Disruptive new technologies promise to shake-up the payments space by offering highly-tailored services to specific market segments. What does it all mean for treasurers? By Simon Brady.
At the fundamental, cross-border infrastructure level, the services offered by banks to their customers are being transformed by new FinTech-driven network initiatives. But for most treasurers, FinTech treasury solutions are service layer integrators that allow companies to plug into multiple external systems and automate one or more treasury processes at the same time.
The choice solutions in the payments space is bewildering, but most are aimed at smaller and midsized companies that need to receive multi-channel digital payments as part of the digitalization of their business and who need to make increasing volumes of low-value payments – for example firms that do business with many small vendors or marketplaces.
Online payments and processing
So, to list just a selection: Adyen, Stripe, 2CheckOut, Tipalti, Braintree (backed by PayPal), GoCardless, Paymill, Credorax, YapStone, YeePay, Omise, Trustly Group, Bridgepoint, Cheddar Up, Flywire, CyberSource (a VISA company), Payoneer, WePay, PaySimple, Network Merchants, Citrus Payment Solutions, Exchange Corporation, Zooz, Mobeam, Slimpay, ToT Money, Quisk, Alpha Payments Cloud, Sequent Software, Razorpay, Payza, Authorize.net, BlueSnap, Bitpay, Skrill and many others in the payment gateway space.
This wave of largely new companies is often seen as an explosion of innovation but many of them look very similar to the Authorised Payment Institutions launched in Europe following the first Payments Services Directive and spurred on by SEPA. For example, Nuapay’s SaaS solution allows companies to easily set up payment and collection accounts, make and receive payments, create automated payment and collection schedules and have access to full reporting via an online dashboard. The service is an offshoot of Sentenial’s well-established Cloud platform for acquiring ACH transactions, SEPA credit transfers and direct debits. That payments processing business that directs more than €35 billion worth of payments to European banks annually. Sentenial also provides its payments origination and processing services directly to corporates and to other payment service providers (PSPs).
For corporate treasurers, Adyen and Tipalti are gaining ground. Adyen is a global platform that connects businesses directly to Visa, Mastercard, Paypal and all the other key payment methods, enabling them to accept payments across online, in-app, and in store. It is a well-established platform that doubled its transaction volume to $90 Billion in 2016, and has recently added Microsoft, Sephora, Symantec, WeWork and Bonobos to its impressive customer roster of companies like, Uber Facebook, Evernote, Etsy, Nike, Spotify, Airbnb, Mango, Vodafone, Booking.com, KLM, Superdry and Groupon.
Tipalti (see article on ACH) is one of the leading providers of B2B supplier payments to global enterprises. The company claims to be the first-ever cloud platform to automate the entire ‘end-to-end’ accounts payable workflow. Its aim is to create an automated, seamless system to allow accounts payable departments to manage their entire global supplier payments operation. It handles the payment chain from invoice processing, supplier on-boarding, tax compliance, anti-money laundering compliance, global payment remittance, and payment reconciliation and AP financial reporting.
Unlike most FinTechs, Tipalti is investing heavily in infrastructure to allow it to service companies from smaller fast-growing operations to global enterprises.
All these companies all offer different ways to achieve an overlapping set of functions: to replace expensive or slow money transfer services, to provide, gateway, and payment acceptance capability and, in some cases secure PCI DSS compliance. In the case of a company like PaySimple, these core functions are wrapped inside an integrated automatic billing and e-invoicing system. It, and others, also provide APIs for the development of additional services such as building an online store.
In most cases, the solutions are designed to solve problems encountered by merchants in their online channels, especially smaller companies without the expertise or infrastructure to develop their own systems.
So Payoneer provides international payments capabilities for companies that do business with multiple small vendors or marketplaces (like Airbnb) cross-border. The beneficiary simply opens a Payoneer account and retrieves the money in the currency preferred via a card number or bank account transfer.
Similarly, Transferwise, which started out as a consumer payments platform, has launched a B2B payment service as well as a batch processing service for multiple invoices. As yet, it is a small player that uses a peer-to-peer methodology to execute at the mid-market rate. This means that it cannot guarantee a time frame for transactions (quoting between one and four days) and there are various other limitations in the service which make it useful only for the smaller SMEs.
Stripe provides e-commerce merchant payment services through open API development as well as competing with firms like Braintree and Cybersource as a gateway and payments enabler.
PaySimple provides automatic billing, e-invoicing, and payment acceptance services, including a device add-on to accept card payments. So it competes with other merchant gateway and services providers.
And some companies attempt to add value by helping to maximise consumer purchases. So Klarna, for example, extends instant credit for online purchases to consumers without them having to provide payment details.
