CPA.com.