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EQUITY RESEARCH | September 16, 2018 | 10:40PM EDT
B2B
How the next payments frontier will unleash small business
James Schneider, Ph.D.
+1 917 343-3149
Goldman Sachs & Co. LLC
Bill Schultz
+1 212 902-0044
Goldman Sachs & Co. LLC
Julia McCrimlisk
+1 917 343-2456
Goldman Sachs & Co. LLC
Jesse Hulsing
+1 415 249-7464
Goldman Sachs & Co. LLC
Ryan M. Nash, CFA
+1 212 902-8963
Goldman Sachs & Co. LLC
Global business drives over $120 trillion of B2B
commerce annually – but managing this trade is far
from efficient. In the US, nearly 70% of B2B volume
is still paid by paper checks, which cost up to $22 to
process. Businesses incur over $2.7 trillion in B2B
administrative costs – 80% of which is paid by small
business. But a new generation of payment and
software solutions is emerging which promises to
cut costs by up to 75% and unleash $1.5 trillion in
small business productivity. In this report, we
explore the technology players that are attacking
this $1 trillion B2B revenue opportunity.
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E
xecutive summary 3
S
etting the stage: The B2B market landscape 6
Today’s B2B market: Significant direct and indirect cost burdens, borne by small business 8
How can payment and software solutions help? 15
Who can make money and how much? 25
Challenges in the adoption of B2B payment solutions 40
Catalog of public and private B2B payments and software companies 41
Disclosure Appendix 44
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Executive summary
B2B Payments: The biggest untapped market opportunity for the payments industry
We believe B2B payments currently account for $127tn in payment flows - and we
expect this figure to reach nearly $200tn by 2028, over 5X the volume of the retail
payments market. With the vast majority of invoices still processed manually and paid
by paper check, we see significant opportunities for business to reduce costs - creating
new revenue pools for payment and software companies entering the market with
faster, lower-cost invoice processing and payment solutions. While large businesses and
enterprises account for over half of B2B payment flows, we see the biggest revenue
and cost savings opportunities for small business, where 80% of invoices are still
manually processed and paid by check.
B2B solutions can unleash nearly $1.5 trillion in productivity for global small business
Today, the majority of global businesses still depend on manual, paper-based payment
processes that command a steep price tag in terms of time, money, and operating
friction. We estimate businesses in North America spend $187bn annually on accounts
payable (“AP”) processing - and this estimate captures only direct processing and labor
costs. We believe these same businesses are spending closer to $510bn after taking
indirect costs - such as short-term credit and additional fees for cross-border
transactions - into account. North America represents only a fraction of the B2B market -
and we believe the total global costs related to AP amount to over $2.7tn.
While thus far the digitization of B2B payment flows has been slow - especially among
small business - we believe the market is finally poised to accelerate. We see several
technological and market changes driving this acceleration, including the adoption by
small business of software-based general ledger and accounting systems, the broader
emergence of real-time payment infrastructure, and the introduction of novel business
and financing services.
The opportunity: A fresh $1 trillion revenue opportunity in payments & software
We see a significant revenue opportunity for payments companies, software
companies, and banks to capture meaningful market share over time, while
simultaneously driving substantial cost savings for business. In total, we see a $950bn
global revenue opportunity (with an estimated $186bn in North America) across invoice
processing, AP payment processing, working capital management and factoring, and
cross-border payment optimization. Our analysis assumes that B2B payment solutions
can drive up to 75% savings in total costs (both direct and indirect) for business, with
more savings accruing to small businesses than enterprises.
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B2B Payments: Who can win?
Public companies: In the public market, we identify several companies we believen
are particularly well positioned and should have the highest B2B revenue exposure
over the next five years. Among the card networks, we believe Mastercard is best
positioned to take a key role in the B2B payment ecosystem and derive a
meaningful portion of its revenue from B2B, with B2B potentially representing over
half of incremental growth by 2023. We believe both Visa and AmEx could use their
incumbent positions to accelerate their growth with B2B as well. We think FleetCor
and WEX are best positioned to leverage their existing B2B franchises and augment
them with M&A over time - and see up to 35%-40% of their revenue derived from
B2B payments in 5 years. We believe Worldpay, PayPal, and Square each have
promising B2B growth initiatives that have the potential to be significantly larger. We
also see Coupa and Intuit expanding their software franchises with B2B capabilities
and payment processing over time.
Private companies: We see a range of private companies benefiting from various
n
parts of the B2B payments ecosystem. In AP & AR invoice software and payment
processing, AvidXchange, Bill.com, Billtrust, and MineralTree appear well positioned
to gain significant market share given their solid product portfolio and first-mover
advantage. Payoneer and Tradeshift also seem well positioned to expand their
market positions in cross-border payments and supply chain financing, respectively.
Exhibit 1: B2B market landscape with key public and private players
Source: Goldman Sachs Global Investment Research
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Small Business Bears
the Brunt …
80%
B2B Payments Volumes
SMBs account for this much of the total
annual spending on labor and accounts
payable processing.
But AP Automation Can
Cut Costs Up to…
What businesses are spending on
manual, paper-based payment
processing, which is a big burden in
terms of time and money.
75%
60%
Our estimate for the
total number of B2B
payments still made
by check.
Paper Checks Still Dominate
The Revenue Opportunity
Today
By 2028
We estimate global B2B volumes will reach over 5 times the
business-to-consumer market over the next decade.
$127 trillion
$200 trillion
Accounts Payable (AP) Costs Today
$2.7 trillion
Vs.
80%
Our estimate for the
number of
small/medium-size
business payments
made by check.
The potential net savings for
businesses who adopt AP automation
solutions.
$950bn
Across the B2B payments universe, we see the
largest revenue opportunities in AP invoice
processing, AP payment processing, working
capital management and factoring, and cross-
border payment optimization.
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Setting the stage: The B2B market landscape
We estimate that B2B payments currently account for nearly $127tn in payment
flows - and expect this figure to reach nearly $200tn by 2028, over 5X the volume
of the retail payments market. With the majority of invoices still processed
manually and paid by paper check, we see significant cost savings opportunities
for businesses plus significant new revenue pools for payments and software
companies entering the market with faster, lower-cost invoice processing and
payment solutions. Although large businesses and enterprises account for over
half of B2B payment flows, we see the biggest cost savings and industry revenue
opportunities for small businesses, where 80% of invoices are still manually
processed and paid by check.
We estimate that B2B payment volumes will reach $200tn by 2028 - five times the
size of the B2C market. We believe global B2B payments account for $127tn in
payment volume today and will reach $200tn in ten years. We believe North America
currently accounts for 20% of the B2B market or $26tn in payment volume.
Large businesses generate just over half of payment volumes...
In the United States, B2B payment flows are dominated by enterprises and large
businesses (over $500mn in revenue), even though less than 10% of firms fall into this
category. We estimate that small businesses (under $25mn revenue) account for only a
quarter of B2B payment volumes even though over half of all US businesses fall into this
category. We use US firm demographics as a proxy for North America (United States,
Canada, and Mexico). Similar to the US and North America, we believe large businesses
generate the majority of global B2B volumes - although we believe the international
business mix is more heavily skewed towards small businesses.
Exhibit 2: We estimate B2B volumes will reach $200tn in the next decade, 5X the size of B2C volumes
Global payment volume estimates, 2018 vs. 2028
Source: Goldman Sachs Global Investment Research
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...and paper checks dominate the market today.
Overall, we estimate that nearly 60% of B2B payments in North America are still made
with paper checks. While this varies by company size – we estimate checks account for
up to 80% of small/medium-size business payments vs. roughly half of large business
payments – paper checks remain the dominant form of payment across markets despite
generating process inefficiencies and high overhead costs. Digital payment forms -
including ACH and card - account for only 36% of B2B payments today.
Exhibit 3: SMBs represent over 50% of firms, but large businesses generate over 50% of payment volume
Distribution of US firms by size; distribution of US payment volume by firm size
55% Small
36% Medium
9
%
L
arge
Small
25%
54% Large
21% Medium
% Firms % Payment Volume
We define business by revenue size as follows: Small business under $25mn, medium business $25-$499mn, large business $500mn+.
S
ource: Visa, US Census Bureau, Goldman Sachs Global Investment Research
Exhibit 4: We estimate checks still account for approximately 60% of B2B payments in North America
B2B payments mix by firm size, North America 2018
80%
63%
50%
5%
7%
10%
12%
26%
37%
3%
4%
4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Small Medium Large
Check Card ACH Other
We define businesses by revenue as follows: Small businesses under $25mn, medium businesses $25-$499mn, large businesses $500mn+.
Source: Goldman Sachs Global Investment Research
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Today’s B2B market: Significant direct and indirect cost burdens, borne by
small business
Today, the majority of businesses still depend on manual, paper-based payment
processing, which represents a significant cost burden in terms of both time and
money. We estimate businesses in North America are spending $187bn annually
on accounts payable (“AP”) processing - and this estimate only captures direct
processing and labor costs. In reality, we believe businesses are shouldering up to
$510bn in B2B payments costs when including indirect costs such as short-term
credit for receivables financing and cross-border transaction fees. We believe the
total direct and indirect B2B payments cost borne by global business is nearly
$2.7tn.
Exhibit 5: We estimate businesses spend over $510bn in North America and $2.7tn globally on AP
Estimates for direct and indirect manual AP costs
Cost per invoice using a manual AP management process
North America World
Small Medium Large Total Total
Payment volume ($bn) $6,500 $5,460 $14,040 $26,000 $127,320
Average invoice ($) $1,000 $3,000 $10,000
Invoices (mn) 6,500 1,820 1,404
Direct costs Small Medium Large Total Total
Processing cost
Average processing cost per invoice $1.47 $1.31 $1.16
Total processing cost ($bn) $10 $2 $2 $14 $66
0.1% 0.0% 0.0% 0.1% 0.1%
Headcount Costs
Invoices processed per month 1,000 3,000 10,000
Average headcount cost per invoice $20.79 $14.69 $8.23
Total headcount cost ($bn) $135 $27 $12 $173 $849
2.1% 0.5% 0.1% 0.7% 0.7%
Direct cost per invoice $22.26 $16.00 $9.39
Total direct cost ($bn) $145 $29 $13 $187 $916
Total cost (%) 2.2% 0.5% 0.1% 0.7% 0.7%
Indirect costs Small Medium Large Total Total
Cross-border cost
Cross-border volume $3,941 $23,099
Cost (% volume) 4.4% 4.4%
Total cross-border cost ($bn) $174 $1,020
Cash management cost
Inventory financing cost ($bn) $125 $610
Late fees ($bn) $25 $122
Total cash management cost ($bn) $150 $732
Total indirect cost ($bn) $324 $1,752
Total direct + indirect costs ($bn) $511 $2,668
Source: Goldman Sachs Global Investment Research
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Manual processing: The direct costs
Traditional payables processes are labor-intensive and inefficient, with manual
intervention needed to receive and approve the invoice as well as to make the payment
and reconcile accounts. In Exhibit 6, we outline a typical manual accounts payable
process. Opportunities to automate these processes can yield significant cost savings.
