B2B and the DFS Ecosystem

I n t e r n a t i o n a l T e l e c o m m u n i c a t i o n U n i o n
ITU-T FG-DFS
TELECOMMUNICATION
STANDARDIZATION SECTOR
OF ITU
(11/2016)
ITU-T Focus Group Digital Financial Services
B2B and the DFS Ecosystem
Focus Group Technical Report

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FOREWORD
The International Telecommunication Union (ITU) is the United Nations specialized agency in the field of
telecommunications, information and communication technologies (ICTs). The ITU Telecommunication
Standardization Sector (ITU-T) is a permanent organ of ITU. ITU-T is responsible for studying technical,
operating and tariff questions and issuing Recommendations on them with a view to standardizing
telecommunications on a worldwide basis.
The procedures for establishment of focus groups are defined in Recommendation ITU-T A.7. TSAG set up
the ITU-T Focus Group Digital Financial Services (FG DFS) at its meeting in June 2014. TSAG is the parent
group of FG DFS.
Deliverables of focus groups can take the form of technical reports, specifications, etc., and aim to provide
material for consideration by the parent group in its standardization activities. Deliverables of focus groups are
not ITU-T Recommendations.
 ITU 2016
This work is licensed to the public through a Creative Commons Attribution-Non-Commercial-Share Alike
4.0 International license (CC BY-NC-SA 4.0).
For more information visit https://creativecommons.org/licenses/by-nc-sa/4.0/

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About this report
The authors of this technical report are Bennett Gordon, Erin McCune, Allen Weinberg, Carol Coye
Benson, Janine Firpo, and Quang Nguyen.
If you would like to provide any additional information, please contact Vijay Mauree at
tsbfgdfs@itu.int

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CONTENTS
Page
Executive Summary .............................................................................................................................5
1 What are B2B payments?.............................................................................................................6
2 B2B payment requirements..........................................................................................................6
3 Benefits of B2B payments: Small buyers ..................................................................................10
4 Benefits of B2B payments: Small suppliers...............................................................................13
5 Counter examples.......................................................................................................................16
6 Trends affecting B2B payments.................................................................................................17
7 Second order benefits.................................................................................................................18
8 Barriers to B2B adoption............................................................................................................20
9 Considerations for financial policy makers................................................................................21
List of figures
Figure 1 – Formal and Informal Enterprises..................................................................................9
Figure 2 – Business Size and Resource Demand.........................................................................10
Figure 3 – The “Long Tail” of Suppliers..................................................................................... 20

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Executive Summary
Business-to-business (B2B) payments are often thought of in terms of the large value transactions
which occur between and among large enterprises. But, small businesses, even very small businesses,
like large ones, have to pay their suppliers and collect from their business customers. The ability to
make and receive these payments in a timely fashion is often a critical factor in the success of the
small business: a shop unable to buy new inventory won’t be able to sell much. The means to affect
these transactions remotely without visiting the customer’s location or enabling employees to handle
purchasing are key to growing a small enterprise. The move toward eMoney also creates a digital
transaction record which is key to establishing credit.
In this report, we examine the impact of electronic B2B payments on the development of the DFSs
ecosystem in developing countries. We look at the requirements of businesses, at the benefits of using
electronic payments, and the trends affecting this market. In a section called “Second Order Benefits”,
we look at how the use of electronic B2B payments may accelerate the adoption of eMoney and
electronic payments in general. We conclude with recognizing some of the barriers to adoption of
B2B payments, and outlining some considerations for policy makers.

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1 What are B2B payments?
Steve is a shopkeeper in central Nairobi who operates largely in cash. Most of Steve’s payments look
the same: two people pass Kenyan shillings to each other. Though many of these transactions appear
the same, Steve is actually making different types of payments all the time. When he buys goods for
his shop, Steve is making B2B payments. When his customers buy those goods, they make customer-
to-business (C2B) payments. If he sends some of the money he has earned to his family, he makes a
person-to-person (P2P) payment.
The introduction of digital payment tools and services allow Steve (and others like him) to use
payment technologies specifically designed for each of these use cases. The purpose of this report is
to explore whether digital B2B payment tools and services can benefit the poor.
All businesses buy from other businesses, which means that all businesses make B2B payments. This
is true for small bodegas in rural, sub-Saharan Africa, and large multinationals operating across the
globe. Some businesses sell to other businesses (many sell only to consumers). That is why this report
will focus on both sending and receiving B2B payments.
We hypothesize that widespread digital B2B payments could have second-order benefits that could
strengthen the overall DFSs ecosystem. This report explores potential ecosystem-level benefits and
concludes with suggestions for how policymakers can take advantage of the opportunities presented
by new digital B2B payment tools and services.
In any B2B payment, there are two parties: a buyer, and a supplier. The buyer receives a good or
service from the supplier in exchange for payment. The buyer may immediately use a good as an
ingredient or part in goods it manufactures, or stock that good and resell it to a consumer or business
customer.
The types of bulk payments relevant to this report include:
• supplier payments (payments from a business buyer to a business supplier);
• bill payments (payments from a business to a utility or other service provider on a regular
cadence);
• salaries/payroll (payments to consumers as employees or subcontract labour).
The report will not focus on government payments (taxes, fees, fines), financial market transactions
(investments, mergers, and acquisitions), or intra-company transactions (between subsidiaries and
headquarters). Agricultural sector payments are also not addressed in this analysis, due to the fact that
it is the focus of a different analysis for the ITU1
. Also, e-commerce transactions are not a part of this
report, as we are focused on poor people and the underbanked who are less likely to be purchasing
online, either as consumers or businesses.
2 B2B payment requirements
Business transactions are fundamentally different than consumer transactions.
Consumer transactions are often anonymous, particularly at the retail point of sale – whereas
businesses tend to have ongoing relationships with their suppliers and know them well.
Consumers usually pay immediately, whereas suppliers typically extend credit – in the form of
payment terms – to their buyers (this is closely tied to the fact that they know them and do business
with them on a regular basis). For example, a business buyer may have thirty days to pay for goods
and services.
1 Refer to ITU Focus Group Digital Financial Services Report on “Impact of Agricultural Value Chains on Digital Liquidity.”

