Managing Risk In The Digital Era With Payment Networks

Drew Hofler

New technologies have made it easier than ever for consumers to securely make purchases. Now companies focused on business-to-business (B2B) commerce are beginning to follow suit.

Managing payments requires capturing, storing, and securing sensitive information; complying with complex regulatory requirements; and validating the identities of those seeking to be paid. These activities carry a lot of risk. As attacks on corporate payment systems continue, digital payment networks, which can help mitigate risk in B2B transactions, are now taking a page from the consumer playbook.

Much like the tokenization mechanism used by consumer payment technologies such as Apple Pay, these payment solutions create a proxy number, a code that stands in place of any specific corporate financial information until the payment safely reaches its destination. Proxy numbers are used in place of bank account information until a transaction reaches a payment network where it is safe from hackers and fraudsters.

How a payment network works

When a supplier is onboarded with a payment network, such as the Discover Network, the supplier’s bank information is validated, then stored securely in the network systems. The buyer and seller never exchange sensitive financial information, corporate details, or personal data.

Should an unauthorized party obtain the vendor ID, it would be useless, as it means nothing by itself. Only when the number is received by an authorized third party for processing is it matched to bank account information for settlement by the network.

In addition to eliminating the risk that sensitive information will be stolen while in transit between buyer and seller, systems using proxies also reduce the likelihood that a fraudster within either the buyer or the supplier will be able to initiate a bogus transaction. The buyer doesn’t have access to the systems on which sensitive information resides, and the supplier has only limited access to the system that stores its bank account information.

How payment networks can help businesses

By preventing either party from owning all the data around a transaction, this type of payment network helps protect sensitive data from any employees or contractors who have illicit intentions, or even from hackers who have surreptitiously entered the buyer’s or supplier’s systems.

Another benefit of digital B2B payment technology is that suppliers know the exact moment a buyer initiates payment, and can watch the payment move through the system until it hits their bank. This helps decrease the risk of late payments or nonpayment – especially of the variety that contributed to the recent American Apparel bankruptcy – by providing full visibility into the transaction flow to both parties, and removing the reliance on trust between buyer and seller for a proper transaction.

The main questions that CFOs should keep in mind when considering migrating to this type of technology are:

  • How much turnover do you have in your supplier base?
  • How much of your human resources budget is being allotted to fraud detection?
  • What security do you have in place to protect not only your own company’s data, but your clients’?

When considering a B2B network, CFOs and treasurers should consider whether the company needs a network that manages the entire procure-to-pay spectrum leading up to payment itself. There are payment providers that manage only the execution and handling of payment. This may be ideal for companies that work mostly with long-standing clients, offer a select number of items or services, or have budgetary constraints that overrule security requirements. For companies with a larger variety of suppliers, higher supplier turnover, or a robust inventory, the best option may be an integrated platform that connects payments directly with the documents that came before.

As B2B payments go digital, there is more opportunity for efficiency, accuracy, security, and faster payment cycles. Fueled by such results, network-based electronic payment technologies will continue to catch fire. And companies that embrace them will spark real transformation in B2B payments and further streamline the procure-to-pay process.

To learn more about how to take your payables to the next level of performance, see “Modernizing Your B2B Payment Processing” and Ardent Partners’ research report “ePayables 2015: Higher Ground.”


Drew Hofler

About Drew Hofler

Drew Hofler is a Senior Director of Solutions Marketing for SAP Ariba. Mr. Hofler is recognized as an expert in the area of collaborative finance and dynamic discounting. He has been interviewed and quoted widely in finance and supply chain industry publications around the topics of e-invoicing, dynamic discounting, supply chain financing, and working capital management-related issues, and has published a number of articles on these subjects. Mr. Hofler is also a regular contributor to various blogs around the issues of the financial supply chain. Mr. Hofler brings almost 20 years of banking and financial services industry experience to SAP Ariba.