There was a time not that long ago, when B2B payments innovation was perceived by many to be “out of vogue.” Back in the late 90s and early 2000s, B2B payments innovation was synonymous with an exuberant group of innovative B2B payment exchanges, marketplaces and hubs that failed spectacularly. Moreover, even the secular trends in payments over the last decade have made little impact in the dominance of paper-based payments, which still account for more than 80% of all payment transactions and over 70% of total payments volume in the B2B space. It is perhaps understandable that many entrepreneurs and innovators looked elsewhere for innovation opportunities during the last decade. In fact, with the exception of Remote Deposit Capture solutions, very little B2B payments innovation gained traction in the 2000s.
However, a few stalwart companies, including B2B payments processors like Fundtech and Bottomline Technologies, as well as traditional players U.S. Bank, J.P. Morgan Chase and American Express have continued to invest in B2B payments innovation, even while some of their competitors have divested or exited the space. In addition, following the tremendously volatile period of the recent recession and financial crisis, many new players have emerged with a renewed focus and energy on solving the challenges of B2B payments.
Perhaps because these companies were tested during these tumultuous times, many of them have evolved with strong value propositions that combine electronic payments capabilities with a range of other solutions, including credit/financing, integrated supply chain solutions, reporting and fraud solutions that simplify and streamline a range of business processes. In addition, the most interesting players in this space seemed to have learned lessons from past B2B missteps, minimizing complexity and integration challenges via Software as a Service (SaaS) solutions and identifying critical partnerships and commercial relationships, including white- label offerings, that should help drive critical mass. These new solution providers also minimize the capital investments required to get involved in electronic payments, while also recognizing the unique business process flows already in place.
Since 2009, a host of new activity has been happening in the B2B payment space to the point that B2B payments is now starting to appear regularly in the spotlight. So, it appears that this new decade may well be the time to look again at B2B payments innovation, as innovation springs up across this space. Key areas where I’ve seen some promising trends include:
- Electronic Invoice Presentment & Payment (EIPP)
- Integrated Supply Chain Solutions
- Innovative Financing/Credit Solutions
- Card acceptance innovations
- Payment Platform Innovation
EIPP - A wide range of innovators have been working to tackle the problem of paper for years, with varying degrees of success. This category includes perhaps the broadest list of players, with large players, like Bottomline Technologies, Ariba, Fundtech, J.P. Morgan Chase, Deutsche Bank, Syncada (Visa), GXS and U.S. Bank, providing solutions alongside more entrepreneurial ventures, like Transcepta, Bill.com, FreshBooks, OB10, iPay and many others. The sheer number of competitors in this space, however, speaks to one of the greatest challenges, which is lack of standards.
However, a couple of startup companies have achieved notable success using SaaS solutions to build compelling business partnerships with established players in ways that may help them drive greater e-invoicing adoption. PaySimple and Bottomline Technologies’ PayMode are two examples of solutions that have potential to turn the tide toward e-invoicing and payment adoption, particularly among small and mid-sized businesses.
PaySimple, a startup founded in 2005, focused on solving one of the thornier issues in this space: how to get small businesses to participate in electronic receivables management and payments. They built a simple, easy-to-use solution with all the expected functional components, and then in 2009, teamed with American Express to create arguably one of the most highly marketed B2B payments solutions in years – AcceptPay. Eric Remer, CEO of PaySimple shared his thoughts for the solution’s recent success, saying, “American Express is listening closely and reacting to the needs and desires of its customers. American Express noticed… a lack of easy-to-use, affordably priced solutions designed with the small business in mind.”
Most e-invoicing players claim to serve the unique needs of businesses. So, what’s different about this solution? A couple of factors stand out. Simplified pricing combined with fast and easy on-boarding are compelling and differentiating attributes. The PaySimple website is remarkably straightforward and accessible. The invoicing product is $11 per month and their EIPP solution, PaySimple Pro, is $34.95 + transaction fees to handle multiple payment types. For small businesses that don’t have time to deal with complexity, the promise of being able to handle multiple payment types for a straightforward monthly charge is attractive, especially as use of the SaaS solution makes implementation concerns minimal. PaySimple’s business model also helps drive towards mass adoption, using a white-label approach to build a customer base through established networks like American Express. As a result, PaySimple is fast closing in on $1 billion in processing volume, with a rapidly growing client base of small businesses.
PayMode-X has been in the B2B payments space for over a decade, with roots as a BankBoston-funded eCommerce venture. Over the years, PayMode has been closely aligned and ultimately owned by large banks – first FleetBoston and then Bank of America – where its B2B payments and remittance solution struggled for resources and focus. However in 2009, Bottomline Technologies bought the PayMode solution from Bank of America, giving Bottomline a SaaS solution, which Bank of America continues to sell to its Treasury clients. Today, the Paymode network has more than 100,000 active vendors and can handle a broad range of payments, including ACH, card, wire and even checks.
