B2B payments boring? Think again as companies attract significant venture capital

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Technology that facilitates B2B payments is increasingly attracting venture capital money in many areas:

  1. Pure product plays that look to take market share away from banks in areas like cross-border payments, check-to-ePayment conversion, virtual account structures to replace the need for a correspondent bank network, etc.
  2. Infrastructure plays, which provide the foreign exchange services, Technology, Operations, Compliance and Risk management to enable banks, fintech and money service brokers to offer services to their client base.
  3. Service providers that build B2B payment applications for banks and corporates. Typical areas of focus include cognitive automation, cloud and blockchain. Banks also want to move on from legacy infrastructure and do it incrementally in quick cycles.

B2B payment companies have raised significant amounts of capital recently, including Currencycloud ($80 million), AvidXchange ($260 million), Tipalti ($76 million, Transferwise ($292 million), Marqueta ($260 million), Ripple ($200 million) and Paystand ($20 million). Of course, Mastercard (AvidXchange) & Visa (Currencycloud) are behind some of these investments, driving B2B card use through the rails.

There are number of reasons why VC money continues to pour in here:

  • The fees and FX revenue generated by the payments business is enormous. McKinsey estimates 2018 revenues to be around $1.9 trillion* (commercial and consumer). Embedded in this is approximately $70 billion in commercial cross-border fees.
  • The movement from paper (checks and cash) to electronic forms of payment (cards, ACH and mobile payments) is happening, spurred on by interchange fees that can make large buyers force their tail spend to accept virtual cards or pcards.
  • The internet of things (IoT) is causing the need to move money faster for businesses, and manage the complexity of multiple countries, currencies, fraud, etc. It may be the last mile, but getting paid in this new world of IoT, digital cash, etc. is proving to be active for private funding of many cool initiatives.
  • The world of payments is increasingly converging with procurement and finance technology solutions (inclusive of source-to-pay, e-procurement, procure-to-pay, AP automation, invoicing, services procurement and early payment/financing solutions — e.g., Coupa Pay, AribaPay, etc.)
  • Cross-border payments was long seen as a monopoly by SWIFT, and while they have certainly gotten their act together with SWIFT gbi to improve both speed and information around wire transfers, others have come on the scene to bypass the SWIFT network with their own global bank structures, combined with regulation and technology. Cross-border payment transactions is tied closely to trade flows, and increasingly service-based trade is driving volumes (contractors, etc.).
  • Correspondent Bank network can be replicated by virtual bank accounts to essentially turn a cross-border payment into a domestic one, increasing speed and reducing transaction fees.

These are just some reasons. I am sure readers can come up with more.

The “productization” of B2B payments presents a threat to banks’ transaction banking business and the associated revenue stream, certainly as product B2B payment companies go after smaller and mid-size corporates. Product B2B payment companies compete for customers with the banks, while infrastructure plays typically offer services to banks, credit unions, brokers, to help them develop new products in this increasingly digital and mobile world.

B2B payments is something that we have covered peripherally at Spend Matters as the last mile of source-to-pay, especially through solutions such as Coupa Pay and Tradeshift Pay. In 2020, we will begin a more dedicated coverage of B2B payments as its own market segment, diving into the intersection of payments, working capital, FX, cards and related areas.

It should be fun!

David Gustin runs Global Business Intelligence, a research and advisory practice focused on the intersection of payments, trade finance, trade credit and working capital. He can be reached at dgustin (at) globalbanking.com.

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