B2B Marketplaces Leave Buyers – Sellers Empty on Finance

Alan Turing: I like solving problems, Commander. And Enigma is the most difficult problem in the world.

Commander Denniston: Enigma isn't difficult, it's impossible. The Americans, the Russians, the French, the Germans, everyone thinks Enigma is unbreakable.

Alan Turing: Good. Let me try and we'll know for sure, won't we?

The Imitation Game (2014)

Quite simply, B2B Marketplace sell products or services between businesses through the internet via an online sales portal.  Amazon and Alibaba B2B Marketplaces are the largest and are seen as major disruptors around a broad selection of goods and services to businesses. These giants are transforming B2B commerce for a whole array of goods (eg. MRO, Service spend, computers, etc.).

We also know they can provide innovative financing and liquidity in this space. This is where a great gap is today.  In the movie The Imitation Game, Turing believes in his own intellect to solve what had been up until than impossible.  Like B2B Marketplaces, where historically the focus was on Search and Evaluation, but now many are now rapidly moving into Transaction Services.  While Supplier portals and B2B marketplaces have substantially reduced the cost for supplier sourcing, planning, PO/Invoice management, advance ship notice/bar code label generation, shipment communication, demand visibility, etc. they have not cracked the code on finance, payment and settlement.

The gap in the large B2B Marketplaces is the Financial Services - payment, settlement and reconciliation, and working capital solutions. While Alibaba and Amazon have developed some capabilities here, this is an area of huge opportunity.

There are many specialty B2B Marketplaces that can take the old world of manually buying and trading to a whole new level, both for spot purchases and future purchases

Energy provides a few good examples. Think of things like marine bunker fuel. Shipping companies such as cruise lines, oil tankers, LNG, and bulk containers buy fuel for their ships on the seas.  I may need fuel in Tokyo for one of my ships. Shippers who are providing goods to large global corporates around the globe are constantly pressured by the Fortune 1000 on paying for shipping costs.  So shippers must pay for fuel upfront and wait to get paid from the big boys.

The market for marine fuels is large at $110 bn. The old world of resellers and brokers would add huge margins for buyers that did not have credit with sellers. Today, buyers can go through a b2b trading platform to make spot buys for fuel needed in Singapore or Buenos Aires.

But here is where the problems start. B2B platforms are great for sourcing and procurement.  The platforms are typically good at sourcing and spot buys, requisitions, purchase orders, etc.  They are not so good at payment, settlement and finance.  Major oil companies, the Exxons, Chevrons, Texacos, and national oil companies plus Mom & Pop independents supply local ports but will not extend credit.

The biggest need here is shippers (the buyers) need to extend terms. This is a payable extension product rather than early receivable solution.  The sellers want their money today as they provide the fuel.  But the buyers would like to delay payment.  This is a classic problem and one where B2B marketplaces have not cracked the code.

Certainly there are some that would like to play ball here. The card processors believe they can be the network integration partners to offer settlement (ACH, Cheque, card) and finance.  American Express B2B Digital unit is making big bets here.

So whether you believe Amazon B2B Marketplace will eventually kill much of the competition, there will still be areas where huge markets can develop online. And for those, the code has yet to be cracked around payment, settlement and finance.

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First Voice

  1. Raima Chowdhury:

    Interesting post I must admit. This was an eye-opener for me.

    Enjoyed the introduction though. However, was surprised to know that in these times, lots of B2B marketplaces are speedily progressing within Transaction Services.
    But yes, I do concur with you that they have not snapped the code on finance, defrayment and liquidation.

    Thanks a lot David for sharing such valuable information.
    Much appreciated!
    Cheers! 😀

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