Labor is the most significant single driver of these costs - we estimate it accounts for
over 90% of direct costs incurred (Exhibit 7). According to a survey by Hyland Software,
AP employees spend an average of 30% of their time collecting data (e.g., purchase
orders and invoices) and answering questions from employees, collectors, or vendors
related to the AP process (Exhibit 8). Employees also spend a significant amount of time
resolving issues that arise from input errors and tracking down managers for approval.
These pain points significantly increase the cost of AP processing.
Exhibit 6: Labor accounts for over half the costs in a traditional, manual AP process
Manual accounts payable process
P
urchase order
Invoice Processing
Buyer Supplier
I
nvoice
Payment
Manual
Reconciliation
Print and write
c
heck
Mail check to
s
upplier
Match invoice with
purchase order
G
et
m
anager approval
Enter data into accounting
system
Archive the invoice
R
eceive invoice and store
data
Deposit
check (receive
payment in 2
-
3 days)
Receive check and
ensure accuracy
I
f accurate
Resend Invoice
Manual
Reconciliation
I
f inaccurate
Source: Goldman Sachs Global Investment Research
Exhibit 7: We estimate automated costs are only 33% of manual
costs, mainly due to the elimination of significant labor costs
Comparison of manual costs (processing + labor) to automated costs
Exhibit 8: Accounts payable personnel spend ~30% of their time on
routine tasks
AP team work
6%
7%
8%
9%
30%
0%
5%
10%
15%
20%
25%
30%
35%
Answering AP
related queries
Searching for
documentation
Enforcing Rules
& Policies
Correcting
violations
Total
percentage of time consumed
Source: Goldman Sachs Global Investment Research Source: Hyland Software
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Key pain points in manual AP processing include:
I
nvoice intake: Invoices are not standardized across suppliers and instead are
n
r
eceived in a huge variety of paper and electronic formats with non-standardized
d
ata fields. According to AvidXchange, 56% of invoices are received in a manual
f
ormat (paper, PDF, email, or fax).
Data capture: Given the abundance of non-standard invoice data, data often needs
n
to be manually entered into a company’s accounting and ERP systems. This process
is costly - both in terms of labor and missed cost-savings opportunities - and prone
to human error.
Matching: Invoices must be matched against purchase orders and/or contracts. Thisn
process is highly manual, especially when purchase orders/contracts are housed in
different systems or departments and prone to errors. Unmatched invoices need to
be resolved, which often requires a lengthy dispute resolution process.
Approval: Managers or department heads are frequently called upon to approven
invoices for payment and resolve disputes, but tracking down the appropriate
personnel can be slow and often results in missed discounts or late payments. This
is particularly burdensome for small businesses, where executive officers average
5-10 times higher hourly rates than AP managers, as it substantially increases all-in
labor costs.
Reporting: Many companies have multiple back-office systems (purchasingn
systems, accounting software, ERP systems) that are not integrated with payment
and invoicing data flows. This duplicates the data entry process and increases the
likelihood of errors.
In 2015, Traxpay reported that 60% of B2B payments require some form of manual
intervention that takes at least 15-20 minutes. Manual intervention - to resolve data
entry errors, matching errors, duplicate payments - is a slow process that compounds
labor costs and causes companies to miss rebates, pre-payment discounts, and even
pay late fees.
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Paper checks
We believe 60% of B2B payments are still made by check, despite the fact checks
create maximum inefficiencies for both buyers and suppliers (Exhibit 9). For the buyer,
printing the check, obtaining the required signatures, and mailing the check is a manual,
time-consuming process. We estimate the supplies alone (paper, postage) cost
$1.55/check. For suppliers, checks can cost $7-$10 to process (Billtrust) and take 3-5
days to settle, increasing a supplier’s days payables outstanding (DPO).
Exhibit 9: 60% of B2B volume still flows through checks
B2B payment mix
Exhibit 10: Check processing
Buyer writes, signs,
and mails check
Supplier deposits
check at its bank
Supplier's bank
sends check to
Federal Reserve for
clearing
Federal Reserve
debits buyer's
account, credits
supplier's account
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
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Indirect costs more than double spending on accounts payable
Cross-border payments
Funds cannot be directly transferred between banks in different countries. Instead,
funds must be routed through correspondent banks, which have relationships with both
the sending and receiving banks. This process is slow, transactions can take 3-5 days to
clear, and costly. We estimate the transaction and FX fees average 4.0% - 4.5% of
volume.
Based on WTO estimates of global goods and services trade flows, we believe
cross-border volumes account for nearly one-fifth of B2B payments (Exhibit 12). With
non-bank cross-border payment rails just beginning to emerge, we believe over 95% of
cross-border volume still flows through banks. Assuming an average transaction size of
$5,600 (per our analysis of SWIFT transaction data), bank fees of $35-$50 per
transaction (consistent with industry data), and a FX spread, we estimate bank transfers
generate around $1tn of revenue (Exhibit 13).
Exhibit 11: The majority of cross-border payments flow through correspondent banks, which charge hefty settlement and FX fees
Bank-to-bank cross-border payment flow
Correspondent
b
ank
B
uyer
D
omestic
payment
system
Buyer's bank
Correspondent
bank
Seller's
bank
Domestic
payment
system
Seller
FX
conversion
S
ource: Goldman Sachs Global Investment Research
Exhibit 12: Nearly one-fifth of B2B volume flows cross-border...
B2B volume, 2018
Exhibit 13: ...yielding roughly $1tn in revenue
Estimated revenue from B2B cross-border bank transfers
Domestic B2B
$104tn
Cross-border
B2B
$23tn
Cross-border opportunity Revenue % revenue
Cross-border volume ($bn) $23,099
via banks $21,944 95%
via alternate providers
$1,155 5%
Cost to send via Bank
Number of transactions
Daily transactions ('000s) 15,105
Annual transactions ('000s) 3,927,201
Average transaction value ($) $5,588
Cost per transaction $45 0.81%
FX margin $189 3.38%
Total cost to send ($bn) $917 4.18%
Cost to receive via Bank
Average cost to receive transaction $23
Annual transactions ('000s) 3,927,201
Total cost to receive ($bn) $88 0.40%
Total cost via bank ($bn) $1,006 4.58%
Total cost via alt. provider ($bn) $14 1.25%
Total cost - Current ($bn)
$1,020 4.42%
Source: World Trade Organization, Goldman Sachs Global Investment Research Source: World Trade Organization, SWIFT, McKinsey, Goldman Sachs Global Investment
Research
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Cash flow/working capital management
Manual AP processing is time consuming, often causing buyers to miss pre-payment
discounts, rebates, or pay late fees. We estimate that each year late fees cost
businesses an average of $25bn in North America and $122bn globally. Our estimates
assume 5% of all invoices are 30 days past due.
Suppliers often do not receive payments until 30-60 days after sending an invoice or
providing a service. This makes it difficult for small businesses, which often run with
minimal working capital buffers, to manage cash and maintain minimum liquidity
thresholds needed to operate. Many small businesses have to either rely on (1) a credit
line – which can carry substantial interest costs, or (2) invoice factoring services – which
purchase receivables at a steep discount.
Small businesses draw on both commercial and personal credit lines. APRs for smalln
business loans and credit cards typically run in the mid- to high-teens, depending on
credit score, while APRs for personal credit cards can run in excess of 20%. With
US payment terms averaging 30 days, interest costs add up quickly – we estimate
small businesses could spend anywhere from $600 to over $850 just to cover a
one-month $50,000 shortfall (Exhibit 14).
Invoice factoring services offer an alternative to credit lines – allowing businesses ton
sell outstanding invoices at a discount in exchange for cash. The process is fairly
straightforward: factoring companies advance a certain percentage of the invoice
(typically 70-90%) in cash and pay back the remainder of the invoice – less the
factoring fees – after the customer pays. The factoring fee can be a flat fee, a tiered
fee based on the length of time the invoice is outstanding, or a “prime plus” fee
where interest is accrued each day the invoice is outstanding. In Exhibit 15, we
provide an illustrative example of the potential loss if a business sells a $50,000
invoice to a factoring company under each of these three models.
Ultimately, we believe businesses spend over $125bn in North America on supply chain
financing and over $610bn worldwide. Our estimates assume SMBs turn to short-term
financing solutions (30 days at a 9% average APR) to finance around a third of their
invoices each quarter, while large businesses do not use supply chain financing
solutions.
Exhibit 14: Cost to carry $50,000 credit for 30/60/90 days Exhibit 15: Cost to sell $50,000 invoice to a factoring company
APR Cost to carry
Average 30 days 60 days 90 days
Business Loan 14.99% $616 $1,232 $1,848
Commercial credit card 17.99% $739 $1,479 $2,218
Personal Loan 14.99% $616 $1,232 $1,848
Personal credit card
21.12% $868 $1,735 $2,603
Assumptions
Invoice value $50,000
Prime rate 5.0%
Factoring model
Fee 30 days 60 days 90 days
Flat fee 5.0%
$2,500 $2,500 $2,500
Fee 5.0% 5.0% 5.0%
Tiered fee 2.0%
$1,000 $2,000 $3,000
Fee per month 2.0% 4.0% 6.0%
Prime plus prime
$417 $833 $1,250
Fee
+ 5.0%
0.8% 1.7% 2.5%
Source: American Express, JP Morgan, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
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Small businesses bear the brunt of AP costs
Accounts payable processing benefits significantly from economies of scale. As such,
we believe small businesses account for nearly 80% of spending on labor and accounts
payable processing (Exhibit 18). Consequently, they stand to benefit the most from AP
automation (Exhibit 19).
Exhibit 16: We believe businesses in North America spend over
$125bn on supply chain financing...
North America financing costs ($bn)
Exhibit 17: ...and global businesses are collectively spending over
$610bn
Global financing costs ($bn)
% invoices financed
$125 10% 20% 30% 40% 50%
2
$44 $64 $83 $103 $122
3$55 $79$104$128$153
4
$66 $95 $125 $154 $183
5$77$111$145$179$214
6$88$127$166$205$244
Mths/yr need
financing
%
invoices financed
$610 10% 20% 30% 40% 50%
2$216$311$407$502$598
3
$270 $389 $508 $628 $747
4$324$467$610$753$897
5
$378 $545 $712 $879 $1,046
6
$432 $623 $814 $1,005 $1,196
Mths/yr need
financing
W
e assume businesses pay a 1-2% annual fee to access 30-day financing at a 9.00% APR.
