Business-to-Business Payments at a Crossroad
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Business-to-Business Payments at a Crossroad

By: Guy R. Berg, Vice President Payments, Standards and Outreach Group at Federal Reserve Bank of Minneapolis

Guy R. Berg, Vice President Payments, Standards and Outreach Group at Federal Reserve Bank of Minneapolis

Banks, corporations and their supporting payment processors are at a crossroad for enabling the mass connectivity necessary to support Business to Business (B2B) electronic payments, invoicing and remittance information exchange. They have the option of continuing down the current path filled with artificial barriers preventing greater connectivity, or find ways toward the mutually beneficial goal of greater efficiency in the exchange of invoices, electronic payments and supporting remittance information. Although competition generally leads to optimum customer choice,laissez-faire market competition without some level of industry coordination oftenleads to disfunction.

A model environment provides a level of coordination that paves a path of enabling innovation and competition encouraging collaboration resulting in decreased costs and improved efficiencies for everyone. Imagine if there was no standard for Internet communication, and instead, businesses relentlessly pursued the idea that their communication protocol would eventually win over all others. Where would the Internet’s capability and reach be today? What if email service providers did not recognize the need to establish exchange standards? What would be the impact of the reach of our email systems?

Today, banks, corporations and supporting payments processors are at acrossroad similar to the one that the email and internet stakeholders faced years ago. E-mail and internet providers decided collaboration was the appropriate path to gain significantly broader reach, leading to the mass connectivity we enjoy today with these services.

This begs the question, what are the barriers to B2B mass system connectivity and approaches to fostering greater collaboration to achieve electronic B2B payment processing efficiency in a highly competitive market?Historically, a primary barrier has been the lack of a clear path forward that did not require central directories. Unfortunately, centralized directories raise valid concerns about ownership and concentration of competitive influence and power. In addition, they generally require businesses and service providers to contribute proprietary contact information that has taken years to accumulate.

For B2B payments, the path to achieving collaboration and mass connectivity may be to model e-mail systems which leverage internet DNS (Domain Name System) for delivery addresses, and prescriptive e-mail exchange standards to facilitate interoperability between disparate email applications. A similar path to B2B mass connectivity can be to leverage the internet DNS capabilities along with federated registries to avoid the need for a centralized directory, and to establish prescriptive exchange standards to facilitate similar interoperability between business payment systems.

This approach creates a virtual network for connectivity between business systems. These registries leverage the internet DNS to route messages in the same way email systems do. There is no one point of accumulation or storage of sensitive data, but rather a standard communication protocol that enables an inquiry to find endpoints to deliver a business message, such as an electronic invoice (e-Invoice). The service providers perform the exchange service role, similar to email exchanges, providing integration services to correctly format the data for ingestion by the target business’ accounting system.

This creates a framework thatreduces the number of external connections businesses need to manage,and the corresponding security risks.In addition, prescriptive message standards reduce the data mapping burdens typically required to facilitate information exchanges. Furthermore, the resulting framework of federated registries and virtual networks creates a necessary network effect dynamic for mass connectivity to deliver electronic documents and messages across disparate systems.

This is not a hypothetical concept. Today, the Business Payments Coalition (BPC) is working on prescriptive message standards to establish a U.S. e-Invoice exchange framework. The exchange framework leverages federated registries for businesses to dynamically discover where to send an e-Invoice. Just like an email server, a business leverages an access point to the virtual network to perform the exchange service.

The U.S. e-Invoice exchange framework is not a new idea, but rather seeks to follow modelsexisting in Europe and other countries. One primary objective for the BPC work group has been to leverage what is working in other countries and eventually achieve international interoperability. Businesses today sell beyond their own borders, and they need systems that have global reach and interoperability. A consistent method is needed for sending invoices within, and outside of, the U.S. Why have one method for sending invoices domestically and another method for international customers? The work group has been working closely with several international entities on the design of the federated registry protocol, and have incorporated the same message exchange tools and standards used by procurement and e-invoicing systems globally, such as OASIS UBL.

Currently, as many as ten service providers are conducting a validation exercise to test federated registry concepts for discovery and message delivery across multiple virtual networks. In addition, the BPC will soon be initiating a work group to assess an appropriate governance model and body for the U.S. e-Invoice Exchange Framework. We encourage interested parties to go to the Business Payments Coalition website for more information.

The technology is available to facilitatethe exchange of messages supporting electronic payments between businesses domestically and globally. Other countries have already implemented e-Invoice exchange frameworks, proving the viability and value. The Business Payments Coalition is nearing completion on defining the standards and operational model for a U.S. e-invoice exchange framework. We are at a crossroad and the light is green. Will U.S. industry stakeholders capitalize on the green light and drive forwardto solve the B2B payment systems mass connectivity barriers and achieve historically elusive electronic B2B payment processing efficiencies?

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