Why Every B2B Software Provider Should Have a Payments Partner
B2B software providers are always looking to deliver more value to their customers. Add-on offerings enhance the customer experience, make their platforms stickier, and add new revenue streams.
That’s why many non-financial companies are embedding payments processing in their platforms. This is a trend that started in the consumer space that is now making its way to the B2B market. There’s an opportunity for providers of ERP, accounting, invoicing, document management, and other enterprise software systems to partner and add vendor payment capabilities to their platforms.
The Market is Ready
B2B payments technology has evolved significantly over the decade. Attitudes have changed. And there’s a large, underserved market ready for this kind of innovation.
Ten years ago, when I was working in corporate accounting in the healthcare industry, we made most of our vendor payments by check. The most cutting-edge treasury solutions we had were the virtual card programs offered by banks. You could get a small amount of your vendor payments on a card, and get a rebate on that spending.
But, you’d still be responsible for the majority of payments. That meant running multiple workflows, one for the card program, one for checks, one for ACH, and sometimes even a second virtual card program to try to accomplish some of what the primary one didn’t.
Today, outsourced payment automators use APIs to take your entire payment file from a source system and execute your payments for you. These fintechs can pay a much higher percentage of vendors with rebate-bearing cards.
It used to be up to each individual company to reach out to their vendors to enable them for card or ACH payments. Now, payment fintechs have assembled very large B2B vendor acceptance networks in the cloud. These vendor networks do all the work to determine what payment method is the best fit for each vendor, and they keep vendor payment information up-to-date in real time. Payers can plug right into that network and start paying electronically right away.
These technologies were emerging a decade ago, but adoption would have been a hard sell in any finance organization I worked in back then. My attitude, and that of my colleagues, was that, as managers of the company’s assets, our primary focus had to be on controls.
It seemed obvious that never letting a third party (such as a payment automator) draw funds from your bank account was a fundamental control. Replacing some of our costly wire payments with virtual cards was as far as we were willing to go. Nobody wanted to be first out of the gate with a new solution.
In the healthcare industry, there was also fear and confusion about data privacy. There was a general misunderstanding about how APIs worked and were afraid that somehow patient-identifying data could be pulled along with payment data. There was a serious concern among those in the industry that the payment provider would hold onto the check float and earn interest that they could be earning themselves.
As time has gone on, people have become more familiar with APIs and SaaS solutions. They’ve gained confidence that these solution providers have very good controls. In fact, in many ways they are even safer because they can devote more resources to security. People also realized that payment service providers would manage their funds appropriately, and that they were subject to the same low interest rates as everyone else.
Automation Across Industries
Payments automation can help customers across a wide variety of industries – especially companies that are trying to scale, but can’t add more AP headcount. Other use cases include eliminating manual reconciliation of different payment streams, fraud and risk mitigation, or as part of overall back-office digitization.
Banks have dominated the B2B payments market, but their economics mean they haven’t come anywhere near saturating it. Because they don’t offer continuous real-time enablement, they can’t optimize card rebates. So, their target industries tend to be those with big-ticket vendor spending, such as manufacturing and healthcare, in order to make their card programs profitable.
They often give ACH payments away for free with a business account, but their only role in this type of account is to move the money. Many programs leave the customer to handle enablement, fraud protection, and workflow automation.
That leaves an opening for API-driven software providers. Payments are an easy bolt-on because they sit at the tail end of a process. Partnerships are what make the economics work.
It works for the software providers because payment capabilities are too complex and highly regulated to build, but they can still profit from payment processing. It works for the payment provider because they get access to a new group of customers by integrating with the platform, whose sales people act as referral agents.
And it works for the customer because they get a completely seamless transfer of payment data from the software system to the payment provider, and of reconciliation data from the payment provider back to the software system. The payment provider also handles all the downstream work associated with payments, such as error correction, reissues, and escheatment.
The cherry on top is that with payment automation, customers are able to get two to three times as much spend on virtual cards. That generates enough in rebates to make the solution self-funding, or close to it. It’s a win for everyone.