Source: Goldman Sachs Global Investment Research
W
e assume businesses pay a 1-2% annual fee to access 30-day financing at a 9.00% APR.
Source: Goldman Sachs Global Investment Research
Exhibit 18: Small businesses spend the most on AP...
Total spend on AP by company size
Exhibit 19: ...positioning them to be the biggest beneficiaries of AP
automation
Estimated net savings by business size
Small
77%
Medium
16%
Large
7%
$0
$20
$40
$60
$80
$100
$
120
$140
$160
Small Medium Large
Invoice cost for market ($bn)
Business size
Manual Automated
70% net
s
avings
60% net
savings
55% net
savings
We define businesses by revenue as follows: small businesses <$25mn, medium businesses
$25-499mn, large businesses $500mn+.
Source: Goldman Sachs Global Investment Research
Source: Goldman Sachs Global Investment Research
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How can payment and software solutions help?
Today, organizations are focused on automating accounts payable processes to
generate G&A savings. We see this as the biggest near-term opportunity in B2B
payments, but over the longer term see significant opportunities for specialist
providers to supply working capital and cash management solutions.
Payables automation
Managing the AP process is a significant hurdle and cost center for many businesses.
Numerous solutions have emerged to address different pain points in the payables
process:
Pre-payment solutions are improving the procurement process, aggregating bills,n
automating invoice processing, and streamlining approval workflows.
Payment solutions are replacing manual check payments with electronicn
alternatives including ACH, card, virtual card, and push payments.
Post-payment solutions are helping companies with account reconciliation andn
cash management.
Exhibit 20: Numerous solutions have emerged to streamline pre-/post-payment workflows and facilitate payments
Opportunities for automating AP processes
See “Who can make money and how much?” for a detailed breakdown of different vendors’ AP processing and reconciliation solutions
Source: Goldman Sachs Global Investment Research
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These pre- and post-payment solutions often integrate directly with a company’s
existing back office software (Exhibit 21).
Payment Solutions: Cutting the cost burden of paper checks
To reduce the pain points associated with paper checks, providers are pushing a variety
of electronic payment alternatives including ACH/EFT, cards, virtual cards/single-use
accounts, and push payments. We summarize these four alternatives below:
ACH: In ACH transactions, funds are transferred between bank accounts over then
Automated Clearing House (ACH) network – an electronic payment network.
Typically, the buyer sends payment instructions to its bank. The buyer’s bank bundles
all of the ACH requests it has received and sends them to the ACH operator. The
ACH operator then distributes these requests to the appropriate receiving banks.
ACH has been gradually taking share from paper checks and, based on a survey by
the CRF and NACHA, is expected to exceed check volume by 2020. However, ACH
remains slow due to wide technology gaps between the 12,000+ banks in the
United States. Transfers typically take one to two days to process and clear, and
ACH records provide limited detail on the nature of the transaction (sender,
recipient, amount). The lack of underlying transaction details (such as the specific
item being invoiced) makes it difficult to reconcile payments. However, Mastercard
has been working to bring same-day (and eventually real-time) ACH to the United
States after acquiring VocaLink - the United Kingdom’s leading-edge instant payment
clearing system.
Cards: B2B card payments (travel and entertainment, fleet, P-cards, etc.) operaten
the same way as B2C card payments. The supplier charges the card, and the
supplier’s gateway/acquirer captures the request and sends it to the acquiring bank.
The acquiring bank sends a request to the issuing bank over the card network, and
the issuing bank decides whether or not to authorize the transaction. Authorization
Exhibit 21: These solutions integrate directly with a company’s back office software
Typical ERP integration
Buyer
Supplier
T
hird
-p
arty
A
P software
B
ookkeeping/
A
P System
P
urchasing
S
ystem
Purchase
o
rders
Invoice
S
oftware captures
p
urchase orders
and
i
nvoices
(
e
-
i
nvoices
and paper invoices)
S
oftware creates
payment file
P
ayment file
sent
to third-
party
p
ayments provider
Validated data
sent to
bookkeeping
Payment data
(
including supplier
a
ccount info)
retrieved from ERP
Payment provider
Software matches
invoices a
gainst
purchase orders
1
2
3
Source: Basware, Goldman Sachs Global Investment Research
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is then sent back over the card network to the acquiring bank and through the
acquirer to the merchant.
Although corporate credit cards first emerged in the 1970s, their usage continues to
grow at a rapid clip - with US commercial card volume outpacing US consumer card
volume growth by about 110bps in 2017.
V
irtual cards/single-use accounts: A virtual card is a single-use account number
n
that processes against a predetermined credit limit equal to the amount to be paid.
The virtual card is created by an application that can be hosted by a payment
provider (e.g., WEX), bank issuer, or the card network. The virtual card application
provides a secure, convenient way for users to sign in, request a card, and specify
how it will be used (including things like amount, timeframe, supplier name, number
of transactions). Virtual card payments can either be made in real-time or in batches.
Virtual card transactions include rich remittance data that makes it easier for
suppliers to reconcile accounts compared to ACH transfers, which only provide the
sender’s name and the amount transferred. Using virtual cards for international
payments could also help to minimize cross-border fees and other surcharges since
transactions do not need to be routed through a correspondent bank. While virtual
card solutions have been in existence for 10-15 years, growth is inflecting given a
heightened focus on cash management, product maturity, and and regulation-driven
demand in verticals like healthcare, construction, and online travel.
Exhibit 22: Virtual card payments
Issuing bank posts
transaction to buyer's
account, supplier's
bank credits supplier's
account
Buyer requests virtual
card number (VCN)
from payment
provider
Payment provider
sends VCN to
supplier
Supplier collects
payment using VCN
Bank sends
transaction to
network for
authorization and
clearing
Reconciliation data
sent to
buyer/payment
provider
Network sends the
transaction data to
the issuing bank,
approval to the
supplier's bank
Source: Goldman Sachs Global Investment Research
16 September 2018
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Push payments: Push payments reverse the traditional payment process as buyersn
initiate the transaction and proactively “push” funds into the supplier’s account.
Push payments offer clear time and cost savings: transactions are settled in real
time, giving companies better visibility on cash flows, and run on the networks’
debit rails - so we would expect pricing to begin to approximate current debit card
spreads over time. Push payment transactions also provide rich data records with
details about the underlying transactions, making it easier for businesses to track
payments and reconcile accounts, and security, since transactions only require a
debit card number (versus the recipient’s bank account information, which is needed
for ACH).
Exhibit 23: Push payments
*Also referred to as direct debit, buyer-initiated payments (BIP), and straight-through processing (STP)
S
ource: Goldman Sachs Global Investment Research
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Quantifying the savings
Reducing direct costs - paper, postage, payment processing and labor
We see automating the pre-payment process as the largest immediate revenue
opportunity for the industry. We see automating pre-payment workflows - from
receiving the invoice through authorizing the payment - as the biggest near-term
opportunity. A number of solutions have already emerged targeting small and mid-sized
businesses, which currently shoulder nearly 80% of manual processing costs
worldwide.
Where are the inefficiencies and where are the savings? AP automation speeds up
invoice processing and cuts labor costs. This combination not only drives down costs
and allows companies to reallocate headcount to higher-value work, but enables
growing companies to scale their AP operations without increasing headcount.
Speeding up AP processing also positions companies to capture rebates and
pre-payment discounts.
Exhibit 24: Time savings is the biggest benefit of using AP automation solutions
Various steps involved in AP management (pre-payment)
Pre-payment process Process description Inefficiencies in the process How AP automation can help? Nature of savings
Capturing data from
invoices
Manually enter data from each
invoice into the company's ERP
- Invoices received in numerous formats (paper,
email, or fax)
- Time spent on manual data entry
- Data inaccuracies from manual entry
Automatically reads and captures data
from the invoices (using OCR, other
technologies)
Time savings
Matching invoices against
POs/contracts
Match each invoice against a PO
or contract to ensure the invoice
is valid
- Time spent manually matching each invoice
- POs are typically spread across different
departments
- Difficult to ensure accuracy
- Time spent addressing unmatched invoices
Automatically matches invoices to POs
through integrations with the company's
other systems and accounting software
Time savings
Approvals
Get the necessary approvals to
process the payment
- Time delays when payments require multiple
approvals
- Time spent by AP personnel answering
approver's questions since no centralized
system exists for the approver to independently
check the accuracy
- Time spent by approver
Automatically notifies the Approver
once the invoice is matched with the
PO and approver can send approval
through the App/solution itself
Time savings
Writing and sending
checks
Writing and sending checks
- Time from receiving the approval to the
payment being processed could take 7-10 days
- Time spent writing checks
- Inaccuracies in checks
- Postage costs
- Lost/misplaced checks
Once the invoice is approved, the
solution can process payments in real-
time or one business day if buyers pay
via ACH, virtual card, or a push
payment.
Time savings,
postage/paper
cost savings
Source: Goldman Sachs Global Investment Research
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Based on our conversations with users and providers of AP automation solutions,
we estimate that SMBs pay an average of $16-$22 to manually process an invoice,
but that this can be reduced to $6-$7 (60%-70% net savings) after adopting AP
automation (Exhibit 25). Our key assumptions driving the analysis are as follows:
P
ayment mix
n
We believe checks currently account for 65%-80% of B2B payments foro
SMBs.
After shifting to AP automation solutions, we think ACH will account foro
40-50% of payments, virtual cards will account for approximately 30% of
payments, and checks will only account for 15-25% of payments.
Headcountn
We assume a SMB’s typical AP team includes clerks, analysts, supervisors,o
and a manager. Our headcount assumptions reflect an estimate of the
industry average, but actual headcounts vary substantially depending on the
industry, scale of the business, and existing processes.
We think AP automation can drive 70-80% time savings for AP staff. In ouro
analysis, time savings are represented in USD, but in reality companies do not
recognize hard dollar savings through headcount reduction since excess staff
will typically be reallocated to higher-value work.
Software solution pricing: AP automation solutions typically charge a fixed fee pern
invoice, plus a nominal monthly subscription fee for the solution. Based on our
interactions with various solution providers, we assume pricing of $1.25-$1.50 per
invoice.
For larger companies, we estimate invoices cost roughly $9 each to process, which
can be reduced to roughly $4 (55% net savings) with AP automation. Large
companies usually rely on ERP accounting software, which often provides account
reconciliation and invoice matching, but rarely provides integrated payments. As a result,
we believe roughly 50% of invoices are still paid with paper checks. AP automation
should not only increase electronic payment adoption across large companies, but
reduce the time spent by the AP staff managing the AP process by 65%-70%.