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Formal businesses typically get an invoice, whereas consumers may or may not receive a bill (when
they do it is typically from a utility or other recurring service provider). Consumers pay one bill at a
time, whereas businesses often aggregate payment for multiple invoices together in one transaction.
As consumers we pay what we owe, businesses, on the other hand, often pay less than the invoice –
sometimes they have a legitimate reason for doing so (the product received was the wrong size or
colour, the quantity was less than expected, the scope of the project was reduced, etc.), other times
they do it because they can.
This means that when a business sends a payment, they also send an explanation of what the payment
is for. They send a list of invoices and the amount paid for each, along with some sort of rationale for
any short pays. This explanation is called a “remittance” (not the same as a P2P remittance), and for
manual forms of payment this remittance is delivered along with the cash or check.
Informal businesses may not furnish invoices, and may not have formal accounting methods, instead
tracking obligations in hand written ledgers – or even keeping track of them in their minds. Successful
entrepreneurs, regardless of how informal their business practices may be, have means of ensuring
that they are paid what they are owed.
As a consumer in the developed world, the cost of payments is limited to the stamp used to mail a
check, the monthly fee for a bank account, or an ATM fee to withdraw cash. In the developing world,
most transactions are made via cash and the associated costs are indirect: Time queuing to pay bills;
potential agent fees to receive cash; transport costs; and, of course, the risk of theft. Whether in the
developed or the developing world, consumers do not typically associate cost with payments for their
purchases. Yet businesses that sell to consumers are accustomed to paying to be paid – particularly if
they accept credit cards. But even those that accept cash recognize the cost of handling cash, ensuring
security from internal fraud, and external theft. A business buyer (the company that is paying) may
have significant cost associated with making and receiving payments.
All businesses have similar requirements for B2B payments. This is true for a sole proprietorship in
Peru, and the biggest stores in London. Companies may emphasize the importance of some features
more than others, and the sophistication of the processes and tools used vary. However, all businesses
require:
• Control over timing of disbursements and collections: Businesses need to manage their
cash flow. They want to control the timing of funds going out as payments to suppliers and
to employees as payroll. Also, ideally, they’d like to be able to predict when funds will arrive.
Knowing when their customers will pay them enables them to manage their borrowing (or
invest excess funds).
• Security of payments: Businesses need to feel secure and safe when making and receiving
payments. They want to feel comfortable delegating responsibility to employees. They also
want to know that they are protected from fraudsters outside their company. Cash may be
convenient, but it is also expensive to secure. The relatively large size of B2B payments
means that security measures appropriate for consumer payments may need to be augmented.
• Data: Businesses need to be able to track payments. They need to get payment data into their
accounting ‘system’ (whether it is a manual ledger, a spreadsheet, accounting software, or an
ERP system) so that they can close out obligations recorded in their receivables. They need
to know who paid, what they paid for, and who still owes them money. The sooner they
follow up on collections, the more likely they are to be paid. Data that enables tracking
customer accounts is also key to recognizing the most valuable customers and attracting more
like them. Similarly, expenses need to be allocated to the appropriate categories, projects,
product lines, or locations so that businesses can understand the profitability of goods and
services. Even tiny, informal businesses operating without digital tools have mechanisms for

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tracking outstanding payments and often a nuanced understanding of the profitability of the
goods and services they sell – even if it means relying on handwritten records or memory.
Businesses seeking credit recognize the value of accurate and auditable records when it
comes time to borrow funds.
• Efficiency: Most entrepreneurs start businesses because they are enthusiastic about the goods
and services they provide – they are passionate about tutoring youth, providing medicine to
their village at its first ever pharmacy, installing and maintaining electrical systems, etc. They
are often much less enthusiastic about the administrative and financial management tasks
associated with running a business. Thus, tools that make bookkeeping and invoicing easier
and faster are much appreciated. Digitizing payments often means that the information
associated with transactions is in a variety of different formats. Counter intuitively, this may
be less efficient and more work for the accounting staff (or business owner herself) than
manually tracking payments. Handling payment exceptions can also significantly increase
administrative efforts and even interfere with efforts to streamline back office tasks.
• Reasonable costs: Businesses large and small are willing to pay for reliable, low-risk,
efficient digital payments. But the direct (transaction fees) and indirect cost (processing,
exception handling, converting digital value into cash) should be reasonable given the
associated benefits.
Some requirements may be more important for some businesses than others. A previous article for
the ITU DFS Focus Group separated merchants and payment acceptors into nine categories. The
smallest, M0, are small consumers transferring money to each other in a P2P fashion. The largest,
M8, is the government. Each of these user categories has access to different technologies, different
appetite for risk, and economic sensitivity.2
The size of a business has a large effect on digital B2B payment needs. Smaller businesses (those in
the M1-M3 categories) tend to use “just pay” solutions with immediate payment and only informal
credit. More complex features, including invoicing, VAT payments, and aggregated payments (for
multiple invoice obligations at a time) may not be necessary. On the other hand, larger businesses –
those in the M2, M3, M4, or M6 categories – may need solutions that cover VAT payments, invoicing,
and aggregated payments. Larger companies also have a stronger propensity to invest in optimizing
back office procedures and paying for payment solutions than informal companies.
In developing countries, the divide between formal and informal merchants will also have a large
effect on the appropriate digital B2B payment tools and services. In both developed and developing
countries, most businesses are small. Ninety-six percent of businesses in the United States have fewer
than 10 employees.3
Similarly, the vast majority of firms in developing countries are considered
micro-, small-, and medium-sized enterprises.4
In developing markets, an estimated 77 per cent of
small and medium enterprises (SMEs) lack formal documentation.5
2 Enabling Merchant Payments Acceptance in the Digital Financial Ecosystems. ITU. February, 2016.
3 US Census, 2012 data.
4 Transforming Business Relationships: Inclusive Business in Latin America. Inter-American Development Bank. 2015.
5 Peer Stein, Oya Pinar Ardic, and Martin Hommes. Closing the Credit Gap for Formal and Informal Micro, Small, and Medium
Enterprises. International Finance Corporation. 2013.