In contrast to PaySimple, Paymode targets larger B2B players, and as a result, has a broader range of features, which are standard requirements for most large corporations. For example, PayMode is capable of integrating with all ERP and AP automation systems and has a range of capabilities, including payment workflow management, working capital management, and advanced reporting and analytics. These features add to the complexity of the solution, making them more difficult for payers to integrate, but the solution is easy and free for suppliers to adopt, and as a result, has been growing at 46% in recent years.
Another successful startup, NVoicePay, has taken a slightly different approach, designing solutions for small to mid-sized companies, using an open, cloud-based technology solution but with a vertical market approach that seeks to build B2B payment networks that are rooted in the unique business processes and experiences of specific industries. NVoicePay’s CEO Karla Friede expressed what many of us in the industry believe, that it “is shocking today how many businesses are still writing checks! It’s a land-grab opportunity.” Like many of the other successful players in this space, however, NVoicePay is seeking to leverage technology to make integrations shorter and easier, so that even small and mid-sized companies can get involved in EIPP.
Integrated Supply Chain Solutions – This is another area where a number of competitors, large and small, have been vying to build B2B payment volume for years. The emerging landscape, however, appears to favor several SaaS solution providers. Two that will be interesting to watch are Syncada and Hubwoo.
In 2009, U.S. Bank and Visa announced the creation of Syncada, a partnership that creates a multi-bank global B2B financial supply chain solution. And although many payments industry joint ventures have failed over the years, Syncada has made some promising progress recently, signing Citicorp, Elavon (a U.S. Bank subsidiary) and Commerce Bank as partners. In addition, Syncada has made some clear signals about expanding its partnership base outside North America to include partners in Asia and Europe.
What’s unique about Syncada? For starters, Syncada draws on the strengths of its origins as U.S. Bank’s PowerTrack solution, which is a multi-patented, SaaS solution that combines B2B invoicing and payments with trade finance and supply chain management capabilities. These capabilities, combined with Visa’s global payments capabilities and network, have real promise to achieve the very daunting task of building a viable global financial supply chain solution. Perhaps the biggest challenge facing the solution relates to its bank-centric business model, which hasn’t to date proven that it can drive adoption of new technology solutions as universally as players in adjacent spaces (e.g. SAP, Ariba, Oracle).
Hubwoo is a “cloud procurement” company that provides an easy-to-use SaaS capability that lets companies use sophisticated purchasing and e-invoicing solutions without capital-intensive custom solutions. And because they have partnerships with large software players, like SAP, they minimize the need for companies to reengineer all their business processes. The solution isn’t primarily a payments solution, but rather, an information/data exchange capability, but they already include value-added support for Purchase Cards, making the integration of additional payments a likely step.
Innovative Financing/Credit Solutions – One of the biggest shifts in discussions around B2B payments has come as a result of the recent credit crunch. Businesses of every size faced liquidity challenges as a result of the financial crisis, with small businesses among the hardest hit. Traditionally, small businesses have had fewer sources of credit than larger firms, and many otherwise successful businesses faced financial hardship when their financial institutions tightened their credit policies and eliminated access to needed financing for thousands of businesses. Several players have emerged to address the credit and liquidity challenges facing these players, but two notable firms have linked payments/receivables with credit in interesting new ways. PrimeRevenue, The Receivables Exchange and FTRANS are three interesting companies to watch.
Although PrimeRevenue (founded in 2004) is no longer a startup, it continues to bring innovative supply chain finance solutions to the market. Despite, or possibly because of, the recent credit crunch, PrimeRevenue has given companies a new set of tools to unlock working capital from their supply chain, and strengthen relationships between buyers and suppliers. One of the key aspects of their solutions is a set of information tools that provide deep visibility to cash flows throughout the supply chain, as well as on-demand financing. Like many of the innovations in this space, the tools are Web-based, making implementation and use easy and non-capital intensive.
The Receivables Exchange seeks to unlock the power in small business balance sheets with by an innovative take on an industry – factoring – that has long been viewed in a negative light. Receivables can account for up to 65% of a small businesses’ working capital, and when payment cycle times slow, that represents a real challenge to small business cash flow. To address this problem, the Receivables Exchange, founded in 2007, has created an open and transparent market in receivables using a SaaS model. They have gotten enough volume to boast an enviable cost of capital (1%), which translates into better financing terms for small businesses. Small businesses can also set their own terms and the receivables are purchases as assets by institutional investors and others looking for alternatives to commercial paper markets. Like many of the other recent innovations in this space, the solution is user-friendly and easily accessible by small and mid-sized businesses.