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Exhibit 25: We see potential for net savings of ~70% for SMBs and ~55% for large companies who adopt AP automation
Key assumptions, costs, and savings for SMBs from using an AP automation solution
C
ost per invoice using a manual AP management process
C
ost per invoice using an AP management software/service
P
rocessing costs (paper, postage, processing) Processing costs (paper, postage, processing)
Split of Payment Process used to pay major suppliers Savings in processing costs
Small Medium Large Small Medium Large
P
ayment Method Cost Payment Method Cost
C
hecks $1.55
8
0% 63% 50%
C
hecks $1.65 25% 15% 10%
ACH $0.30
12% 26% 37%
ACH $0.30 42% 50% 55%
V
irtual Cards $1.25
5
%7%10%
V
irtual Cards $0.80 30% 32% 35%
O
thers $4.00
3
%4%4%
O
thers $4.00 3% 3% 0%
A A
verage processing cost per invoice $1.47 $1.31 $1.16
C A
verage processing cost per invoice $0.90 $0.77 $0.61
H
eadcount Costs Headcount Costs
S
mall Medium Large Small Medium Large
Invoices processed per month 1,000 3,000 10,000 Invoices processed per month 1,000 3,000 10,000
Salary ($/hour) Headcount Reduction in working hours on AP
AP Clerk 19 3 6 10 AP Clerk 80% 75% 70%
A
P Analyst 24 1 3 5 AP Analyst 80% 75% 70%
AP Supervisor 29 0 1 3 AP Supervisor 75% 70% 65%
A
P Manager 38 1 1 2 AP Manager 75% 70% 65%
Total Headcount 5 11 20 Total Headcount 2 3 7
Headcount cost per Invoice Headcount cost per Invoice
A
P Clerk 9.98 6.65 3.33 AP Clerk 2.00 1.66 1.00
AP Analyst 4.16 4.16 2.08 AP Analyst 0.83 1.04 0.62
A
P Supervisor 0.00 1.66 1.50 AP Supervisor 0.00 0.50 0.52
AP Manager 6.65 2.22 1.33 AP Manager 1.66 0.67 0.47
B T
otal headcount cost per invoice $20.79 $14.69 $8.23
D T
otal headcount cost per invoice $4.49 $3.87 $2.61
Small Medium Large Small Medium Large
A+B Total cost per invoice $22.26 $16.00 $9.39 C+D Total cost per invoice $5.39 $4.64 $3.22
E
Software/service charge $1.50 $1.25 $1.00
C+D+E Total Cost per invoice $6.89 $5.89 $4.22
Absolute savings 76% 71% 66%
Net savings 69% 63% 55%
Savings based on our 10-year forecasts for AP automation adoption and payment method mix. Absolute savings reflects processing and labor savings; net savings includes software/service charges.
Source: Primary research, Goldman Sachs Global Investment Research
16 September 2018
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Beyond AP automation...
In addition to general AP automation solutions, more targeted solutions have emerged
for cross-border payments, disbursements, short-term financing, and specific industry
verticals.
Cross-border payments
We see a significant opportunity for cross-border providers that can undercut bank
pricing by eliminating correspondent bank fees and locking in FX rates. In Exhibit 26, we
show the incremental revenue opportunity for non-bank providers and corresponding
savings for companies as volumes shift from banks to non-bank providers. Our analysis
only captures savings on transaction and FX fees, and does not factor in the value of
faster settlement times. However, with cross-border bank transactions taking up to 3-5
days, we see faster settlement times as a catalyst for faster adoption of non-bank
solutions.
The players: Beyond banks and credit card networks, solution providers include
established niche players (Cambridge FX), traditional remittance providers (Western
Union), and start-ups such as Payoneer, GoCardless, and TransferMate. These providers
offer faster settlement times (e.g., Payoneer offers instant transfers between Payoneer
accounts), low fees (GoCardless charges 1% per transaction and TransferMate charges a
flat $5 fee on transfers under $5,000), and the opportunity to lock in real-time FX rates.
See our company catalogue for more details.
Disbursements
Disbursements are push payments - funds are “pushed” from the buyer’s account into
the supplier’s account (Exhibit 27). There are two primary use cases for disbursements
Exhibit 26: Ultimately, we believe companies can cut costs 75%, a ~$290bn opportunity for non-bank
providers
Cross-border transfers: Estimated cost savings (%) and revenue opportunity ($bn)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1
00%
$0
$200
$400
$600
$800
$1,000
$1,200
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Estimated savings (%)
Revenue opportunity ($bn)
Cross-border volume on non-bank providers (% total)
Non-bank revenue Bank revenue Estimated savings
75%
cost savings
$289bn
non-bank
revenue
Currently ~95% cross-border volume goes through banks.
Source: Goldman Sachs Global Investment Research
16 September 2018
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in B2B: (1) payments to suppliers and (2) direct payroll for contractors, freelancers, and
1099 workers. We expect disbursement solutions to see the fastest adoption in the gig
economy, where companies need to pay contractors, resellers, and suppliers. This
includes both freelancers and contractors in the Sharing Economy - including Uber and
Lyft drivers, Airbnb hosts, and food delivery couriers.
The “Gig Economy” opportunity: We estimate that 30% of US workers participate in
the gig economy on either a full-time basis or as a supplemental source of income and
collectively earn over $1.3tn in 2018.
Shifting check payments to digital disbursements eliminates the inefficiencies tied to
paper checks and gives contractors faster access to funds. Assuming 1.5% pricing, we
see a $20bn revenue opportunity in the United States and - assuming the same mix of
gig workers in the global economy - a $96bn global revenue opportunity.
While our revenue opportunity is limited to “gig workers,” we see a larger opportunities
as the rest of the labor force pushes for faster access to their paychecks. Based on the
size of the US labor force and average hourly earnings, we believe there is an
opportunity to process over $6.8tn in Direct Payroll. Assuming the same 1.5% pricing,
this would equate to over a $100bn revenue opportunity just within the US.
The players: Card networks are the chief infrastructure providers for direct debit
payments, but there are a number of providers who offer disbursement solutions that
run over the networks’ rails or operate their own closed-loop supplier payment
Exhibit 27: Disbursements (direct debit/push payments)
Source: Goldman Sachs Global Investment Research
Exhibit 28: Contract workers represent ~30% of the US labor force...
US labor force
Exhibit 29: ...and will collectively earn about $1.3tn in 2018
Estimate of US gig economy
US population (’000s) % employed
Population (adults) 328,055
Population (16+) 214,843
US labor force (’000s) % employed
Labor force 162,245
Employed 155,965
Gig economy no. workers % employed
All workers 46,790 30.0%
Primary source of income 15,752 10.1%
Secondary source of income 31,037 19.9%
Earnings ($mn) Weekly Annual
Primary source of income 826 41,297
Secondary source of income 781 39,030
Market size ($mn) 1,310,835
Source: US Bureau of Labor Statistics, Federal Reserve, Cornell ILR, Goldman Sachs Global
Investment Research
Source: US Bureau of Labor Statistics, Federal Reserve, Cornell ILR, Goldman Sachs Global
Investment Research
16 September 2018
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networks. We see privately held Payoneer as one of the leaders in disbursement
processing, with over 4mn users collecting payments from major marketplaces and
networks including Amazon and Airbnb. Within our coverage, Square has also launched
a domestic disbursement solution that allows its customers to pay contractors via direct
deposit for $5 per month. See our company catalogue for more information.
Working capital and financing solutions
Automating AP processing allows businesses to pay and get paid faster. For buyers, this
means avoiding late fees and capturing pre-payment discounts and rebates. For
suppliers, this means better working capital and cash flow management.
While we expect invoice and payment processing solutions (domestic + cross-border) to
experience the fastest adoption, we also see tremendous opportunities for working
capital management and cash management (i.e., dynamic discounting) solutions.
Dynamic discounting takes standard prepayment discounts, such as 2% 10 net 30 (i.e.,
a 2% discount if the buyer pays within 10 days following invoice issuance), to the next
level. With dynamic discounting, a buyer can set an APR and the supplier can decide
how early it wants to be paid based on that APR. Working capital and cash management
solutions are only beginning to emerge, but we expect competition to intensify and to
see more solutions that offer direct interfaces between the supplier and buyer, allowing
them to negotiate discounts, and offer real-time payments.
Beyond specific financing solutions, a complete “procure-to-pay” working capital
solution would enable an organization to manage its business more efficiently by raising
purchase orders based on current inventory levels and FX movements, automatically
approving invoices after the procurement process is complete, processing payments,
reconciling accounts, and using analytics to forecast net cash and make decisions
around raising short-term debt or paying down debt. We see a significant opportunity for
these solutions to gain traction with larger organizations that have complex, global
supply chains.
Exhibit 30: With dynamic discounting, the buyer sets an APR and
the seller can choose when it wants to be paid based on the APR
Discount rate (%)
Exhibit 31: This provides more flexibility than traditional “all or
nothing” discounts
Illustrative example of dynamic discounting
Days to payment
0.0% 0102030
6% 0.5% 0.3% 0.2% 0.0%
9% 0.7% 0.5% 0.2% 0.0%
12% 1.0% 0.7% 0.3% 0.0%
15% 1.2% 0.8% 0.4% 0.0%
18% 1.5% 1.0% 0.5% 0.0%
21% 1.7% 1.2% 0.6% 0.0%
24% 2.0% 1.3% 0.7% 0.0%
APR (%)
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
16 September 2018
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Who can make money and how much?
Payment processors, software companies, banks, and services providers are vying to
help businesses take control of manual, paper-based payables processes - but in many
cases, competition is not the only force at work. Partnerships are becoming vitally
important for vendors across the B2B market looking to distribute complete solutions to
SMBs. We see meaningful revenue opportunities for all these groups:
Payments companies: Payment companies - including card networks, merchantn
acquirers, and virtual card providers - are responsible for transferring funds between
the buyer and the supplier to settle an invoice. Payment processing is often
integrated with ancillary software and services provided by other vendors. In many
cases, payment companies serve as the aggregator of software and services
solutions because of their position at the heart of the B2B ecosystem.
Software and services companies: Software and services companies providen
workflow solutions and ancillary software that integrates with traditional ERP and
accounting software to help ease pain points for businesses. In the core accounts
payable market, a range of vendors offers software to automate AP processing -
receiving and matching invoices and purchase orders, streamlining the approval
process, and reconciling payments in the company’s general ledger. A number of
vendors also provide specialized solutions for cross-border payments, disbursement
payments, and solutions to help companies bridge cash shortfalls and finance
working capital.