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Figure 1 – Formal and informal enterprises
Informal businesses have different system requirements than formal merchants. Informal needs may
align closely with those of M1 businesses. If structured correctly, however, digital B2B payment
services could give informal owners an incentive to gain the necessary licenses to formalize their
businesses.
B2B payment tools and services should align to the specific needs of companies at various stages of
maturity – regardless of their location – as businesses grow and their back office procedures mature.
Entrepreneurs manage their small companies in much the same manner as they manage their personal
finances. As companies get larger, control becomes an important factor – the entrepreneur requires
safeguards to feel comfortable delegating financial tasks to employees. Financing and credit become
very important during growth phases, and often payment services are typically obtained from banks
that are willing to extend credit to small businesses. Large enterprises often operate their back offices
like factories, with emphasis on process efficiency and cost reduction. These businesses often have
multiple banking relationships, and credit and payments are no longer intertwined.
As small companies begin to mature, they face certain bottlenecks: First, companies need capital for
startup, then assets, then employees, then scale to support investment in assets, people, and processes.
For example, a shop may begin by needing capital to buy goods for inventory. It will eventually need
assets, such as a permanent home for the shop. If it gets large enough, the shop owner will need to
hire employees to staff the store. Eventually, the company will want to scale to multiple locations,
require a warehouse to store inventory, and perhaps a fleet of delivery trucks. These challenges are
particularly profound in the developing world, where there are fewer options for small businesses. At
each step in this growth trajectory, many businesses fail due to lack of capital for investment. Instead
of obtaining assets, many informal owners remain without a physical store location. Others remain
without employees, dependent on the time and skills of the owner and his or her family. The growth
trajectory has slightly different characteristics for different industries, but all businesses require
working capital to accumulate assets and scale.
Digital B2B payment tools and services may be able to help business owners overcome the
challenges at each step toward maturity. The rest of this analysis focuses on the potential benefits of
digital B2B payment services for small buyers and sellers.

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Figure 2 – Business size and resource demand
We acknowledge that many businesses do not grow – they are large enough as is: Large enough to
fund the lifestyle and aspirations of the entrepreneur. Their goal may be to earn enough to pay for
their children’s education, hire some assistance around the house, and save money to help care for
aging parents. The business is optimized for lifestyle, rather than growth. Yet even these purposefully
modest businesses can benefit from digital tools and associated increases in efficiency.
3 Benefits of B2B payments: Small buyers
Small buyers are one subset of businesses which could benefit from digitizing B2B payments. These
small buyers include small shops owned by BoP. These shops often buy goods from wholesalers or
distributors and then resell those goods. If the payment between the buyer and the seller could be
digitized, the small buyer could:
• gain more control over the timing of disbursement, and obviate the need to be physically
present to pay suppliers at the time of delivery;
• build a digital history of timely payment;
• hire and trust employees to manage day to day operations, and receive goods;
• manage relationships with key suppliers more strategically.
Disbursement timing:
Control over disbursement timing is one of the most essential elements of B2B payments. Suppliers
want to get paid as soon as possible, while buyers want to keep control over the payment until they
are sure that goods have been delivered.6
Digital payments can help buyers maintain control. The
digital payment provider Oxigen, for example, offers a tool where buyers can pay Oxigen, and the
service will then pay suppliers on the due date.7
6 Carol Coye Benson. The Problem with B2B Payments. Payments Views. April, 2009.
7 Oxigen Wallet: https://www.oxigenwallet.com

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Another example comes from the Democratic Republic of Congo, where cash is nearly the only option
for making payments. When given the option to use eMoney, many small buyers reported that digital
payments were more secure and saved time. Digital payments eliminated the need to travel with large
amounts of cash. This saved the business owner time, and made the payments significantly less
susceptible to theft.8
Another example comes from the company Copia Global, a distributor that supplies goods to
shopkeepers in Kenya.9
Copia can use mobile payments to offer shopkeepers a mobile “layaway”
plan where they can pay for goods in small instalments. This allows shopkeepers to receive revenue
from their own customers before paying the full amount to suppliers for goods.
Digital history:
Every time a buyer makes a payment, that payment can be recorded as a part of that person’s or
company’s digital history. While cash leaves no digital trail, a digital history of B2B payments could
allow small buyers to gain more business credibility – allowing them to obtain more favourable credit
terms from strategic suppliers. Many SMEs lack the stature and bargaining power to negotiate good
credit. As a result, their suppliers don’t trust them to pay later, and will not offer them trade terms
(pay in 30 days, for instance). As a result, many SMEs are forced to pay immediately without credit.10
Digital payment histories could help address this situation. By showing a history of successful
transactions, SMEs can establish a willingness to pay on time that indicates creditworthiness. For
example, the merchant services company Kopo lends money to merchants who have established
digital payment histories. 11
The company builds a credit-scoring algorithm to measure each
merchant’s ability and willingness to pay back a loan. The company then offers “business cash
advances” where a merchant can accept a bulk payment in exchange for a percentage of future
revenue (until the advance, including a fee, is repaid). The size and terms of the advance are
determined by the merchants’ digital history of payments. A similar mechanism could be used to
provide trade financing and other credit mechanisms using B2B payment histories for small
businesses in many other places.
Employees:
Many entrepreneurs have problems delegating tasks to employees, especially tasks related to making
payments and getting paid. As businesses grow, however, entrepreneurs need to hire on more
employees. They may open multiple locations, and are unable to be in two places at once. Digital
B2B payment services can give entrepreneurs the tools they need to delegate more tasks to employees,
while maintaining transparency and security.
In this way, digital B2B payments could allow small buyers to hire and trust employees. Internal
control features offered by business payment providers, including PINs and passwords, would make
it easier for business owners to maintain security over payments. And, according to Rajpal Duggal of
Oxigen, digital payments allow business owners to discover problems associated with payments in
days instead of weeks. This would give business owners the opportunity to leave their stores and use
their time more productively.
8 Mobile Money in the Democratic Republic of Congo: Market insights on consumer needs and opportunities in payments and
financial services. GSMA. July, 2013.
9 Copia Global Website: http://www.copiaglobal.com/
10 Anne Marie Van Swinderen and Grace Mungai. Supply Chain Financing for SMEs. July, 2015.
11 Grow Cash Advance – 5 Frequently Asked Questions. Kopo Kopo. May, 2014.