FTRANS is another relatively new company (founded in 2004) focused on unlocking the potential value in small business receivables. FTRANS provides accounts receivable and credit management solutions that increases small business working capital by providing clear access to end-to-end receivables information, collections risk information, and other information that enables local financial institutions to make better lending decisions to small businesses. FTRANS’ asset-based lending solution leverages online tools to provide easy access to the entire portfolio of small business information needed to better manage working capital.
Card acceptance innovations - PayPal was one of the early leaders in recognizing the challenges that small businesses face in accepting card payments, building a billion-dollar business by serving the payment acceptance needs of small businesses, first for eBay merchants, and increasingly for medium and larger scale eCommerce businesses. Over the last two years, several other companies have leveraged mobile solutions and innovative mag-stripe reading technologies to create card acceptance innovations for small businesses. Intuit’s Go Payment solution and Square are two of the most notable solutions in this space.
Intuit launched its Go Payment solution in 2009, making it easy for small business customers to accept card payments quickly and easily. Go Payment leverages mobile technology from ROAM data to ensure that it works seamlessly access different carriers, handsets and operating systems. With easy access to the loyal following of QuickBooks customers, the Intuit solution has gained rapid adoption and currently boasts tens of thousands of customers. And since Intuit has an established track record of handling financial transactions securely and professionally for its QuickBooks customers, it has leveraged many of its core capabilities in risk management, data delivery and presentation to make the solution easy and secure.
High-profile venture Square joined the fray in 2010 with an innovative (and stylish) iPhone adaptor and a simple user interface that made merchant-like card payments accessible even to the smallest merchants. The solution had special appeal to mobile merchants, like artists, street vendors and others who found heavier, more traditional wireless terminals to be too expensive or too cumbersome. Square, founded by newcomers to payments, has had some operational challenges, notably with risk management, but has brought a fresh perspective to the design of its solutions, building a capability that promises to bring card payment acceptance to masses of “micro-enterprises,” potentially creating small businesses in the process.
Payment Platform Innovation - A final and critically important area of B2B payments innovation is platform-based innovation. Several players have established payments platforms that augment basic payment and commerce functionality with a range of other solutions available on those platforms, via open APIs, integrated gateways and menus of value-added tools and services from players in adjacent businesses. PayPal, Braintree, Serve and Alipay each have built unique solutions that expand upon their core offerings and deepen relationships with their B2B customers, driving solution adoption and transaction volume.
PayPal launched its PayPal X platform in 2009. By providing an open development platform, developer toolkits, APIs and a range of developer support capabilities, the platform quickly attracted over 50,000 developers who have created over 1,000 mobile, Web and television commerce applications that drive over $1 billion in annual processing volume. Earlier this month, eBay announced another investment in it open platform and SaaS capabilities with its acquisition of Magento, a global, enterprise-class B2B player that serves tens of thousands of businesses worldwide with solutions ranging from payments to inventory management.
Founded in 2007, Braintree might seem like “just another payment gateway.” However, they have rapidly gained traction in a highly competitive online payment processing space by creating a platform that is developer and user-friendly. They have the client libraries, APIs, software developer kits and technical documentation to back that up. They even provide a “sandbox” area for developers to test code. For business types, Braintree has created a series of easy to use tools and dashboards for its clients that they claim are so good that their customers will “play with in on the weekends.” This is all packaged with simple pricing and data portability, as a very modern, “open” take on payments that seems to resonate with a lot of businesses, especially Web 2.0 type businesses like OpenTable, LivingSocial and Animoto.
Serve by American Express is another innovative play by an established company that suggests that serving the small business market is a meaningful business opportunity. The Serve platform is a “digital payment platform” that enables small businesses to accept online and mobile payments easily. Much like the PayPal solution, Serve has also partnered with players like Sprint to make the user experience simple and streamlined for Android and iOS users (they are also working with RIM and Microsoft Windows platforms). Other unique aspects of the Serve program include the automatic inclusion of a “Serve Card” that gives access at ATMs or wherever American Express is accepted, as well as useful sub-account capabilities and no “cash advance” fees for transactions between Serve users.
Summary – So What’s Old is New Again?
B2B payments drew a lot of attention, hype and VC funding back in the late 1990s and early 2000s, however, economic realities and flawed business models saw many of those early efforts “flame out.” Now, however, despite sobering economic realities in the B2B space, the sector is attracting promising investment and innovation again from both startups and established companies.
However, there are some real differences this time around about the approach companies are taking to this space, so that it seems like this is more than a simple case of rediscovering an out-of-favor sector. The technology and business model innovations of the last 10 years around Software as a Service (SaaS), open platforms, transparency and broad, market-oriented solutions, seem particularly well-suited to the challenges of the B2B marketplace. So, B2B Payments 2.0 seems to be a real and sustainable phenomenon, not just a passing trend.
Margaret is a Managing Director at Market Platform Dynamics and experienced payments industry executive with a proven track record of commercializing new technologies in small start-ups, and large multi-national corporations. Read More