Banks and financial institutions: Payment companies and software/servicesn
providers often work with banks to distribute their solutions to market, given that in
many cases banks retain the core client relationship. Payment processors (like
FleetCor and WEX) and software/services providers (like AvidXchange and
MineralTree) will often “white label” their solutions to banks or partner with other
companies offering payments services, such as accounting firms. This enables the
providers to reach a significant number of companies while minimizing sales and
marketing costs.
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A Small Business Case Study
Consider the example of an independent general contractor who wishes to automate his supplier
payments. The home contractor might bank at a regional bank (such as Fifth Third) and hear about Fifth
Third’s Expert AP offering, which is white label solution provided by AvidXchange. The contractor can use
Fifth Third Expert AP to automate the entire accounts payable process from receiving the invoice to
making payments. If the contractor pays by virtual card or Fast ACH, the payment will be powered by
Mastercard. In this case, the economics would be split between Fifth Third (the distributor), AvidXchange
(the software/services provider), and Mastercard (the payment processor).
Exhibit 32: How the B2B payments process works for small business.
Source: Goldman Sachs Global Investment Research
16 September 2018
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Overall, we see a $300bn revenue opportunity in core payment processing and AP
software/services - and a $950bn revenue opportunity when taking into account
specialized B2B solutions for cross-border payments, disbursements, and working
capital financing. We see this broader B2B revenue opportunity reaching $1.5tn by 2028.
Card networks: B2B payments represents the next frontier
Apart from niche corporate payments such as travel and entertainment (T&E), card
networks have historically focused on consumer payments. However, they have now
started to concentrate significant attention and resources on the B2B payment
opportunity - and we believe even modest penetration in the B2B market can drive
meaningful revenue upside for the card networks over time.
We believe 5%-10% of B2B payments can be automated by 2023, which represents a
revenue opportunity of around $12bn for the card networks, depending on pricing and
the split between the network, software provider, and bank (Exhibits 33-34).
Exhibit 33: B2B market landscape with key public and private
Source: Goldman Sachs Global Investment Research
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Among the card networks, we expect Mastercard to be the biggest beneficiary of B2B
payments growth given it currently has the most comprehensive suite of B2B product
product offerings including Fast ACH (through VocaLink), Mastercard Send, and virtual
cards (Exhibit 35). Overall, we believe B2B payments (ex-T&E) could account for as
much as 20% of Mastercard’s revenue by 2023.
Mastercard (MA)
Product: Mastercard’s commercial card offerings include travel and entertainmentn
(T&E), fleet cards, purchasing cards, and corporate virtual cards. Beyond cards,
Mastercard has developed new commercial solutions including the Mastercard B2B
Hub (AP optimization platform), Mastercard Track (global trade platform), Mastercard
Send (for cross-border payments), and Fast ACH (through its acquisition of
VocaLink). Like the other card networks, Mastercard’s commercial card offerings are
the most mature (currently about 11% of global volume and growing in the
Exhibit 34: We believe 5%-10% of AP payment volumes could be
automated by 2023...
Card network revenue opportunity ($mn), 2023
Exhibit 35: ...roughly a $12bn opportunity for the card networks
Card network revenue opportunity ($mn), 2018-23
C
ard network pricing (%)
#
###### 0.05% 0.06% 0.07% 0.08% 0.09% 0.10%
5
%4,0744,8885,7036,5187,3328,147
6% 4,888 5,866 6,844 7,821 8,799 9,777
7% 5,703 6,844 7,984 9,125 10,265 11,406
8% 6,518 7,821 9,125 10,428 11,732 13,035
9% 7,332 8,799 10,265 11,732 13,198 14,665
10% 8,147 9,777 11,406 13,035 14,665 16,294
2023 Market
penetration
$
0.0
$2.0
$4.0
$6.0
$
8.0
$10.0
$12.0
$14.0
2
018
2
019
2
020
2
021
2
022
2
023
B2B revenue - card networks ($bn)
Source: Goldman Sachs Global Investment Research
G
S base case assumes 7.5% market penetration by 2023, 10bp pricing for card networks.
S
ource: Goldman Sachs Global Investment Research
Exhibit 36: We believe Mastercard has the most comprehensive
suite of B2B payment products...
Network comparison
Exhibit 37: ...and should be the biggest beneficiary of B2B growth
over the next 5 years
% growth in B2B, 2018-23
Network comparison V MA AXP
Commercial Cards
++++
B2B
Virtual Cards
++++
Fast ACH
--
+
--
B2B/B2C/G2C
Push payments
+++
Lending
-- --
+
0%
10%
20%
30%
40%
50%
60%
70%
2018 2019 2020 2021 2022 2023
% growth in B2B
Mastercard Visa American Express
Source: Goldman Sachs Global Investment Research
GS base case assumes 7.5% market penetration by 2023, 10bp pricing for card networks.
Source: Goldman Sachs Global Investment Research
16 September 2018
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mid-teens), but it is in the process of rapidly scaling its virtual card and fast ACH
solutions.
Revenue model: Mastercard earns an assessment fee on each transaction itn
processes - with higher fees for cross-border transactions and data processing - and
charges additional fees for other payment-related products and services. On the flip
side, Mastercard gives its customers volume-based rebates to help stimulate
volume growth.
Customers: Mastercard’s commercial card products are used by businesses of alln
sizes worldwide. Mastercard is still in the process of rolling out its newer B2B
offerings - including the Mastercard B2B Hub, Mastercard Track, Fast ACH, and
Mastercard Send – across its client footprint. Some of these products are designed
for narrower audiences; for example, the Mastercard B2B Hub is geared for small-
and mid-size companies.
Differentiation: Although Mastercard ranks third in terms of commercial card
n
volume, we think Mastercard has the most comprehensive portfolio of B2B
payment products across the card networks with virtual cards, Fast ACH, and
Mastercard Send. Mastercard is the leader in virtual cards and the only card network
with Fast ACH, a capability it acquired in 2017 with its acquisition of the United
Kingdom’s leading instant payment clearing system VocaLink. Mastercard is
currently bringing Fast ACH to other markets including the United States (launched
in the United States in partnership with NACHA in late 2017). Mastercard has
partnered with a number of financial institutions to market its cross-border B2B
direct deposit solution and has partnered with technology companies – including
Oracle, AvidXchange, and Nvoicepay – to integrate its payment products directly into
their AP offerings.
Visa (V)
Product: Visa’s B2B portfolio includes corporate cards (T&E, purchasing cards),n
virtual accounts, and Visa Direct. Visa Direct is Visa’s push payment solution, which
allows businesses to transfer funds between accounts via a debit, prepaid, or credit
card number. In addition to its payment solutions, Visa provides data management,
analytics, and the ability to integrate its payment and service solutions into
third-party offerings. Corporate cards are the most mature of Visa’s B2B offerings,
while Visa’s virtual account and Visa Direct offerings are still scaling.
Revenue model: Visa charges an assessment fee for each payment transaction
n
processed and additional fees for its ancillary services. This is offset by incentives
Visa pays to its financial institution and strategic partners to drive volume growth.
Customers: Visa’s commercial solutions serve businesses of all sizes acrossn
industries. While Visa offers commercial cards globally, Visa originally launched Visa
Direct in the United States and expanded into Europe at the end of 2017. Currently,
the main B2B use case for Visa Direct is disbursements to independent contractors
and microbusinesses. For example, Lyft pays its drivers using Stripe’s Instant
Payouts solution, which is powered by Visa Direct.
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Differentiation: Visa is the global leader in commercial cards and has been workingn
to strengthen its virtual card footprint (WEX recently partnered with Visa to
strengthen its international footprint). Visa’s virtual card offering powers Stripe’s
Instant Payout solution, Worldpay’s instant payment offering, and First Data’s
Disburse-to-Debit solution for businesses paying contractors and temporary
workers. Visa has partnered with a number of financial institutions, AP companies,
and technology companies to distribute its products and services. For example, Visa
has partnered with Amazon Business to provide US commercial account holders
with full line-item details on Amazon Business customers’ purchases.
American Express (AXP)
Product: AXP’s commercial offering includes its industry-leading charge and creditn
cards for small and mid-size businesses and its Corporate Card products and
Business Travel accounts for larger companies. Going forward, AXP is focused on
the development of a range of supplier payment and business financing solutions,
such as purchasing cards, buyer-initiated payments, virtual payments, cross-border
payments, and short-term business financing. 90% of AXP’s commercial billings are
on charge card products, with 10% on credit cards. Additionally, two thirds of AXP’s
commercial billings come from B2B payments, while the remaining one third comes
from T&E spend. B2B spend is typically larger recurring transactions, and has grown
at an 11% CAGR since 2015 (5x faster than T&E spend).
Revenue model: American Express offers a range of B2B products which driven
processing or transaction fees. AXP also offers volume-related discount / incentives
to drive growth.
Customers: American Express’s commercial payments segment is used byn
businesses of all sizes internationally. As of 2017, AXP’s commercial billings
distribution consisted of 10% international SME, 25% global & large accounts and
65% US small & medium enterprises.
Differentiation: AXP is the #1 commercial issuer globally, with relationships withn
over 60% of Fortune Global 500 and is the #1 small business card issuer in the US.
AXP’s unique integrated payments platform allows AXP to have direct relationships
with buyers and sellers, creating the opportunity to flexibly price and structure
transactions to meet buyer and supplier needs. Additionally, AXP has established
various partnerships in order to expand its B2B capabilities. Examples include, its
partnership with Ripple to introduce a blockchain solution for cross-border
transactions and its recently announced partnership with Amazon to introduce a
co-branded credit card aimed at small businesses as well as data-related analytics.
Other Public players
FleetCor (FLT)
Product: FleetCor offers virtual cards, purchasing cards, T&E cards, payroll cards,
n
and cross-border payments within its corporate payments business unit, as well as
full AP outsourcing and expense management software. These solutions can be
directly integrated with a client’s ERP system. Comdata accounts for the majority of
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FleetCor’s domestic corporate payments business - including its AP automation and
domestic virtual card offerings - while Cambridge Global Payments is FleetCor’s
international payments offering. Outside of its corporate payments business unit,
FleetCor offers commercial fleet and lodging cards.
Revenue model: Pricing depends on the customer contract, but is generally basedn
on volume, incentives, and contract duration. For its payment solutions, FleetCor
earns interchange on each transaction processed. Corporate payments currently
account for 16% of FleetCor’s revenue, but we believe the segment could account
for as much as 35% of FleetCor’s revenue in 5 years assuming 20% organic B2B
growth and $750mn inorganic revenue contribution (assuming leverage is
unchanged and half of all M&A is in B2B).