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Relationship management:
Buyers often source their goods from many different vendors. Digital tools would allow buyers to
manage their relationships with each of their suppliers better, rather than rely on the sometimes-faulty
recollection of business owners and employees. In the developed world there has been an explosion
of small business-focused B2B purchasing tools that use eMoney for payment could bring that type
of innovation to poor countries.
For example, the mobile payments platform Beyonic allows payers to store names, phone numbers,
and payment histories inside of the platform.12
This makes it easier for small buyers to track payments
to suppliers and manage the overall relationships better by understanding fluctuations in purchasing
over time. It also makes repeated payments easier by not forcing small buyers to re-enter information
every time they want to make payment.
Over time, small businesses could use this information to make better business decisions. Data on the
most frequent suppliers, cost comparisons between suppliers, evolving expenditure patterns, or other
data stored in the system could enable enhanced analytics for small businesses. Strategic supplier and
procurement management is a key element of business continuity and scalability.
Regulatory compliance:
Digital payment tools could also make it easier for small buyers to keep track of digital payments and
create accurate accounting. This ability could enable easier regulatory compliance, including timely
and accurate tax payments for small businesses.
Of course, this improved regulatory compliance is a benefit only for those companies that hope to
remain compliant. Companies that want to evade taxes or other regulatory obligations would not see
this as a benefit.
Example #1, Farmaenlace:
Rural Ecuadorians often have trouble accessing medical equipment and drugs. Many have to spend
precious resources travelling to larger cities to visit hospitals. Recognizing this challenge, the drug
distribution company Farmaenlace decided to expand into rural markets.
With help from the Inter-American Development Bank (IDB), Farmaenlace set up drug store
franchises in rural areas of Ecuador. The franchise operators received training, advertising, and
bonuses for sales. All constituents benefitted from the program: For the IDB, the project was part of
an inclusive business initiative designed to help poor people; for Farmaenlace, the franchises sold up
to 50 per cent more than the company’s own drug stores; for the franchise owners, monthly income
went up by $2,400 after expenses.13
Digital B2B payment tools could help programs like this in a number of ways. The most basic is that
B2B payments services could make payments between Farmaenlace and its franchises more
transparent and secure. Each franchise could keep track of its inventory, payments, and sales patterns
more effectively, and digital payments would be more secure than cash. It could also give the
storeowners the flexibility needed to hire employees and delegate financial responsibilities, as
discussed above.
The digital record of successful payments to Farmaenlace could also allow the franchise owners to
access credit. The IDB or Farmaenlace could offer subsidized loans to qualifying franchises through
12 Based on an interview with with Dan Kleinbaum, COO of Beyonic: http://beyonic.com/
13 Transforming Business Relationships: Inclusive Business in Latin America. Inter-American Development Bank 2015.

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digital B2B payment services. These services could enable more efficient disbursement, and the
digital histories could be used to enable better credit decisions.
Example #2, Coca-Cola:
Consumer goods companies are investing heavily in emerging markets as a source of future business
growth. In 2014, for example, Coca-Cola announced a $500 million investment in Egypt and
Pakistan.14
Coca-Cola products are often sold through local distributors to small shops throughout
developing countries.
Digitizing the payments between the buyers and the distributors could result in significant benefits
for the entire supply chain. Small business owners could allow employees to pay for products from
Coca-Cola, even when the owner wasn’t there. Not only would those payments be easier and more
secure, the business owner would not be limited to cash on hand to fund inventory purchases. And, if
a small buyer has a digital history of payments to the distributor, the distributor could feel more
comfortable offering credit to the small buyers. Other financial service providers could also get
involved, offering receivables financing, business cash advances, or more traditional loans to support
business growth.
The histories could also be used for enhanced analytics. For example, Coca-Cola could enable
accurate “preferred buyer” programs, offering incentives to companies that buy more.
Example #3, Tenoli:
Rural mom-and-pop stores in Mexico often carry products made by large, multinational companies
like Pepsi and Nestlé. When small buyers purchase these products, they often pay distributors in cash.
These cash payments create inefficiencies in the supply lines, and don’t allow the small shops to
capture all of the benefits of digital payments.
The distribution company Tenoli, based in Mexico, is trying to help by enabling large suppliers
digitize to their supply chains, and better understand small buyers.15
The company set up distribution
sites, where large suppliers like Pepsi, Cemex, and Nestlé can deliver goods. Tenoli will then deliver
the goods to the small buyers and collect the payments.
The data collected from the payments allow Tenoli to create consumer behaviour reports and bottom
of the pyramid (BoP) economic profiles, which are then sold to suppliers. The reports give suppliers
the ability to better understand small buyers, including mom-and-pop shops, in dangerous parts of
Mexico. Large suppliers can then use the data to create loyalty programs that could benefit the small
buyers. In the future, Tenoli could offer credit that would enable a more efficient supply chain. These
greater efficiencies could also result in lower prices for the small buyers.
4 Benefits of B2B payments: Small suppliers
Digital B2B payments could also have benefits for small suppliers. Common examples of small
suppliers in poor countries are independent contractors who supply labour to larger companies. Other
examples could include artisanal manufacturers or small wholesalers. Benefits could include:
• faster payments, and, as a result, less cash flow anxiety;
• improved security as a result of avoiding cash;
• more customers by meeting the needs of buyers that prefer to pay digitally or for whom cash
payment is inconvenient;
14 Shadia Nasralla. Coca-Cola invests in Egypt and Pakistan, sees big sales growth. Reuters. June, 2014.
15 Based on an interview with Thomas Ricolfi, co-founder of Tenoli: http://www.tenoli.org

