Part 3 of the Make Cents video series I continue the fintech market map deep dive.
In this post I’m exploring one of my favorite topics - B2B payments. I try to highlight some of the nuances and exciting companies in this $125T space. No one is happy with their current setup and businesses across the board are looking for better solutions which just screams opportunity.
Click on the video for the full take and check out the highlights below.
What is it?
B2B payments companies at its core, facilitate payments between businesses, i.e. the process through which they make payments and get paid. It's a huge market with $125 trillion globally spent every year. At the most basic level, there are two components to a B2B payments offering. Firstly, there's the payment itself. Facilitating ACH, check, credit, or virtual card payments between companies and their suppliers, usually charged for on a per transaction basis. And then there's the SaaS component, which includes workflows to help finance teams process payment approvals, reconcile the books and detect anomalies and fraud.
A hot take
Despite the number of successful companies in this market, I don't think this issue is by any means solved. I've talked to a ton of businesses and no one is happy with their setup and vendors. Companies have mentioned that they are dissatisfied with the workflows that are really complex. The time to process payments, the complexity in managing money movement across their banks, and a whole host of other issues. So huge market and no one is happy. To me that screams opportunity.
Prediction for the winner in the space
I don't think there's just going to be one winner given all the different use cases and needs. Just look at Bill, Toast, Square. They're just a few examples of very large public companies all playing in this space. I think success is all about finding the right wedge. These products often have so many features and modules and a startup can’t build all of those on day one. If the burning need is there, it means that a customer will be willing to buy a net new additional product in their stack to solve that issue. And then the company can expand over time and replace other products in that stack.
Companies on the rise
Bill.com is an established player, but definitely still one to watch. Despite being around since 2006, it's still growing really quickly and has some really interesting network effects. Ramp in the Redpoint portfolio is another incredible company revolutionizing corporate cards and broader spend management.
What am I most excited about?
I'd love for someone to build a next gen Bill.com. It's a great product, but it really stops working for companies as they have more complex needs and as they scale. We've talked to dozens of CFOs about their workflows and they mentioned time and time again the pain points they have around workflows, the foreign exchange and many others. And there's six themes that keep coming up, which we've documented in a previous post.
What do you want to see?
There's a huge opportunity to reduce the large amount of manual work that's required to make payments and reconcile the books. We believe that the company able to do this most elegantly through workflows that enables a faster process is the one that's going to win and I think that's way more important than full automation. I'm actually not sure full automation is even possible. Once a company has built a robust payment platform, the opportunities for product expansion are just enormous and includes everything from expense management, treasury management and working capital to name a few.
Check out part 1 on Consumer Trading & Wealth Planning and part 2 on Identity, Fraud and Risk Infrastructure if you haven’t yet.
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B2B Payments (Video Series Part 3)