Customers: With the exception of its cross-border payments solution, FleetCor’sn
corporate payment solutions are predominately marketed to businesses in North
America (US and Canada). FleetCor has significant client concentrations in fleets,
healthcare, and construction (approximately 25% Comdata corporate payments
business), and plans to continue expanding its vertical offerings in media and
advertising. FleetCor serves companies of all sizes in its domestic payments
business, but is re-focusing Cambridge on larger accounts.
Differentiation: While most providers focus on either domestic or cross-bordern
payments, FleetCor offers both domestic and international payments solutions. This
gives FleetCor a unique opportunity to cross-sell its domestic Comdata and
cross-border Cambridge products across its client base – especially the Comdata
virtual card offering. FleetCor also benefits from its scale in virtual and commercial
cards – FleetCor claims to be about half of Mastercard’s US virtual card business
and the second-largest Mastercard commercial card issuer across its product lines.
WEX Inc. (WEX)
Product: WEX provides virtual, credit, debit, and prepaid corporate paymentn
products that can be integrated into clients’ AP and reconciliation processes. WEX
also operates a payables platform that integrates directly with a company’s ERP
systems and manages disbursements across ACH, virtual accounts, EFT, and check.
Outside of its corporate payments business, WEX offers a variety of commercial
fleet payment products.
Revenue model: WEX processes payments and earns interchange on each
n
transaction it processes. WEX’s corporate payment business is currently 19% of
revenue (2018), and we think its exposure could double to about 40% of revenue by
2023 assuming 20% organic corporate payments revenue growth and $350mn of
inorganic corporate payments revenue (assuming leverage is unchanged and half of
M&A spend is on B2B).
Customers: WEX markets its accounts payable solution to enterprises and SMBsn
across industry verticals. The company sells directly to large enterprises, while it
reaches SMBs through AP/vendor management partners and financial institutions
(primarily regional banks). WEX sees the greatest demand for AP payments from the
United States and currently only originates payments from the United States, but
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sees opportunities for future growth around the globe, especially in APAC. Beyond
its general accounts payable solution, WEX offers industry-specific virtual card
solutions for travel, media, and insurance.
Differentiation: WEX issues both Mastercard and Visa virtual cards, givingn
customers greater flexibility and a bigger international reach. WEX’s corporate
payments offerings currently run on the legacy AOC and EFS platforms – with the
AOC platform serving enterprises and EFS serving smaller companies – but WEX
plans to create one unified platform over the next several years by lifting the best
features from both platforms.
Square, Inc. (SQ)
Product: Square is in the early stages of developing a suite of B2B productn
offerings. Square currently offers Square Payroll for Contractors, a disbursement
solution which enables companies to pay contractors via direct deposit (ACH) or
check. In addition to its disbursement offerings, Square has partnered with
Handshake – a B2B commerce platform for manufacturers and distributors – in June
2018 to enable B2B sellers to accept credit card payments.
Revenue model: Square Payroll for Contractors costs $5 per contractor per monthn
and allows companies to make an unlimited number of payments to the enrolled
contractor. The Handshake app is available on the Square App marketplace for
$39.99/month, and Square earns a fee for processing the credit and debit
transactions.
Customers: Square’s Payroll solution is aimed at the company’s core customer basen
– small businesses and micro-merchants in the United States. The Handshake app
targets a smaller subset of Square’s customers, with order solutions specifically
designed for manufacturers and distributors.
Differentiation: While Square primarily provides disbursements and only recentlyn
began facilitating supplier payments, we see potential for Square to expand its
offerings as it builds out its ecosystem. Over time, we also see potential for Square
to offer more robust supply chain financing solutions in conjunction with Square
Capital.
WorldPay (WP)
Product: Worldpay, through its subsidiary Paymetric, offers domestic and
n
cross-border payment processing, as well as PCI compliance and data security
solutions for large enterprises. Paymetric’s solutions integrate with any enterprise
system, including Oracle and SAP. For eCommerce, Paymetric also provides both
web-based and mobile-based payment solutions. Paymetric also offers value-added
solutions like invoice processing automation and analytics – which help optimize
payments and efficiently manage the client’s working capital. Additionally, WorldPay
makes domestic and cross-border payments simple, inexpensive and transparent,
for its merchant network through its VisaDirect and Bankout services.
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Global Technology
For the exclusive use of [email protected]
0d9822d7acd44fc29cc9ab08e243da56
Revenue model: As Paymetric offers solutions across the value-chain of B2Bn
payments, pricing depends on the customer contract, but is generally based on
volume and contract duration.
Customers: Paymetric serves large companies, which have complex global supplyn
chains and require sophisticated compliance and security capabilities.
D
ifferentiation: Paymetric’s broad product suite positions it well to penetrate B2B
n
payments, particularly for large enterprises. Data security, compliance, and
cross-border payment processing costs are critical for large companies, and
Paymetric offers an integrated solution to help manage them. Worldpay’s merchant
acquiring services are also complimentary to Paymetric solutions - clients can
seamlessly receive and process payments across the globe using Worldpay as their
sole payments partner.
Coupa (COUP)
Products: Coupa offers payment & cash management, and accounts payablen
software on top of its business spend management (BSM) platform. At a high level,
the Coupa platform delivers an e-commerce-like shopping experience for businesses
by cataloguing all of a company’s suppliers into a web-based interface where
employees can find and purchase materials and supplies on contract. The platform
experience is supported by back-end offerings including Coupa Invoice (a modern
accounts payable solution for electronic invoicing) and Coupa Pay (a solution for
suppliers to offer early payment discounts). Over time, Coupa Pay could expand into
other stages of the supplier and employee expense payment process. Beyond its
software offerings, management has announced plans to begin offering virtual cards
to customers in the near future.
Revenue model: Pricing is primarily subscription-based, with professional servicesn
needed for implementation. Access to the core platform and transaction engine is
generally priced by enterprise size, while add-on modules like Invoice are priced
per-user for high-value personnel. Coupa’s average deal size was $260k in FY18, but
deals can reach well into the seven figures for large enterprises. Monetization of
Coupa Pay, which was announced earlier this year, is still under consideration.
Customers: Coupa’s solutions have largely been marketed to large enterprises
n
based in North America given these customers have established procurement
budgets and legacy solutions, which offers Coupa an entrance through the natural
replacement cycle. More recently, Coupa has started to expand into the mid-market
and international markets.
Differentiation: Coupa is differentiated from competitors in the spend managementn
space by ease-of-use and comprehensiveness of the solution. Whereas competitors
may require 4-5 loosely coupled tools to accomplish similar outcomes, Coupa
supports the entire business spending workflow from purchase to payment using a
natively-integrated platform. Beyond the basic functionality, Coupa uses data from
millions of transactions to generate community-based intelligence on suppliers,
internal efficiency benchmarking, and role-specific KPIs to improve customers’
business processes.
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Goldman Sachs
Global Technology
For the exclusive use of [email protected]
0d9822d7acd44fc29cc9ab08e243da56
Intuit (INTU)
P
roducts: Intuit offers integrated payments services through its popular QuickBooks
n
O
nline (QBO) accounting software. In addition to tracking income and expenses,
Q
uickBooks Payments enables customers to accept credit card payments and bank
t
ransfers directly within their invoices and information appears in QuickBooks in real
t
ime. Intuit also provides customers with the ability to send estimates, convert
estimates directly to invoices, and automatically calculate sales tax.
Revenue model: Pricing for QuickBooks Online for small business starts at
n
$10/month for the basic offering and can reach $30/month for QBO Plus (most
popular). Payments pricing is either $0/month (pay as you go) for terms of 2.9% +
$0.25 for invoiced cards, 3.4% + $0.25 for keyed cards, and free for bank transfers,
or $20/mo (desktop only) for terms of 1.6% + $0.30 for swiped cards, 3.3% + $0.30
for invoiced cards, 3.3% + $0.30 for keyed cards, and $1.00 for bank transfers.
Customers: Intuit primarily markets its QuickBooks solution to small businesses andn
entrepreneurs. The QuickBooks customer base is roughly 4.3m customers globally.
Differentiation: Intuit benefits from its incumbency position and massive installn
base of QuickBooks customers, which provides the company with a captive
audience for payments, tax prep, and more nascent offerings such as capital. The
sizable installed base has also attracted a rich partner community of e-commerce
and third-party payments providers including Shopify, Square, and PayPal.
Bottomline Technologies (EPAY)
Product: Bottomline offers solutions that help automate and manage the APn
process including cloud-based business payments, a cloud-based settlement
network, and vertical-specific software for banks (enabling banks to offer payment,
cash management, and treasury capabilities), law firms (legal spend management),
and healthcare.
Revenue model: Bottomline’s clients charges a mix of subscription fees andn
transaction fees, depending on the products and services the customer selects.
Prices are set in individual contracts Bottomline negotiates with its customers.
Customers: Bottomline serves clients across industries including a number of
n
financial services companies such as Citizen’s Bank, BAML, Capital One, Franklin
Templeton, Fidelity, HSBC, JP Morgan. Other clients include Tesco, Vodafone and
Assa Abloy.
Differentiation: Bottomline’s ability to provide vertical and industry specificn
solutions differentiates it from competitors. Bottomline’s treasury management and
legal spend management solutions are not offered by most competitors – helping it
gain a foothold in larger financial services organizations and law firms.
SAP (SAP SE)
Product: SAP offers several B2B software solutions including SAP Concur (which
n
offers end-to-end travel, expense and invoice management) and SAP Aribas (which
offers a procure-to-pay solution allowing buyers and suppliers to manage the
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process from procurement contracts to payments). SAP’s Ariba Network allows
companies to pay millions of enrolled suppliers across a range industries.
Revenue model: Pricing depends on a company’s requirements, as SAP’s productn
suites consist of numerous services including AP automation, supplier
management, cyber fraud management, and consulting. Suppliers on the Ariba
Network pay a fee to be included on the network - and the fee adjusts as a
business’s activity on the network changes.
Customers: SAP’s solutions are designed for companies of all sizes, from SMBs ton
the Fortune 500. SAP also offers customized solutions for a range of industries. We
note that travel and expense management is a significant part of SAP Concur’s
service offering.
Differentiation: SAP’s solutions are easy to integrate with multiple accounting and
n
other procure-to-pay solutions, making them attractive for medium- to large-scale
companies. In particular, SAP’s Ariba Network has meaningful scale, connecting
suppliers in over 190 countries and facilitating over $50bn in annual payment
volume.
Private companies
AvidXchange
Product: AvidXchange offers AP process and payment automation for mid-sizen
companies, along with procure-to-pay services like purchase order generation and
supplier management.
Revenue model: AvidXchange charges $0.68 per payment and $1.35-$1.50 pern
invoice, with clients committing to a minimum number of monthly transactions.