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• credit and digital history.
Faster payments:
Every supplier wants to get paid as fast as possible. The faster a supplier can be paid, the more
working capital that supplier has on hand to conduct business. Digital money offers immediate
transfers. If the supplier currently accepts checks, digital payments would eliminate the need to go to
the bank and stand in line to cash the check. If the payments were in cash, digital tools would obviate
the need to transport the cash between buyer and supplier.
Cash delivery usually takes three or four days, according to Oxigen. A banker’s check or a draft
would still take two or three days for suppliers to receive their payments. Payments through digital
money can be made instantly.16
Improved security:
Faster payments also allow better security and cash management for the supplier. With wallet-to-
wallet transactions, there is no chance that the payment will get lost in transit. With fewer
opportunities for payments to get lost, digital payments could give suppliers the transparency and
security needed to delegate payments to employees. Or, they could accept payments remotely,
without the need to make the deliveries themselves.
Relationship management:
Much like buyers, digital B2B payment tools could help suppliers manage relationships better. The
mobile payments firm Beyonic allows companies to both send and receive payments on the platform
and save the digital history. This allows small suppliers to track incoming payments and better
manage relationships with buyers.
This relationship management would also allow suppliers an easier time following up on unpaid
invoices. When payments are made in cash, it is difficult to know which invoices have been paid and
which are outstanding. A digital invoicing system would allow suppliers to know exactly when
invoices are paid, and which invoices demand follow up.
Gain customers:
For small suppliers, the ability to accept payments digitally could actually increase the customer base.
The company PayMate,17
for example, touts its ability to help businesses accept payments from
anywhere in India. This would allow a company to expand its geographic reach and gain more
customers.
Another example comes from Copia Global.18
The company is able to deliver “Right to the village.
No address, no problem. Like FedEx, but better.” The business, enabled by digital payments, offers
delivery to urban locations within 48 hours and to rural locations within a week.
Establish digital history:
A digital history of payments could be a boon for small suppliers. For example, lenders could use
digital histories to offer factoring and other types of receivables financing. That way, instead of
waiting for the cash flow to arrive from small buyers, suppliers could sell the invoices to financial
service providers in exchange for immediate cash.
16 BASED ON AN INTERVIEW WITH RAJPAL DUGGAL, HEAD OF GROUP STRATEGY AND CORPORATE PLANNING AT OXIGEN.
17 PAYMATE: HTTP://WWW.GOPAYMATE.COM/.
18 COPIA GLOBAL: HTTP://WWW.COPIAGLOBAL.COM/.

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Example #1, Visor:
Since January of 2014, Mexico has mandated that all companies must use state-approved e-invoicing
services to create all of their invoices. These invoices are then collected and stored by the tax authority.
The Economist described the law as “electronic arm-twisting,” to force businesses and individuals to
pay more taxes.19
At the same time, the digital histories provided by these e-invoicing services could
actually benefit small suppliers.
One example comes from Visor,20
a Mexican company that provides credit-scoring services and
supply-chain financing aimed at small suppliers. Visor’s business model relies on large, multinational
buyers that do business with many small suppliers. The large buyers give Visor access to their e-
invoices, including payment information. Visor then uses that data to assign credit scores to all of the
small suppliers. Financial institutions then partner with Visor to provide supply chain financing to
the small suppliers.
Payments from large buyers could take days or weeks. For small, cash-strapped suppliers, that time
can seem like an eternity. Instead of waiting, small suppliers could use that time to buy new goods or
hire new employees. Supply chain financing could allow the small suppliers to get paid faster,
enabling them to use that capital to expand their businesses. 21
Example #2: ‘Taobao villages” and Mr. Presta
Small suppliers have begun to tap into marketplaces like Alibaba, Amazon, and Flipkart to sell their
goods online. In China, so-called “Taobao villages” have begun to emerge, where communities
specialize in specific goods, like socks and shirts, to sell on the online shopping site Taobao. Since
2015, some of these villages have begun to specialize in B2B goods. The city of Zhuji, for example,
produced 25.8 billion pairs of socks in 2014, or 30 per cent of the world’s output. Many of these socks
are produced by local suppliers, and then sourced to non-local Taobao sellers via the marketplace and
funded with digital B2B payments.22
In Mexico and Argentina, the company Mr. Presta23
is using data from MercadoLibre, an extremely
popular online commerce marketplace in Latin America, to facilitate lending. Mr. Presta makes
working capital loans to small merchants on MercadoLibre that enable small suppliers to expand their
businesses. While this is not specifically a B2B loan, it shows how better payments data could enable
financial service providers to offer more products and services to B2B companies.
Mr. Presta claims that the small businesses in Mexico and Argentina are currently underserved due
to a lack of reliable information, an expensive analysis process, and expensive client acquisition
channels. The company helps overcome these barriers by accessing reliable information (from
MercadoLibre) and building software that allows them to make credit decisions and disbursements
reliably and efficiently. Mr. Presta can then use that data to partner with financial institutions to extend
credit into B2B buyers and sellers.24
19 Electronic Arm-Twisting. The Economist. May, 2014.
20 Visor Website: http://visor.io/
21 Based on an interview with Valeria Perez Rios, CCO Visor.
22 Research Report on China’s Taobao Villages, Ali Research. 2015. http://i.aliresearch.com/img/20160126/20160126155201.pdf
23 Mr. Presta Website: http://www.mrpresta.com
24 Based on an interview with Carlos Rosso, cofounder of Mr Presta.

