The Low-Hanging Fruit Of B2B Payments Innovation

When B2B innovators secure multimillion dollar financing rounds, we’re always interested to hear what they have to say about the industry. But the VCs behind the investments can provide just as much insight into where the B2B payments and financial services industry is headed. They are fueling the sector’s direction of growth with their funding, after all.

That’s why PYMNTS spoke with Bain Capital Ventures Managing Director Matt Harris to discuss the VC’s decision to lead a $225 million funding round for payments automation firm AvidXchange earlier this month.

Harris, it turns out, has been tracking the B2B payments space for years. Find out what it took for Bain Capital Ventures to put its faith (and cash) in AvidXchange, and where B2B payments innovators should be focusing if they wish to find success and financial support in the coming years.

PYMNTS: Can you elaborate on your recent investment in AvidXchange and how that process began?

MH: I invest in financial services and FinServ companies – that’s my beat. As we think about payments in particular, I’ve been particularly interested in commercial, B2B payments. We’ve been looking at the space for years. We built what we call a “Market Map,” exploring all of these layers on both the accounts receivables and accounts payable sides, from software solutions through to payment solutions, cross-border, all aspects of B2B commercial payments. About two-and-a-half years ago we identified AvidXchange as one of the companies on the accounts payable side where we saw them potentially being a breakout success. I’ve been tracking them for a long time. We actually met them through another one of our companies, Billtrust, which we think is a leading company on the AR and invoicing side. They’ve had an active partnership for years, so I met the CEO [of AvidXchange] Michael Praeger through the CEO of Billtrust, Flint Lane. We’ve been courting them for a long time, and finally we came together and they were ready to do a financing round. We’ve obviously been excited to do an investment for a long time.

What is it that they do in the accounts payable space that hasn’t really been seen so far?

Their solution starts with software and what we think is a leading AP automation platform, for the mid-market in particular – so not necessarily for huge enterprises, nor are we talking about small businesses, but mid-market companies where you’ve got 10 or 15 people running accounts payable with enough complexity that it’s a big priority to get rid of the paper invoice. Avid’s really built a strong business solving AP automation problems since the early part of last decade.

What really super-charged their growth was then building payment solutions on the back of the software business. When you’re automating for someone, you know which invoices they’re paying, when, to whom, etc. You’re in a good position to think about how to optimize their payments, to try to get them out of the paper check business. In the mid-market sector, 60 percent of these payments are made by paper check, which is very expensive and time-consuming for both the sender and recipient.

[With AvidXchange], you’ve got two sides of the business. One is this mature software business, and then secondly, they’ve built this really innovative, elegant payments services business that’s buckled onto the first software business. It’s that combination that we think is what customers are looking for right now.

B2B has a reputation for being a bit slow to adopt innovation, but in the last few years a lot has started happening in the space, from cross-border payments technologies to digital invoicing What in particular do you have your eye on right now? What spaces within B2B payments do you think need more attention from the innovators?

What’s happening right now, the crux of it, is this transformation from paper to digital. What really intrigued me is, if you look at merchant payments, which gets most of the press, that’s a transformation that’s already happened. Paper checks are kind of a joke in consumer payments at this point. It just doesn’t happen – not in retail and obviously not in mobile commerce. So merchant payments, and consumer payments more broadly, is decades ahead of commercial payments. I think the low-hanging fruit is the payment problem that exists when you have paper – paper purchase orders, paper invoices and paper checks – going back and forth. It’s not going to change quickly, but it’s inevitable that it’s going to change. The companies that align themselves with that change are going to do well.

That’s the problem you have right in front of us. Then, to think about the next problem, I think cross-border is a terrific next order problem. Globalization is causing more and more companies to have either customers or suppliers, or both, cross-border, and it’s a whole new wrinkle of invoicing and payments problems that most existing vendors either don’t particularly know how to solve very well, or do so in a way that is not customer-friendly. There is this set of vendors who are looking to solve these B2B cross-border problems that I think are very interesting.

And then the next set of problems that I think entrepreneurs are starting to focus on (but are still in the early innings) relate to trade financing, where factoring and other imperfect, expensive solutions are really the only choices right now for people looking to access capital to facilitate their trade requirements. We think there are better ways to do that, starting with, for instance, the payers who know which invoices are valid and which aren’t to lower the cost of capital. With accounts receivable financing I think you’re going to see a full revolution in terms of how cross-border trade, the classic AR line, factoring, how that’s all done, leveraging data from the buyer-side of the equation to reduce risk of financing invoices. But again, we are in the really early innings of that.