Scaling up B2B marketplaces: payments as a core differentiator
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Interview of Christophe Spoerry, Co-Founder @Marjory, payment advisor
Christophe, how did you get into payments?
I started geeking into payments in the years 2000, thanks to a side research project, looking into ETEBAC 3 and 5, an ancestor of SWIFT to enable file exchanges between banks and corporates. The protocol existed since 1991 and relied on relatively simple technologies. It couldn’t be further from real-life B2C payments as we consumers know them, but this protocol truly got me into payments: it was the first time I got to understand how value and trust could be exchanged between parties, to power trades, and therefore commerce.
A few years later, I joined the strategy consulting firm Oliver Wyman and was given the opportunity to focus exclusively on payments. Back then, it was 10 years before fintech became hype, we were not many in the world to care about payments. However, in this lonely silo within financial services, you could easily spot the true experts (Chris Skinner, Dave Birch, Enrico Camerinelli, …), and a helpful knowledge community had formed around them, which enabled the fastest and greatest learning experience you could imagine. I loved it. And overall, I took part in ~25 different payment projects, in all parts of the world. I was exposed to all kinds of payment instruments and strategic angles to look into payment operations.
The hot topic at that time was mobile payments, with the promise to unlock financial inclusion in emerging economies. The boom of mPesa intrigued everyone, and consultants were extremely prolific about mobile money. However, the hard problem was not in the business model or the technology: it was about cracking the adoption equation in real-life. Looking back, I was very lucky to hold operational responsibilities in payments at that time, as I gained deeper insights than any strategy consultant can dream of: one day I was leading the build of the entire payment operations in a greenfield Islamic bank in Qatar, which led to a record- breaking time to launch a Mastercard card. It was as bootstrapped as it can be: I even had to install and boot an ATM myself one night, and load it with bank notes, so that the Emir would be able to try his new debit card the next day during the branch opening. Another project and I was helping a prepaid card processor to scale up from Brazil to the whole of Latin America. And so on.
I went on to create a startup in the promising mobile advertising space in 2009, only to come back to payments in 2011: I joined Edenred, known for its Ticket Restaurant brand among others, and dived deeper into prepaid payments. Thanks to Edenred entrepreneurial culture and its trailblazing activities in corporate venture capital, I was exposed to mind-blowing innovations in payments very early on: P2P payment networks (Cyril Chiche pitch of Lydia was visionary), card-linked offers, BTC (it was worth a few dollars back then…), level 3 data …
There was an area of payments I still didn’t know well though: B2B payments. I got the opportunity to join Euler Hermes in 2015, and with my friend Louis Carbonnier we went on to create what possibly was the first startup studio dedicated to B2B fintech: EHDA. We started EHDA as a team of 3, and scaled up fast: in just 2 years, we had countless projects and partnerships all over the world, powered by a team of 100 stellar engineers, data scientists and product owners, virtually exploring any single innovation opportunity in B2B trade. In hindsight, I got a fast-tracked catch-up on all things B2B in payments. And it was worth it: although incredibly more complex, the B2B side of payments is – in my opinion – even more fascinating than the rest. And with regards to innovation potential: it’s happening now. Exciting times!
In recent years, what has changed for B2B platforms and marketplaces with regards to payments?
In 2015, which is when I first really specialized in B2B payments, I was shocked to see the solutions that were offered to B2B platforms back then, even by the leading financial services providers: they were relying on antiquated technologies. For example, nobody knew what an API was, let alone REST or GraphQL, Swagger, etc. Besides, the way financial services providers were structurally organized made it very difficult for platform operators to design offers that would resonate with their B2B buyers and sellers. They had to combine a financing component from one provider (typically the trade finance department of a bank), a risk mitigation solution from a specialist carrier (typically one insurer per type of risk), and a payment processor from a third one, and each had different set of geographical / regulatory / contractual limitations. And I am not even speaking of invoicing, tax management, or FX, which were completely out of the radar of the leading providers.
Needless to say, with such a poorly functioning ecosystem – at least from the platform operator’s standpoint – the user experience for B2B buyers and sellers on marketplaces was poor, and the developer experience for platform operators looking to implement or iterate on those solutions was nowhere to be seen. Perfect recipe for disruption: and indeed, a 2nd generation of solutions emerged, with innovators like Fundbox in the US, or MarketFinance in the UK, who were leading the charge on the financing side (Fundbox’ solution in the Quickbooks app store was visionary), while my team and I reinvented the risk-taking side by launching the first API to insure B2B trades, transaction by transaction and in real-time. Roughly in the same period, real-time bidding was introduced to trade finance (LiquidX), along with dynamic discounting (Taulia, C2FO, …).
These innovations illustrate much-needed tools for B2B marketplace and platform operators; most of them now have nicely-documented interfaces, and run on scalable / real-time / highly available technologies. Until recently though, only a handful of marketplace and platform operators managed to truly take advantage of them: the combination challenge remained unchanged. Even if each individual component, across financing, risk mitigation and payment was upgraded with modern technology and design, marketplace’ product owners still scratched their heads searching for the right way to assemble them.