16
Example #3, Kopo Kopo:
In 2015, Kopo Kopo launched a “payments hub” product that allows companies to schedule and send
multiple payments at once. The product was launched as a B2B payments solution for merchants to
pay their suppliers.
One business to adopt the product was a courier company that had independent contractors around
Nairobi. The company used “payments hub” as a salary payment system to send scheduled payments
out to all their contractors at a set time. In this situation, the independent contractors acted as the
suppliers of labour, while the courier company acted as the buyer.
The product also helped the courier company by simplifying payments to its contractors. It kept all
contractors in a centralized system, and allowed the company to make payments faster and easier.
Kopo Kopo charged the payers on a per-transaction basis, with an extra fee for integration into
company back offices.
In Kenya, more people have digital money accounts than bank accounts. The “payments hub” product
helped the independent contractors by paying them immediately, whether or not they had a bank
account. It was also more secure than cash payments and faster than payment by check.
5 Counter examples
Although there are many benefits to making and receiving payments digitally, there are some
situations where digital B2B payments will not be widely adopted.
Companies that want to avoid taxes and regulations, for example, would likely resist B2B payments.
A survey by the Better Than Cash Alliance found that just 20 per cent of surveyed SMEs in Nigeria
paid federal taxes. More efficient tax collection would raise the costs of digital B2B tools and services,
which could inhibit uptake.25
Another group that could push back is cash-starved businesses. One Kopo Kopo client, a Nairobi-
based restaurant, said that it would be very resistant to using digital B2B payments, because of the
faster payments enabled by digital money. The restaurant pays suppliers using checks. The suppliers
then have to take the checks to a bank, stand in line, and cash the checks. The restaurant uses the time
it takes to pay suppliers as a form of working capital. If the payments were to be deposited in the
suppliers account immediately, the restaurant would have less working capital, which would hurt the
business.
Other businesses in Kenya use post-dated checks as a form of credit. The post-dated check typically
allows the merchant a 30 to 90-day grace period before the money is debited from his or her account.
There currently is no electronic alternative to a post-dated check, which creates a large barrier to
adoption.26
Some businesses may not adopt digital payments simply because the status quo is difficult to change.
Many entrepreneurs want to focus on their businesses, and payments are not a large priority. Digital
payments are sometimes seen as a distraction, rather than an enabler, from core business functions.
Bureaucracy may also thwart other businesses from adopting digital payments. Most payment
providers are required to check business licenses and collect other “Know Your Customer” (KYC)
information. If these requirements are difficult to meet, many businesses will simply opt out of digital
payment tools and services.
25 Brian Loeb. The response of large corporates and their value chains to government policies to shift to digital payments: Nigeria’s
“Cashless” policy,” Better Thank Cash Alliance. January, 2015.
26 Julie Zollmann, Digital Retail Payments in Kenya: Making them Matter for Merchants. Bankable Frontier Associates. October,
2014.

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Finally, while supply chain financing could enable more efficient businesses, the service is not free.
Mr. Presta and other supply chain financing companies offer unsecured credit, meaning that the small
businesses do not need to offer assets to access the loans. However, the loans will likely reduce the
profitability of each transaction, and there is a danger that low-income users will not fully understand
the credit offerings. This could open the door to unscrupulous credit companies to employ usurious
practices that could exploit low-income business owners.
6 Trends affecting B2B payments
In the last few years, governments and multinational groups have begun to focus on SMEs as a way
to improve the lives of poor people. This focus stems from the growing recognition of the role SMEs
play in job creation and economic development. Many of these programs are designed to help SMEs
extend credit through lending technologies.
However, access to finance and credit remain a huge barrier for the growth of the SME sector. This
access is not evenly distributed. In 2013, an estimated 200 to 245 million enterprises were considered
unserved or underserved by the financial sector. Banks in both developed and developing countries
tend to avoid the micro, small, and medium-sized enterprises (MSME) sector, choosing to instead
focus on the larger companies. This is due, in part, to an information asymmetry, low per-client
revenue, and the expense of setting up branches in different parts of countries.
At the same time, there has been an explosion in digital money innovation throughout the world.
There are now 271 digital money services spread across 93 countries, and that number continues to
grow. However, there have been varying degrees of adoption of mobile money between businesses.
The Groupe Spécial Mobile Association (GSMA) estimates that only 0.5 per cent of total merchant
payment volumes are currently online.
These digital money systems could be part of a broader shift in global trade. If global trade continues
to increase, the demand for cost-effective cross-border payment options will likely continue to grow.
Companies like Alibaba and Western Union are trying to take advantage of this growth with digital
cross border payment solutions. In the coming years, some experts have predicted that there will be
a shift away from global supply chains and toward more regional procurement and manufacturing
operations.
The availability of cloud computing and Software as a Service (SaaS) platforms is transforming both
the ability for providers to offer solutions, and the ability of tech-savvy enterprises to incorporate
these into their own systems. New low-cost, pay-as-you-go software allows small business owners to
access tools previously reserved for larger businesses. It is true that adoption of these platforms has
been uneven. One global survey found that only 16 per cent of accounts payable departments receive
the majority of invoices electronically, while most receive their payments on paper. However, some
companies, including Salesforce and Intuit, have had massive success offering SaaS platforms to
small businesses. These hosted software solutions have the potential to change how B2B payments
are made in the future, all over the world.
These digital tools have also seen more non-bank actors take major roles in the financial sector,
potentially threatening traditional banks. Mobile operators, for example, have become some of the
most successful digital money operators in the world. While this led some to fear that banks could be
threatened, many of these digital money deployments have led to partnerships between banks and
non-banks. For example, Safaricom and the Commercial Bank of Africa created a partnership to offer
the M-Shwari micro-lending product. At the same time, this indicates a larger trend toward non-bank
actors playing a significant role in the financial system.
Square and many solutions like it throughout the world have democratized merchant acquiring,
dramatically expanding card acceptance amongst small businesses. The company, and others like it,