Customers: The majority of AvidXchange’s customers are in the mid-marketn
($10-$200mn annual revenue) and process 500-2,000 invoice per month, with
concentration across real estate, media, healthcare, and banking.
Differentiation: AvidXchange’s integration with over 140+ accounting systemsn
includes Oracle and SAP at the high end, and QuickBooks enterprise at the low end.
Moreover, its procure-to-pay solution helps improve inventory and cash
management.
Bill.com
Product: Bill.com provides cloud-based AP automation solutions to small
n
businesses.
Revenue model: Bill.com charges a fixed $29-$59/month fee based on the differentn
product features used by the client, plus an additional fee per invoice - $0.49 for
ACH/e-payments and $1.49 for paper checks. Bill.com also processes cross-border
payments for a standard fee of $19.99/payment.
Customers: Bill.com services small businesses: 50% of its customers generate
n
less $1mn annual revenue and 80% generate less than $10mn annual revenue.
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Global Technology
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Differentiation: Bill.com developed its entire cloud-based solution in-house whereasn
some of its competitors rely on third-party modules for parts of their solution (e.g.
invoice intake). The company’s 100% cloud-based solution works across multiple
devices - desktops, phones, and tablets - making it well-suited to smaller
companies.
Billtrust
Product: Billtrust’s solutions cater to billers and focus exclusively on the accountsn
receivable process - making it easy for enterprises to deliver invoices and for
customers to pay electronically. In addition to its core invoice and electronic
payment offerings, Billtrust offers a virtual card acceptance solution, credit
decisioning, and collection services. Billtrust’s solutions integrate with over 150
different ERP systems.
Revenue model: The vast majority of Billtrust’s revenue comes from subscriptionn
fees. Billtrust typically charges a fixed subscription fee each quarter based on a
customer’s expected volume on a tiered pricing model. The company also charges
transaction fees for services such as printing invoices.
Customers: Billtrust’s solutions are designed for medium- and large-sizedn
enterprises with over $50mn in revenue, or those who issue anywhere from
5,000-10,000 to 2-3mn invoices per month. Billtrust currently serves about 1,500
enterprises across verticals, with the largest exposures in wholesale distribution,
manufacturing, sporting goods, transportation, and senior living.
Differentiation: Most B2B software payment solutions focus on accounts payable -n
reducing the costs of making payments to suppliers - but suppliers also incur
substantial costs (an average of $1 to issue an invoice and $7-$10 to receive paper
checks). Billtrust is one of the first companies to develop a comprehensive accounts
receivable solution for enterprises, including virtual card acceptance.
Chrome River
Product: Chrome River offers invoice processing, expense management, andn
analytics solutions for mid-to-large size companies in over 100 countries.
Revenue model: Chrome River charges a monthly subscription fee for its softwaren
products, namely Chrome River EXPENSE, INVOICE, AUDIT and ANALYTICS.
Customers: Chrome River primarily serves medium- and large-size companies
n
across various industries, including legal, higher education, beverage distribution,
financial services, and engineering.
Differentiation: Chrome River’s products work seamlessly across desktops, tablets,n
and phones - offering an intuitive customer experience. Its product suite covers the
complete lifecycle of AP including expense management, invoice processing,
payments, and analytics.
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Global Technology
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C2FO
P
roduct: C2FO’s dynamic discounting platform enables suppliers and buyers to
n
n
egotiate dynamic discounts in exchange for early invoice payments. The solution
i
ntegrates with a customer’s existing ERP system and does not require any changes
t
o the existing accounts payable process or additional headcount.
Revenue model: C2FO typically charges 0.5% of the invoice amount, though
n
pricing does vary based on a customer’s requirements. This is cheaper than invoice
factoring or a line of credit, which can range from 3%-5% of the invoice.
Customers: C2FO’s customers are primarily small and medium-size companies onn
the supplier side and large businesses on the buyer side. Buyers include Pfizer,
Costco, Walgreens, Siemens, Citi, HP, Philips and Macy’s.
Differentiation: C2FO’s marketplace model is unique in the working capitaln
management vertical of B2B payments ecosystem. Suppliers control the level of
discounting and which invoices are being offered at a discount, giving them greater
control over and visibility of cash flow. By allowing suppliers to offer discounts
directly to the buyer, suppliers can avoid the high fees charged by factoring
companies and finance their working capital requirements at a lower rate.
Kabbage
Product: Kabbage provides small businesses with working capital loans (lines ofn
credit up to $250k) using its online technology platform, which can process loan
applications in minutes. Suppliers can also use Kabbage’s platform to receive early
invoice payments (which buyers finance with short-term loans).
Revenue model: Kabbage provides 6-month or 12-month loans at a rate of 1.5% -n
10% per month on the principal. The interest rate (or monthly fee) is based on the
revenue and credit history of the business. As an example, if a company finances a
$12,000 loan for 12 months at 5% fee rate, the company pays Kabbage (a) $1,600
per month - $1,000 monthly principal + $600 fee (5% of $12,000) for the first six
months, and (b) $1,120 per month - $1,000 monthly principal + $120 fee (1% of
$12,000) for the next six months.
Customers: Kabbage’s customers are primarily small businesses. The company
n
currently has over 115,000 customers with $3.5bn in loans.
Differentiation: Kabbage has developed unique technology that relies on multiplen
datapoints to determine a customer’s credit score, approve loan amounts, and
approve rates within minutes - offering significantly faster funding than its
competition.
MineralTree
Product: MineralTree automates the entire AP process - from receiving the invoice
n
and extracting data to payment. MineralTree integrates directly with a company’s
ERP system, allowing invoices to be automatically matched against purchase orders
and recorded in a company’s general ledger.
16 September 2018
37
Goldman Sachs
Global Technology
For the exclusive use of [email protected]
0d9822d7acd44fc29cc9ab08e243da56
Revenue model: MineralTree charges a monthly subscription fee based on then
company’s transactions and payment volume.
Customers: MineralTree services middle-market companies ($5mn to $500mnn
revenue) across a range of verticals, with higher concentrations in software and
professional services. The company sells directly to consumers and through its
partnerships with over 20 banks and American Express.
Differentiation: MineralTree is one of a handful of companies with directn
partnerships across all three of the major card networks - Visa, Mastercard, and
American Express. Furthermore, MineralTree transfers money directly between the
buyer and supplier whereas many of its competitors act as money transmitters
(transmitting money from the sender to a clearing account, and then to the
recipient).
Nvoicepay
Product: Nvoicepay automates domestic and international payments for enterprisesn
across 170 countries and 140 currencies.
Revenue model: Nvoicepay charges a fixed monthly subscription fee, a variable feen
for each payment, and FX fees for cross-border payments.
Customers: Nvoicepay primarily serves medium to large-size companies acrossn
various industries, including higher education, technology, engineering, real estate,
financial services, and healthcare.
Differentiation: Nvoicepay’s ability to process cross-border payments and providen
integrated supplier management with discounting solutions differentiates it from
competitors.
Payoneer
Product: Payoneer offers an international payments network which allows users ton
send and receive payments in over 200 countries and 150 currencies. The platform
allows users to make single payments or batch-based disbursements.
Revenue model: Payoneer charges a 1% transaction fee for its US Payment Servicen
and up to 2% to make a payment to or withdraw from a bank account. The company
charges an additional 0.5% to transfer between currencies. Transfers between
Payoneer customers are free.
Customers: The majority of Payoneer’s customers are freelancers, independentn
retail sellers, and contractors receiving payouts from corporates and online
marketplaces. Payoneer’s platform has over 4mn users including a number of
Amazon sellers and Airbnb hosts.
Differentiation: Payoneer offers instant domestic and international transfersn
between Payoneer accounts, and users can transfer funds to a local bank account.
Payoneer also offers direct transfers to bank accounts across currencies, though
payout to a bank account typically takes 2-5 days.
16 September 2018
38
Goldman Sachs
Global Technology
For the exclusive use of [email protected]
0d9822d7acd44fc29cc9ab08e243da56
Stripe
P
roduct: Stripe offers a range of payment and billing solutions including domestic
n
a
nd cross-border payment processing, as well as billing systems with invoice
m
anagement and payments that integrate into a company’s existing ERP system.
S
tripe also offers specialized B2B solutions including disbursements (Stripe powers
p
ayments for Lyft, Instacart, and Postmates) and has partnered with other B2B
providers, including Handshake, for supplier payments. Stripe also launched Stripe
Issuing in July 2018, a new platform that allows companies to create and manage
their own physical/virtual cards – which can help companies better manage
employee spending (e.g. managing fuel purchases or a contractor’s supply
purchases).
Revenue model: Stripe earns a fee on each payment processed. For Stripe Billing,
n
the company offers a range of pricing options ranging from flat-rate to usage-based
plans. In its new issuing business, Stripe will earn interchange on each payment and
charge additional fees for printing and distributing physical cards.
Customers: Stripe serves businesses of all sizes including a number of e-commercen
platforms and marketplaces.
Differentiation: Stripe benefits from a cloud-native offering, and the companyn
believes its attractive pricing and focus on merchant needs differentiate it in the
marketplace.
Tradeshift
Product: Tradeshift offers multiple procure-to-pay solutions, AP automation, andn
spend management tools on its open API platform. The company’s procure-to-pay
solutions feature supplier onboarding, digital invoicing, payments through Tradeshift’s
network, and supply chain financing. For payments, Tradeshift offers a virtual card
solution Tradeshift Go powered by American Express.
Revenue model: Tradeshift charges an annual fee for its procure-to-pay solutionsn
based on the volume of invoices a company processes. Customers typically sign a
3-year contract. Tradeshift does not charge suppliers to join its network, though it
does offer customized invoicing solutions for an additional fee.
Customers: Tradeshift’s core procure-to-pay offerings are designed for enterprisesn
with $500mn+ revenue regardless of vertical. Enterprises currently on the platform
include Apple, Nike, and DHL. Tradeshift also offers AP automation and spend
management tools for companies that fall below the $500mn threshold.
Differentiation: Tradeshift primarily competes with Oracle, SAP Ariba, and Coupa,
n
though Tradeshift is more global than most of its competitors and is one of only two
companies compliant with China’s tax law. This brings a number of enterprises to
the platform to manage at least a portion of their supplier payments since
Tradeshift’s open API platform can be integrated with other AP automation solutions
to cover a certain subset of suppliers. Tradeshift partners with financial services
(HSBC and Santander), technology, BPO, and consulting companies.
16 September 2018
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Goldman Sachs
Global Technology
For the exclusive use of [email protected]
0d9822d7acd44fc29cc9ab08e243da56
Challenges in the adoption of B2B payment solutions
B2B payments remains a huge market opportunity, but it does face some structural
challenges which could potentially hinder the adoption of tech-enabled solutions -
making it difficult to identify winners early in the market’s development.