A 3rd generation of solutions is emerging, as illustrated by Resolve, MSTS or TERMS.tech: payment solutions which let B2B buyers pay with terms and accelerate the cash flows of sellers. Conceptually, this can be seen as “just” a B2B application of principles already well- known in the B2C space, such as Klarna: however, B2B marketplaces have special needs, for example in terms of payment methods or financing conditions (amounts, durations, collaterals, geographies, …), and because of these, he B2C solutions do not fit well for most B2B platforms. I am very excited about this new generation of solutions, as I believe that this is a true game- changer for B2B marketplace operators.
This 3rd generation of B2B payment solutions look very much like the B2C “buy now pay later” offers. Why are they a game-changer for platforms and marketplaces?
It makes a lot of sense to draw the parallel with the now famous “buy now, pay later” solutions (BNPL solutions). Klarna, Afterpay, Affirm and Ant Check Later are the leaders in this field,
financing ~USD50 BN of sales, worldwide. They became famous in B2C e- commerce for their tendency to increase turnover across many categories (for example, electronic consumer goods), for specific customer segments (for example, millennials). The numbers were (and still are) staggering: it is not uncommon to see turnover increases of 20% or more, on an ecommerce website that adds a BNPL solution. In doing so, Klarna and the likes are reinventing the lending business of credit cards (Visa, Mastercard, American Express, Discover …), which hardly grew in the last 15 years. It is interesting to note that credit cards have always been well accepted on most B2C e-commerce websites: the disruption did not come from the lack of credit or lending functionality, rather from a superior attractiveness and user experience for upcoming customer segments.
The parallels between B2C and B2B ecommerce trends are well known and documented today, so I’ll assume we can trust the hypothesis that B2B ecommerce is currently following a growth and maturity trajectory that B2C ecommerce experienced 10 years ago – precisely when BNPL emerged. As millennials and like-minded customer segments now start their careers, and progressively become buyers on B2B marketplaces, one can expect that they will also strongly adhere to B2B BNPL solutions in relevant contexts.
If we dig further, we find strong catalysts in B2B ecommerce for the 3rd generation of payment solutions. Indeed, credit has always been a fundamental ingredient of B2B trade: hardly any B2B transaction happens without payment terms. The traditional offers to
support payment terms in B2B “offline commerce” are well-known: seller-financed credit, factoring, bank lines of credit … Certain B2B marketplaces have painfully integrated such offers, expecting a strong growth of their turnover, but for most operators, the upside did not materialize to the same extent as BNPL in B2C ecommerce (e.g +20% or more). What happened? The same story as in B2C ecommerce, where credit cards were not enough to unlock the full growth potential with certain categories and segments. Plugging proven “offline commerce” credit offers is not the solution to address the credit needs of B2B ecommerce.
To illustrate how the whole concept of credit in B2B platforms is radically evolving, let’s use the example of TERMS.tech, a partner of Marjory. The onboarding is seamless, instantaneous, and fully embedded in the marketplace user experience. The buyer side and the seller side are decoupled, meaning that buyers can still benefit from payment terms with sellers which do not wish to be onboarded. The acceptance, which represents the percentage of buyers that get credit, is tailored to the customer base of each marketplace ; the credit limits take into account the purchase patterns of each cohort of customers within the marketplace. The underwriting algorithms rely on the payment experience and other important data signals available from the marketplace, to extend more credit in relevant cases (for example when a buyer is about to make a purchase that is slightly above his current credit limit), and even more importantly, to improve the collection process, a strong driver of the costs in such solutions. Overall, these means of payments are designed with a blank page approach, to allow B2B buyers to easily transact on marketplaces.
As a result, marketplaces that integrate these B2B BNPL solutions get very tangible benefits and upside. For example, in marketplaces of goods addressing the needs of small retailers, the buyers are typically shop owners and they often enjoy more demand from their customers than
what their free cashflows allow them to purchase: this equation is typically solved by allowing these buyers to seamlessly pay after they get paid. The ideal payment solution in this case needs to be deeply embedded in these B2B marketplaces, allowing buyers to transparently inform the marketplace and the payment terms provider about their actual demand and their free cashflows: such an approach allows to perfectly match the overall credit extended to the turnover potential of each buyer, while minimizing the utilization costs and the risk of default.
Not every B2B marketplace will see a direct uplift of its turnover when integrating B2B payment solutions of the 3rd generation: the benefits of well-designed payment terms can materialize at different levels in the operator’s business model. For example, we have advised a few platforms who run B2B knowledge marketplaces: they typically have the best experts in a given specialty on one side, and companies or government organizations who require consulting from these experts. In this context, payment terms do not directly increase the marketplace turnover. However, B2B BNPL solutions typically allow such marketplaces to lower their buyer’s customer acquisition costs (CAC) and increase their life-time value (LTV). When the buyers are organizations, the ideal payment solution should be able to accommodate the particularities of payment validation workflows typically used by financial departments.
The two examples above illustrate two important findings. Firstly, the 3rd generation of B2B payment solutions offers benefits to marketplace operators several orders of magnitude greater than B2C PSPs and traditional B2B credit mechanisms. Secondly, the level of integration needed to reap those benefits is unprecedented, and if not anticipated, its cost can ruin the benefits. This is where Marjory is of providential help: by making those integrations easy, and orchestrating all the related workflows, any B2B platform operator can leverage the power of the B2B BNPL solutions.
Christophe, thank you for sharing these insights. Maybe in a future interview, we can deep dive into the integration challenges of payment solutions for B2B marketplaces.