18
now offer a range of complimentary services for small businesses including inventory management,
scheduling, payroll, invoicing, etc. Solution providers focused on small businesses throughout the
world can follow this precedent, providing holistic, integrated tools that make it easier to do business.
7 Second order benefits
If buyers and sellers were to widely adopt digital B2B payments, there are a number of second-order
benefits, beyond the benefits to individual buyers and sellers. In some ways, these could be more
important to the ecosystem as a whole than the benefits for individual buyers and suppliers.
Digital liquidity:
B2B payments could also give businesses a powerful incentive to keep value inside of digital money
systems. If businesses are paid digitally by their business and consumer customers and have suppliers
that accept digital payment, the utility of digital payments is dramatically higher. Right now, digital
money is not replacing cash, but rather making cash more efficient. Eighty-five percent of
transactions globally are still in cash. Even in Kenya, one of the most active digital money markets
in the world, MasterCard Advisors estimated that 98 per cent of transactions were still made in cash.
One factor that holds back widespread adoption of digital money for financial inclusion is the cash in
cash out (CICO) network. According to Ignacio Mas, “…cash in/cash out (CICO) points are like
tollgates at the edge of the digital payments cloud.” It costs poor people money to take money out of
digital money systems, which creates a strong barrier to usage.
If buyers were able to use digital money to pay suppliers using B2B payments, those companies may
be more inclined to accept digital payments from consumers. At that point, consumers would have
more places to use their digital money, which would make them more inclined to leave value inside
of digital money, instead of cashing out. This could create a virtuous cycle, where digital money
systems retain more value and are made more efficient.
Lower costs:
Digital B2B payment tools could lower the cost of doing business. Buyers and sellers who adopt
digital B2B payments would no longer need to pay someone to transport cash and provide security.
If transactions are done by check, buyers and sellers no longer need to stand in line at the bank to
cash the check.
These lower transaction costs could translate to lower costs to buyers, sellers, and consumers.
Suppliers would not need to charge buyers as much, if their costs were lower. If buyers are purchasing
goods and services at lower costs, those savings could be passed on to the consumer.
Economic growth:
MSMEs are a huge factor in any economy, especially in developing countries, where MSMEs
generally represent more than 90 per cent of all firms. In Brazil, an estimated 99.9 per cent of all
firms are MSMEs. In terms of employment, MSMEs provide 71 to 73 per cent of jobs in Chile and
Colombia. Lowering transaction costs through the widespread use of digital B2B payments could
make MSMEs more efficient, and could encourage more economic growth generally. Also, as
previously discussed, the security provided by digital payments could also allow more MSMEs to
hire on more employees, which would boost employment.
Path to formalization:
Many digital B2B payment tools and services require accounts at financial institutions, which require
a degree of formalization among businesses. If the benefits of these tools and services were large

19
enough for businesses, they could actually be a factor in motivating businesses to seek out bank
accounts, business licenses, and other methods of formalization.
Second-order benefits example, Nigeria:
In 2014, the Central Bank of Nigeria approved new guidelines designed to promote digital payments.
The bank stipulated that all businesses with more than 50 employees were required to use approved
end-to-end e-payment platforms for all salaries, pensions, taxes, and supplier payments. The central
bank doesn’t currently have jurisdiction over non-financial entities, so the regulations are still
considered non-binding. However, the moves by the central bank, along with other e-payment efforts,
have helped companies stop thinking about “whether or not” to shift to digital payments and begin
thinking about “how.”
Now that companies have begun shifting to digital payments, the second-order benefits are becoming
clear. The Nigerian Bottling Company (NBC) has found that digital B2B payments have helped the
business in a number of ways. NBC drivers were often robbed when they carried cash, and the
company began paying high insurance premiums to protect themselves. Digital payments have made
the deliveries more secure and less of a target for robbers. Now, NBC has begun helping its domestic
suppliers formalize their businesses with bank accounts in order to use digital payments. Some
companies have reported lower costs, too, though that is not the primary motivation in going cash-
less.
It is still not clear whether businesses are formalizing because of the benefits of digital payments, or
whether digital payments are simply an added benefit of formalization. However, the benefits of
formalization and electronic payments are strongly correlated.
Second-order benefits example, Peru:
The Association of Banks of Peru (ASBANC) and Pagos Digitales Peruanos (PDP) recently
implemented an interoperable mobile payment system called Billetera Móvil (BiM). This system
works between banks and mobile operators in the country to extend mobile financial services to the
poor. To achieve this goal, however, the system needs to attract “digital liquidity” into the system.
One source of digital liquidity could be B2B payments. BiM is currently running a pilot with three
large B2B distributors, including two multinational fast-moving consumer goods companies. PDP,
the firm running BiM, is currently exploring three different methods to incentivize merchants to
participate in the B2B pilot: training, compromise, and discounts. The organization is sending out
trainers to help merchants understand how to use BiM. They’re also relying on compromise, the idea
that everyone (suppliers and buyers) will be better off using the B2B system. PDP is also organizing
discounts offered by the distributors to merchants who pay using BiM. PDP will then track the pilot
activity to determine which tactics are most effective to encourage more payments in the system.
One major barrier to the growth of BiM for B2B payments is the cash-in-cash-out network. There are
not enough agents enabling BiM, especially in rural areas of Peru. If merchants cannot conveniently
put cash into the digital payment system and, in turn, take cash out of it, they will be unlikely to use
the system. This is one reason why pilots, like the one that BiM is running, are so important. If the
large distributors benefit from the B2B pilot, the programs will raise the demand for cash-in-cash-out
services. At that point, more agents are likely to begin offering services. Companies would then be
more inclined to use digital B2B payments, creating a virtual cycle that could benefit the entire BiM
system.
Under this system, the distributors will pay to receive payments, and the merchant will not pay to pay.
This means that small merchants will be able to access the benefits of digital B2B tools and services
without being charged directly. At the same time, with more transactions in the system, BiM will

