B2B Payments

FinServ Reacts To A Changing Entrepreneurial Landscape

The makeup of the business population is changing — in more ways than one. American Express’ Global Corporate Payments unit wanted to take a look at exactly how companies — specifically, middle-market firms with between $10 million and $1 billion in yearly revenue — are evolving differently than they had in the past.

To do so, American Express collaborated with Dun & Bradstreet to break down the makeup of the mid-market corporate population and found some intriguing trends. According to the report’s author, Julie Weeks, payment companies like American Express will have to keep their eye on how middle-market corporations are developing — a new generation of business owners will mean a new set of demands on their financial services providers.

What The Research Found

As the latest in a series of reports that examines the U.S.’s middle-market business population, American Express’ Middle Market Power Index focused on the generational changes of these companies.

The majority of the players of the middle-market business segment are well-established, averaging an age of 42 years in business, with about one in 10 mid-market companies being less than 10 years old.

“I found it a bit of a surprise that the firms that are older — 40, 50 years old — are not any bigger, necessarily, than the new-to-mid-market firms,” Weeks said, reflecting on the research. “As a business gains maturity, it doesn’t necessarily mean they’re moving up the size pipeline within the middle market.”

While the age of a company was not found to impact the actual size of the company, researchers did find that business services companies are growing at a faster pace than before among younger business owners — and mid-market finance companies are gaining speed in this generation, too.

The business services segment, Weeks acknowledged, is certainly broad. Younger business owners are launching companies in areas like certified professional accounting, legal services and management consulting. In fact, 17 percent of firms that have been in operation for less than a decade were in this category of B2B services.

Across mid-market companies, manufacturing and wholesale remain the most common type of business, researchers found. And while manufacturing firms also make up 17 percent of the youngest of these companies, wholesale trade firms make up just 11 percent.

“So, the newest middle-market firms are much more likely than middle-market firms of longer standing to be in business services and finance, while middle-market firms that were founded 50 years or more ago are more likely than those established within the past decade to be in educational services and retail trade,” the report concluded. “Yet, across the entrepreneurial generations, manufacturing and wholesale trade are foundational sectors in the middle market.”

In other words, B2B players, like manufacturers and wholesalers, remain the top dogs of the middle-market economy, but as a newer generation of business owners enters the market, business services are also gaining ground and that has implications for how companies, like American Express and other financial services firms, can serve their mid-market clients.

What This Means For FinServ

Any financial services company must be tuned in to economic changes of the market in which they operate. But why would a card company like American Express be so interested in the evolution of the middle market?

“I think they have seen more of their customers growing into the middle market,” Weeks explained. “They’ve searched around to find more information as to who are these firms and what’s going on with them in terms of growth and challenges.”

With the middle market seeing a rise in the number of business services companies and with that rise being fueled by a younger generation of business owners, financial services and payments companies will have to respond to differing priorities of a new breed of business owners, Weeks agreed.

She pointed to innovations like mobile wallets and chip-and-PIN cards that were ushered in by a new generation of consumers — a similar shift is likely to emerge from a new generation of mid-market businesses, Weeks added.

“All those kinds of solutions are available not only for the consumer but are being deployed by companies to make it easier for their clients — the clients of these mid-market firms — to pay them,” she explained.

“I’m certainly not an expert, but I’m sure that [American Express] is already seeing greater demand for mobile payment solutions,” Weeks mused, “and for a lot more use of technology in the way that money is moved around from these mid-market firms to their clients.”

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