B2B Payments

The B2B Subscription Economy Puts Marketplaces In Unfamiliar Billing Territory

The dual-sided benefits of a recurring revenue model have led to an unsurprising boom in subscription commerce.

For end-users of subscription services, the ability to make more affordable payments the same time every week or month means cash flow predictability and a bill that’s often easier to swallow than one large lump sum. For providers of these recurring services, the predictability and reliability of recurring revenue similarly offers an attractive cash flow incentive to step into the market.

With more products and services evolving to support the recurring billing model, there is new opportunity for third-party marketplace platforms, according to Aria Systems Chief Innovation Officer Brendan O’Brien.

Thanks to what O’Brien described as “subscription fatigue,” both consumers and enterprises alike are facing an increasing challenge of managing all of their subscription services and payments as adoption rises. Marketplaces present an opportunity for users to search for, procure, pay for and consolidate their subscription services in a single interface.

As he told PYMNTS in an interview, while the opportunity for eMarketplaces to open up new revenue streams by connecting users with a range of subscription services is a significant one, it also presents significant hurdles. Billing and revenue management can look far different in the subscription arena, often an unfamiliar space to marketplaces traditionally focused on one-off purchases.

An Expanded Customer Relationship

In a marketplace model, online platforms add a new dynamic to the customer relationship. While a buyer may be using services from one company, they’re paying another — the marketplace.

“You have to approach this as a triangulated model, rather than a lineated model,” explained O’Brien.

It introduces an entirely new workflow for the billing process. Not only do marketplaces have to maintain a continual relationship with end-customers, but they must also be able to manage factors that impact billing, for instance upgrades and downgrades, renewals, refunds and more.

“Existing marketplace solutions have no such concepts built into their billing processes,” he said. “Marketplaces are not tooled for recurring subscription billing, they’re tooled for one-time purchases. Anyone can sell something on the Amazon marketplace themselves, and it works great. The problem is, the model does not translate easily into the subscription or recurring service world.”

Shifting Workflows For B2B Buyers

Aria Systems announced last week its Aria Marketplace Suite, a group of solutions designed to help online platforms streamline billing and revenue management workflows as they expand their footprint in the subscription economy.

O’Brien explained that in the B2C context, there is typically a standard workflow to enable these marketplaces to bill appropriately. Aria Systems assesses product consumption, calculates the appropriate charges, and then initiates a pull payment from a consumer if they have an electronic payment method on file. It then presents this data to ensure the service provider is paid correctly.

But in the B2B space, billing and payments can introduce additional complexities that impact the way these marketplaces calculate and generate bills.

“The payments landscape is the thing that is fundamentally different between [B2B and B2C models],” O’Brien noted.

In addition to typically lower billing volumes but higher bill values, the B2B arena still continues to use net payment terms between a company and a subscription solution provider. Further, corporates will often insist that those bills travel through into their accounts payable (AP) departments for the appropriate routing and approval process.

Adding another layer of complexity is the fact that B2B subscription service providers will bill based on usage and consumption far more often than in the B2C space.

“That is a giant order of magnitude of additional complexity that needs to be managed by the billing system,” O’Brien said.

A Revenue Opportunity

As a result of B2B’s unique billing and payments needs, O’Brien explained that Aria Systems will pull lockbox data from a corporate end-user’s bank to apply the payment. Thanks to the B2B arena’s continued lack of electronic payments adoption, support for manual payment methods like the paper check must be supported in the subscription economy.

As this ecosystem grows, there are more challenges ahead for marketplaces that may decide to enter the space. Onboarding new customers can be particularly tricky, O’Brien said, while marketplaces are also poised to introduce a value-added service of bundling that, while lucrative, further muddles the billing experience. In this strategy, platforms need an especially clear and accurate view of product usage and other metrics in order to not only bill the end-user correctly, but to allocate the appropriate earnings to the subscription service or product provider, too.

It’s a proliferating environment that can generate value for all parties involved. But with subscriptions billed differently based on service tiers, frequency, consumption and end-user profile, marketplaces must be ready to tackle some major — and often unfamiliar — billing and revenue management hurdles.

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