Omnichannel, On the Go: SMBs Demand Banking, Payments and Software Convergence

In the great digital shift, for small to mid-sized businesses, payments have become very much an “in the field” activity, done both on-site and on-demand.

Contractors want to pay their subcontractors. Construction firms need to pay for materials on the fly. Landscapers and any number of firms in the clothing, hospitality and food verticals take in payments at the point of sale (sometimes on their devices) and make payments to the suppliers that keep inventory and labor humming. All the while, the complexity of business has deepened, with SMBs selling through multiple channels while placing their own orders and paying people and invoices remotely.

It’s no wonder these companies need simplicity in their banking relationships, as well as visibility into how they track and manage all of this money on the move. According to Thomas Priore, executive chairman and CEO of Priority Technology Holdings, it’s exactly why we’re seeing the convergence of banking, payments and software. Legacy banking and payment processing systems are just not able to keep up with the pace of change.

“If you’re a small merchant and you like the fact that you can do all of this from one place, we’re eventually going to be able to be your bank,” Priore told PYMNTS Karen Webster.

The Urge to Converge

That convergence is manifesting itself in recent merger and acquisition activity in the payments space, where Global Payments said this month that it would buy MineralTree for $500 million in a bid to marry commercial payments, domestic and international acquiring and accounts payable (AP) automation. And Repay said in May it would buy BillingTree to boost accounts receivable (AR) management.

See also: Global Payments to Buy MineralTree for $500M

As Priore noted, the platform model can help merchants (and the resellers serving them) to embrace core payment processing and a continuum of other services spanning the operational workflow.

The company traces its genesis back to 2005, when working in investment banking led Priore to an epiphany: As mortgage-backed securities made the leap from paper-based processes to digital ones, “the same technology should be applied to payments,” he told Webster.

Generally speaking, getting a merchant account should be streamlined through online channels, he said. And SMBs should be able to leverage their retail locations to pay invoices to suppliers using ACH, checks, virtual cards and other forms of digital payments.

Today, the firm stands as the sixth-largest non-bank merchant acquirer in the United States. As Priore told Webster, last year it processed more than $60 billion in payment volumes across a network of more than 200,000 merchants. The emergence of the platform, with APIs and “plug and play” functionality, allows Priority to handle risk management, license requirements, compliance and money transmission – thus allowing providers to monetize their merchant networks.

The current makeup of Priority’s portfolio centers around small to middle-market firms with about $18,000 in monthly bank card payments. Priore noted that the portfolio is broad-based and representative of the U.S. economy as a whole, with about 18% contribution from the hospitality sector.

“We do a lot of retail and wholesale trade, and have a significant showing from medical professionals,” he said. Many of those clients, such as in the contracting and landscape fields, have a need for both B2C and B2B payments.

B2B Payments

Beyond the consumer-facing business, the company also has a commercial payments division that offers automated payables, B2B payments and managed service solutions, supporting more than 350,000 accounts. Over 50,000 suppliers are enrolled on virtual cards, Priore said. While card acceptance is “table stakes,” he pointed out that automated payables takes more sales development, though scale and critical mass will continue to grow.

Priority itself has joined the M&A activity that has been a hallmark of the B2C/B2B spaces. Earlier this year, the company acquired Finxera to expand its Banking-as-a-Service reach. The $425 million deal closed on Friday, bringing Finxera’s API-driven platform – which facilitates account creation as well as the collection, storage and transmission of funds for businesses and consumers – into Priority’s fold.

As the companies said upon the deal’s announcement, Finxera has 375,000+ active deposit accounts and $500 million in average daily account balances, in addition to a full master account with the Fed on hand.

The Finxera acquisition will give the combined company a semblance of PayPal-like functionality, said Priore, including “the ability to store money in a virtual wallet or virtual bank account structure, and to account for all the flows [in a closed loop] in and out of that wallet or ledger.”

Through the use of a single platform as a conduit, the Priority/Finxera combination has the ability to collect money in any form – spanning credit, debit and ACH – and route it across the credit rails. The company is finalizing its own back-end capabilities for settlement processing. And Priore predicts that in a matter of months, the company will also be a Visa issuer for commercial and debit cards.

What Lies Ahead

Looking ahead, Priority will seek to offer instant settlement tied to working capital solutions. The company will add automated payables and banking features over the very near term, with a launch by next year. Financial institutions (FIs) have the ability to white-label Priority’s offering, accessing the firm’s tools through the API.

For now, with the smaller merchants and the resellers serving them in Priority’s focus, said Priore, “it makes no sense for them to rebuild the payment functionality and compliance requirements that we already have and can provide. Let us handle payments.”