Payments are a necessary part of commerce. But managing them 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, many companies are stepping up their efforts to mitigate those risks.

Digital payments, which can help mitigate risk in business-to-business (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 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 Consumer Payment Network Works

When a supplier is on-boarded with a consumer-payment network, such as the Discover Network, the supplier’s bank information is validated, then stored securely in the network systems. The payment network sends the supplier a “tokenized” Merchant ID, which the supplier associates with its account. Later, when a buyer sends a payment file via the network, he or she doesn’t send the supplier’s bank account number; the buyer does not have it. Rather, the buyer sends a vendor ID number, which is linked in the network to the Merchant ID assigned to that supplier. 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 to them, 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.

One of the most common and dangerous forms of fraud around digital payments is when someone who appears to be on the supplier side tells the buyer to send money to an account that does not actually belong to the supplier organization. The verification process that accounts go through at enablement in a payment network eliminates this possibility entirely.

By preventing either party from owning all the data around a transaction, this type of payment network helps to 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.

While this type of consumer-payment network is not, as of yet, commonly used for business-to-business transactions, it is the gold standard for business-to-consumer payments. And as mobile payments and e-commerce gain in popularity in business transactions, it is only natural that large companies will begin to adapt and expand upon the technologies and techniques used by pioneers in the consumer-payments space.


How Business Networks Can Help

Business-to-business commerce networks offer a variation on the consumer-payment network approach.

All types of goods and services can be purchased in a B2B marketplace, from office supplies, IT, and marketing services to clothing, food and beverage, and so on. When a buyer puts out a request for an order and selects one of the sellers that bid on it, the buyer can initiate a payment file in a process almost identical to using consumer sites such as Amazon or using PayPal to make a purchase. The payment file is sent to the network, processed, and the payment is tied to the invoice and sent to the seller. Network-based payments replace paper, wire, and ACH with a more efficient and secure process.

Another benefit of digital B2B payment technology is that suppliers know the exact moment a buyer initiates payment, and they can watch the payment move through the system until it hits their bank. This helps decrease the risk of late payments or non-payment—especially of the variety that contributed to the recent American Apparel bankruptcy—by removing the reliance on trust between buyer and seller to guarantee 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 client base?
  • Do you often have orders that are one-time or that change based on seasons, or does your business function mainly on long-standing, unchanging orders?
  • 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 who 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 clients, higher client 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.



Drew Hofler is senior director of financial solutions for Ariba, Inc., an SAP company that operates a B2B payment network. He is responsible for all aspects of product marketing for Ariba’s Working Capital Management and Payment suite of solutions, including Ariba Discount Pro, Ariba Third Party Financing, and Ariba Receivables Financing, and Ariba Payment Pro. Hofler brings more than 20 years of banking and financial services industry experience to Ariba. Prior to joining the company, he served as vice president, treasury product management, for PNC Bank and director, payment systems, at Tier Technologies.