Solutions for SMEs
Small and midsized businesses who want to expand internationally, but have no infrastructure for making or receiving international payments, can choose from the multitude of e-Commerce and payments platforms listed previously. They can also look at a service like Western Union’s Edge platform, launched in April last year. This is a business-to-business platform that connects companies with each other and which has been designed to take on services like Amazon and Alibaba. WU EDGE unifies AP and AR workflows with Electronic Invoice Presentment and Payment (EIPP) on a single global platform. SMEs can invite existing and new partners to trade globally and interact with them in real-time to potentially enhance trade and growth. It also provides analytics via its foreign cash management and trade intelligence modules to generate insights for companies wishing to optimise their cash flows and profits.
Edge differs from competitors firstly because it is designed to provide a platform that connects businesses already doing business with each other and secondly because it is based on an existing network of 100,000 companies that make payments through WU anyway. Edge offers invoicing services in one platform, and allows ‘near real-time’ service for 22 currencies at its launch. The WU EDGE platform provides fee-free, real-time transactions in 51 currencies, with capabilities in over 130 currencies overall.
WU Edge has competition of course. Chinese e-commerce giant Alibaba has a platform that allows wholesale buyers and sellers of items to find each other and facilitate payments. Amazon has a similar service called Amazon Business. However, both of these services are a by-product of marketplaces of physical transactions. Edge is solely a platform for companies to execute financial transactions. It also provides analytics and help with international compliance, unlike most e-commerce platforms.
Western Union does face FinTech competition. B2B start-up Currency Cloud is one of the most prominent and in March it raised $25 million from Google’s venture capital arm, GV and others. The company is both a plug-and-play payments platform as well as a set of APIs that let developers create their own customised access to global payments. Currency Cloud has had more than $25 billion sent across its network. It works with other FinTech businesses such as mobile remittance business Azimo, crowdfunding platform Seedrs and foreign exchange card Revolut.
Treasurers can also look to FinTechs in more specific treasury silos:
Accounts Payable Automation
The drive to remove paper invoices, cheques and purchase orders is hardly new. So ACOM has been automating B2B payments since 1983; Corcentric has been focusing on e-invoicing since 1998 and Comdata, the payment processor and corporate cards giant, was founded in 1969.
However, there is a large group of newer, mostly Cloud-based FinTechs, again often smaller and midsized companies, offering as a stand-alone service for one or more types of payments. These typically offer to make batch payments, via virtual card, ACH or wire, with all payments managed via the legacy ERP system. The automation is not simply the removal of paper, it is the aggregation of data from multiple systems, business units and locations to manage payments in one place with comprehensive reporting.
To give some idea of the number of FinTechs that pitch themselves in the billing and payments automation space, this is a list of just some of those that have been successful enough to raise announced VC funding: Zuora, MineralTree, Nvoicepay, ConnectPay, Paymentus, Payveris, Aria, MyCheck, Fortumo, Tradeshift, Traxpay, Vindicia, Bill.com, Boku, Transactis, PaySimple, Danal, Judo and NumberMall.
These companies target specific business types. Zuora focuses on businesses with a subscription model. ConnectPay is a card payment gateway. Payveris is a set of digital tools and APIs designed for small banks and credit unions to allow them to offer digital payments and money transfer solution. Boku is a mobile payments solutions for SMEs. MineralTree focuses on accounts payable for growing and midsized businesses. MineralTree captures invoices as they arrive, routes them for approval through existing workflows and directly executes payments.
The future these companies envisage is one in which firms plug into one or more cloud-based solutions on a subscription basis to access particular functionalities. Businesses that use this model will avoid legacy system issues, nor will they be forced to buy one system that does everything they need. Instead they will end up with a ‘stack’ of solutions working together and integrated with an existing (or new) ERP.
Supply chain finance
Getting supply chain finance to smaller companies is another problem being solved by technology – though in this case the solution may be a combination of older technology and new joint ventures.
Demica has been providing working capital solutions to large multi-nationals via its reverse factoring platform for some years. This type of SCF has been confined to large corporations not just because of the need to have significant global banking relationships, but also because only companies with fully electronic invoicing can get invoice approval fast enough to enable approved invoices to be funded by the banks.
To help access the estimated $3 trillion of potential for SME SCF, Demica has just announced a partnership with FCI, a facilitator of supply chain finance tools, to create FCIreverse, a solution that uses FCI’s relationship with hundreds of local and regional banks and factoring companies to allow FIs across the globe to vouch for their own clients.
Demica CEO Matt Wreford explains, “This way of partnering regional banks with each other is going to transform the industry over the long-term”. “It will enable supply chain finance to go into the mid-market, where global banks aren’t interested in operating. And it will provide a lot more financing to SMEs, because regional banks will run smaller programs and onboard smaller suppliers.”
