Why Platforms Need to Monetize Their Supplier Ecosystem

Counting money

“Oh no, young Jedi. You will find that is it you who are mistaken — about a great many things.”  —Emperor Palpatine

For those of us who grew up with the original Star Wars trilogy, Emperor Palpatine believed the Dark Side would eventually win Luke Skywalker over and Luke would abandon his Jedi ideology. One of the most popular Spend Matters blogs was written in 2012 about the Dark Side, meaning SAP Ariba and its strategy of charging suppliers to upload invoices — ‘Ariba Doesn’t Have Customers, It Has Prisoners.’

In it, Tradeshift CEO Christian Lanng said this line to Spend Matters’ Jason Busch over coffee in San Francisco. The point was that Ariba’s supplier network was charging suppliers to upload invoices, and Jason Busch referred to the head of the supplier networks as Emperor Palpatine. The kerfuffle that resulted caused other e-invoicing and accounts payable automation platforms to look at their selling points and emphasized their networks were free to suppliers. While a great selling feature and certainly sensible for small business, these P2P platforms quickly learned the challenge to monetize their supply base. The whole “We’re not Ariba, we don’t charge suppliers” was a great selling point to large enterprise buyers, but as they say at Wendy’s, “Where’s the beef?”

OK, I know I am going pop culture on you, so here’s the main point.

Because P2P solutions started giving away supplier portals, cash flow optimizers, analytics and support, they closed a revenue door. Trying to build a sustainable business model when half your ecosystem is not monetized is very challenging, even as P2P platforms add features and functionality. Sure, many platforms are trying to figure out payments, and that is something that scares the bejeebers out of them due to regulations and compliance rules. (Don’t pay that blacklisted vendor or person, or else.) But payments is not a profitable business for platforms, it’s a service.

Which takes us back to the supplier ecosystem. Supplier finance is a way to monetize suppliers without directly charging them. More P2P platforms are starting to turn to supplier finance, having learned lessons from C2FO, Taulia, Basware, Tungsten and others.

A fully digital underwriting engine can continuously and intelligently interact with a P2P network or platform to manage the risk profile of each supplier on the platform. An automated “decision engine” can assign a cumulative score to a supplier based on factors such as liens, taxes, credit, judgments, fraud-threat, compliance and other factors. This then can be tied to supplier finance offerings — with on-platform business as well as other receivables not on this particular P2P platform.

The larger P2P/S2P platforms host hundreds of buyers and millions of suppliers. This enables these types of supplier finance solutions to exist as finance providers step in to seamlessly and instantly offer funding. This can be executed with no change to the suppliers’ customer experience.

As I said before, this can provide scalable revenue, but by no means is it a slam dunk. It takes commitment from all parties to make access to cash for suppliers a reality.

David Gustin runs a research and advisory practice centered on helping financial institutions, vendors and corporations understand the intersection of trade credit, payments and the financial supply chain. This post was written while David worked on a special project with The Interface Financial Group. He can be reached at dgustin (at) globalbanking.com

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First Voice

  1. Robert Solomon:

    Well said. A few quibbles here and there, but well said.

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