20
have more revenue. The system can then use that revenue to extend its services more widely, or it can
lower the cost of financial services for lower income segments of the population. This could benefit
the economy as a whole.
8 Barriers to B2B adoption
B2B payments are notoriously resistant to digitization. In 2011, 75 per cent of B2B payments in the
United States (by count) were still made by check. In many parts of the world, cash is the only method
of B2B payment available.
An overarching barrier to widespread B2B adoption is how to appeal to the “long tail” of suppliers.
Even in developed markets, most businesses tend to concentrate on only their largest suppliers for
efficient B2B payments. This means that most suppliers are left with manual, and often inefficient,
methods of payments. This problem is more pronounced in poor countries, where many businesses
are small and informal.
Figure 3 – The “long tail” of suppliers
To overcome this barrier, B2B payment solutions should be able to work for both formal and informal
business owners. This will require a risk-based approach to regulation, meaning that low-risk
transactions will face lower regulatory hurdles, no matter where they occur. Examples of regulations
could include KYC and screening requirements. If businesses face too many regulations, many will
simply use cash, instead of adopting more efficient methods of payment.
Digital B2B payment tools should also work on a wide range of mobile hardware across mobile
software platforms. Smartphones accounted for only about 13 per cent of connections in sub-Saharan
Africa at the end of 2013. Yet successful entrepreneurs are most likely to have smart phones rather
than feature phones, therefore business solutions can partake of the enhanced mobile capabilities to
build feature-rich digital payment solutions for B2B use cases.
At the same time, B2B payments may require more security than P2P payments. This is, in part,
because B2B payments may be of higher value. The company CopSonic is attempting to provide that
higher level of security on basic phones, using audio signals for authentication. However, any solution
will need to manage the security of transactions against the ease-of-use.

21
B2B payment solutions should also include the ability to take out a percentage of payments in order
to repay business cash advances, receivables financing, and other lending products. This will allow
more credit to flow into B2B payments, enabling faster growth.
All of this must work within a viable business plan. Both small buyers and small suppliers are cost
conscious. Any B2B product will need to be inexpensive enough to appeal to both parties, while also
making money for the DFS provider.
While it may be attractive to think that even the most thin margin business models can work with
sufficient transaction volume, providers should avoid the “network fantasizes” that plague many
payment startups. Many of the most successful B2B networks have only a small number of companies
signed up. Therefore, providers need to find a way to achieve a sustainable business model without
massive scale.
Finally, B2B payments will be more widely adopted when digital payments generally are more widely
accepted. This means that a sufficient network of CICO points is a necessity for B2B payments. Also,
this is why closed-loop systems present a barrier to widespread use of B2B payments. Many digital
payment schemes are so-called “walled gardens,” making it difficult to send money from one digital
money system to another. Interoperability would make digital B2B payment tools more widely
accepted, and therefore more likely to be adopted.
9 Considerations for financial policy makers
B2B payments are difficult to digitize. There are many informal companies, and some businesses that
will generally push back on any digital payments. However, policymakers should consider the
relevance and impact of the following factors that may encourage digital B2B payments tools and
services, and help the digital financial ecosystem as a whole.
• Evaluate factors that make it easier for informal businesses to make digital B2B
payments: Countries are taking a risk-based approach to regulating payments, including, in
many countries, creating a tiered structure for KYC regulations. Poor business customers, as
well as consumers/purchasers, can benefit from the same approach, enabling them to access
digital B2B payment tools.
• Examine how subsidized credit for SMEs can motivate adoption of digital B2B payment
tools: In many markets, subsidized credit could provide a strong incentive for businesses to
begin moving payments to digital systems. With a tiered KYC structure in place, subsidized
credit could also allow businesses to progressively formalize as transactions grow.
• Determine feasibility of interoperability: Digital B2B payments are more useful when they
are more widely accepted. As policymakers evaluate the extent to which digital money
systems are able to interoperate, consideration may be given to B2B payments as well as
other use cases.
• Monitor the role of e-invoicing: Where e-invoicing has been mandated, digital B2B
payment and lending providers can take advantage of the widespread digitization necessary
for even the smallest businesses to comply. Chile, Brazil, Mexico, and Argentina have begun
mandating that businesses issue e-invoices. The hope is to push businesses to formalize and
to pay more taxes. It is too early to know the full effects of these regulations, however,
policymakers may want to monitor outcomes in these countries and the extent to which they
drive digitization of payment and lending.
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B2B and the DFS Ecosystem

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