These SCF platforms need relationships with banks to help with client onboarding and credit provision, but they also need access to more clients and more financeable invoices. So in late 2016, Demica also announced a venture with Basware, the Finnish e-invoicing and purchase-to-pay technology group that will make supply chain finance available to Basware’s clients.
Joint ventures with e-invoicing networks are a priority for another SCF platform – Orbian. In February this year it announced a partnership with Tungsten Networks, which has 251,000 suppliers using its AP/AR solutions. Tungsten gains the ability to offer SCF to its network; Orbian gains access to the volume of customers and financeable invoices it needs to expand.
The overall market is certainly growing. Prime Revenue, another leading platform, had a record-breaking 2016. Its 20,000-plus customers in over 70 countries processed more than $100 billion in supply chain financing (SCF) transactions using the company’s proprietary platform. In addition, 3,500 new clients were added to the platform.
These ‘traditional’ players are competing with other marketplaces for receivables and confirmed payables. One of these is LiquidX whose Managing Director, Glenn Kocher, has described it as aiming to be “the Amazon or ebay model for working capital and trade finance.” LiquidX is an auction platform that lists the true sales accounts receivables, supply chain finance programmes and confirmed payables assets of only large cap, usually publicly traded, MNCs. These sellers gain access to asset buyers outside their supply chain programme or core bank group, including other global and regional banks, hedge funds and institutional investors. The platform has executed over $13.4 billion of trade volume and processed over $48 billion in post trade settlement to date.
LiquidX differentiates itself from players like Prime Revenue as the latter – like the other traditional platforms – focuses more on providing a technology solution to the process problems that prevent companies from accessing vanilla bank receivables financing, rather than creating pools of new liquidity and a true marketplace for trade finance assets.
Munich-based CRX-Markets also has an auction platform, though one that is designed to generate securitised cashflows that can be sold as notes to fixed-income investors, rather than as a primary market for the underlying assets themselves. And C2FO operates another variant in which companies with excess cash can set their desired rates of return on the cash they wish to make available and the market will fill those orders with requests from suppliers that need cash and which have posted the early payment discount they are prepared to accept. The C2FO marketplace matches these orders in real time – achieving the best rate of return for the companies with cash and the best rates for the companies that need cash.
A bewildering choice
The biggest problem for anyone looking at FinTechs today is simply the number of companies. It is a given that most will either fail or consolidate and right now are too small to be serious choices for corporates of any size. Most are also simply service layers offering better wholesale pricing or services to people who previously lacked that access. In addition, almost none provide any fundamental alternative to the underlying infrastructure upon which the financial system rests. Peer-to-peer models do so, but are unreliable and small. Larger players, like Apple and Google may be in a position to create entirely new systems, but these would inevitably be regulated as heavily as their traditional peers, so the benefits of using them would be uncertain.
For now, FinTech is largely a wait and see game for corporate treasury, with the most relevant action happening at the banks. There, both developments such as Ripple and SWIFT GPI, as well as consolidations like D+H/Misys, promise increased efficiency and lower cost within the parameters of the conventional financial system.
When it comes to FinTech, treasury is already some way up the learning curve. In a recent EuroFinance poll of 250 companies, asked, “are you using any payment services provided by financial technology companies?”, 36.3% said yes. And of the 63.7% who said no, 64.8% said that they would consider doing so in the future.
These responses suggest that treasurers are adopting the simpler and more mature SaaS and Cloud offerings, and waiting to see which companies emerge from the swarm of new start-ups with a resilient and scaleable technology and business model before committing. In the words of one of the more cautious treasuries: “I don’t dismiss anything but we don’t know who those companies are and we are not going to be the first ones to use them.”
Those companies that have taken the plunge in payments are implementing solutions such as C2FO, a receivables discounting solution and are hoping to use new solutions to eliminate bank payments portals. They are also being forced to look at FinTech solutions in geographies from which their core banks have withdrawn.
Other treasurers interviewed by EuroFinance have confirmed that they are actively investigating FinTech solutions but that “the issue is how these would work for us”. One treasurer believes, “There is a real revolution in that area. In the next three years it will change the way we do KYC documentation, trade finance and anything where we have to move money. Where there is a lot of paper work there is a lot of efficiency to be gained.”
But there are cautionary tales too. One treasurer admits: “We have had really bad experiences with being the first mover. It is difficult. The risk of failure is high. Now we will wait and see.”
As well as a legitimate fear of the bleeding edge, treasurers may have another, less obvious reason for waiting. Asked, “Are you satisfied with the data that you are able to get from your current payment processes?”, 67.2% answered yes. This response might be proof that these treasurers have put in place the vast majority of the best practice solutions recommended in modern payments. On the other hand, it may reveal a dangerous level of complacency and unsolved inefficiency. Time will tell.