The market is likely to remain fragmented for longer: In contrast to the retailn
(B2C) and P2P payments markets where simple process flows and network effects
have led to a consolidated group of winners in a short period of time, we think the
B2B payments market is likely to remain fragmented for longer. Accounting
solutions, internal processes, and ERP solutions differ from company to company,
and the enterprise sales cycle is much longer – making it difficult for AP automation
providers to expand exponentially and rapidly consolidate market share. We believe
players which are able to build robust technology platforms, form key partnerships,
customize offerings for clients, and integrate seamlessly with various accounting
and payment systems are likely to survive in the medium term and emerge as
winners in the long run.
Different systems used by buyers and suppliers generate friction: A B2Bn
payment follows a complex process and requires accounting reconciliation on both
the buyer and supplier sides to close the loop. If the buyer wants to use AP
automation solutions and e-payments, but its suppliers still rely on manual
accounting, the supplier may still be paid by check. Since a part of the cost savings
from AP automation come from electronic payments and automatic reconciliation,
adopting AP automation will not be as financially lucrative for the buyer unless the
supplier follows suit and accepts electronic payments. AP automation providers will
need to ensure that their solutions do not hinder the reconciliation processes of a
diverse set of suppliers.
Replacement costs can be high: Smaller businesses, especially those usingn
paper-based accounting systems, still prefer checks as they provide an easily
verifiable trail for reconciliation, audits, and handling exceptions. On the other hand,
larger businesses have already invested heavily in automated ERP and payables
systems. Using a new AP automation solution requires businesses to completely
shift their existing processes and reassign their AP headcount, which can be met by
internal resistance as the internal “sunk costs” are high. Solutions that provide
end-to-end services including accounting, pre-payment process management and
payments, on a SaaS model will help businesses adopt AP automation without
incurring high replacement costs.
16 September 2018
40
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Global Technology
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Catalog of public and private B2B payments and software companies
Exhibit 38: Public companies in the B2B payments market
C
ompany Ticker Mkt cap ($mn) Business description Key partnerships/Clients
Public Companies
A
merican Express AXP
108,310
Global electronic payment network with credit, debit, and expense
management products; financing solutions.
A
ll major banks
Basware BAS1V.HE
578
A
P and AR process automation and working capital management
s
olutions.
N
ordea Bank, ING Bank, CGI,
F
uji Xerox
Bottomline Technologies EPAY
2
,860
Business payment solutions including AP process automation, payments
a
utomation and cash management.
Fifth Third, NACHA, UXC
E
clipse
Coupa Software COUP
5,265
Complete suite of business spending services including procurement,
expense management, AP automation and discounting.
Genpact, Wipro, PwC,
Capgemini
Earthport EPO.L
80
Cross border payments service across 50+ countries.
P
ayoneer, BofA, Bottomline,
R
ipple, TransferWise
F
leetCor (Cambridge) FLT
2
0,136
C
ross-border payment and currency risk-management solutions. Mastercard, Ripple
FleetCor (Comdata) FLT
20,136
Domestic AP payments, reporting, and reconciliation. Mastercard, Ripple
Mastercard MA
223,909
G
lobal electronic payments provider with credit, debit, and fast ACH
capabilities.
All major banks
P
ayPal PYPL
110,572
G
lobal online payment provider. Visa, Mastercard, Homedepot
SAP (Concur) SAP
142,313
End-to-end expense management and AP process automation.
SAP, Visa, American Express,
M
astercard
Square, Inc. SQ
4
3,374
Payment processing, software tools (including disbursements), and
financing solutions for SMBs.
Apple, Visa, Mastercard, eBay
V
isa V
337,682
W
orld's largest electronic payments network facilitating credit and debit
payments.
A
ll major banks
WEX, Inc. WEX
8,515
Electronic payment (virtual card) and corporate card solutions. Visa, Mastercard
Worldpay (Paymetric) WP
29,022
Integrated cross-border payments for large enterprises. Visa, SAP, Toshiba, Lenovo
WU Business Solutions WU
8,806
C
ross-border payments across 200+ countries; FX hedging and risk
management services.
Chrome River, Fiserv
Source: Company data, Goldman Sachs Global Investment Research
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Exhibit 39: Private companies in the B2B payments market
Company Year est. Funding Business description Key partnerships/Clients
Private Companies
Advanon 2014 $13mn Online invoice marketplace connecting SMEs with investors. Deutsche Bank
Aria Systems 2002 $142mn
Cloud-based enterprise billing platform that manages recurring payment
streams.
Ntegra, Avalara
AvidExchange 2000 $574mn AP process and payment automation for mid-size companies. Mastercard, Fifth Third
B
ill.com 2006 $259mn Cloud-based accounts payable automation for small companies.
JP Morgan, QuickBooks,
CPA.com
Billtrust 2001 $104mn AR solutions that manage the entire invoice-to-cash process.
FIS, Oracle, Flywire, QAD,
Avidxchange
Boost Payment Solutions 2009 VC Funded US acquirer exclusively focused on B2B payments. Fifth Third, Mastercard
C2FO 2008 $197.7mn Online B2B marketplace for working capital.
White Oak, Tech Data,
Tradeshift
Chrome River Technologies 2007 $154mn
Expense management and invoice automation/management software for
mid- to large-size companies.
Barclays, WU Business
Solutions, BMO, US Bank, PwC
D
ivvyPay Inc. 2016 $53mn
Automated platform that manages an organization's budget and expenses,
c
ontrols spend by issuing secure physical and virtual cards.
W
EX, Inc.
Enliven Software 2000 $14mn AP and AR process automation for small and mid-size companies. Microsoft Dynamics, QuickBooks
GoCardless 2011 $47mn
International payment network that facilitates recurring direct debit
payments.
Sage, Salesforce, Zoho,
QuickBooks
HighRadius 2006 $50mn
R
eceivables platform that optimizes cash flow through automation of
receivables and payments processes.
Citi, Tech Mahindra
Invoice2go 2002 $50mn
AR solution offering digital invoice creation, management, and payment;
expense management.
Microsoft, Stripe, Paypal
Kabbage 2008 $1.6bn
Automated lending platform that provides small businesses loans of up to
$250k.
ING, Scotiabank, Stripe,
TaxSlayer
Kickpay 2014 Seed round Inventory financing for SMEs and start-ups.
Mineral Tree 2010 $18mn AP automation for mid-market companies.
American Express, First Data,
Western Union
Modulr Finance 2015 VC Funded
Platform providing real-time, end-to-end payment processing, collection,
and reconciliation.
FCSA, Salary Finance, Infinity
Contracts, Cardstream
Nvoicepay 2009 $21mn Domestic and international AP payment automation for enterprises.
Mastercard, Coupa, Inspyrus,
Viewpoint
Optal 2000
AP automation solutions and optimization services to help customers lower
transaction costs and earn rebates.
Allianz Worldwide Partners,
Mastercard
Payoneer 2005 $270mn
Global payments platform with multiple payout options (bank transfers,
prepaid, wire, e-wallet) across 200+ countries.
eZ Cash, Upwork, Freelancer
PaySimple 2005 $145.3mn
Cloud-based platform that provides accounts receivable solutions for small
businesses.
Ontario Systems, Market
Hardware, CheckAlt
Stripe 2010 $440mn
Provides a set of APIs and tools that instantly enable businesses to accept
and manage online payments.
American Express, Visa, Alipay,
Lyft, Surveymonkey, Shopify
Taulia 2009 $156.7mn Working capital solutions using dynamic discounting and lending.
KPMG, Lavante, Infosys,
Buyerquest
Tradeshift 2010 $455mn
Global business network and technology platform that offers procurement,
payables, and working capital solutions.
American Express, Intuit
TransferMate 2009
¼51mn
Same-day, cross-border payments at real-time FX rates.
ING Bank, BT Sport, Allied Irish
Bank
Traxpay 2009 $19mn
Dynamic financing platform that enables banks to offers their customers
supply chain financing/reverse factoring.
Mastercard, NORD/LB, IBM,
KPMG, Commerzbank
Viewpost 2011 $60mn AP and AR process automation and payments using virtual cards.
VISA, Capital One, US Bank,
BofA
Source: crunchbase, CB insights, Company data, Goldman Sachs Global Investment Research
16 September 2018
42
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Price targets and methodologies
Exhibit 40: Price targets and methodologies
Company Name Ticker Rating
Price
09/11/18
Price Targets PT Methodology Risks
American Express AXP Neutral $107.29 $108
15X 2018/19E EPS
Upside: faster loan growth. Downside: competition, cobrand
renewals
C
oupa Software Inc. COUP Buy $78.02 $81
50-50 blend of 10-year DCF and 14.5X 2019E
EV/sales
D
eclining sales productivity, competition, and IT spending.
FleetCor Technologies, Inc. FLT Buy $217.61 $245
20X 2019E EPS M&A execution, fuel prices, client portfolio losses.
I
ntuit INTU Buy $224.72 $230
5
0-50 blend of 10-year DCF and 35X CY19 EPS
S
lowing user growth, worse-than-expected ARPU,
c
ompetition
M
astercard, Inc. MA Buy* $211.67 $260
3
3X 2019E EPS
S
lowing macro trends, share losses and regulatory
uncertainty
MoneyGram International, Inc MGI Neutral $5.81 $7
70% fundamental value based on 5X 2019E
E
PS; 30% M&A value based on 15X 2019E EPS
Upside: better remittance volumes. Downside: contract
l
osses.
PayPal Holdings PYPL Buy* $89.80 $98
22X 2019E EV/EBITDA
C
ompetition, transaction/operating margin pressure, security
t
hreats.
S
AP SAPG.DE Buy* ¼ ¼
2
5X 2019E EPS
M
acro environment, lack of traction in S4HANA or cloud,
M&A, management changes
Square Inc SQ Buy $89.39 $68
16X 2019E EV/Sales
Uneven traction in the lending business, slower client growth,
f
aster investment, weaker SMB trends.
The Western Union Company WU Sell $19.14 $18.50
9.5X 2019E EPS Reduced pricing pressure, stronger macro.
V
isa, Inc. V Buy $144.08 $160
2
8.5X CY19E EPS
S
lower consumer spending, litigation and regulatory issues,
and FX volatility.
WEX, Inc. WEX Buy $194.65 $205
20X 2019E EPS
Lower fuel prices, higher credit and fraud loss rates, client
p
ortfolio losses.
Worldpay Inc. WP Buy $97.20 $102
20X 2019E EPS
S
lower e-commerce growth, larger decline in brick-and-mortar
r
etail sales, inability to exceed synergy targets.
* On Americas Conviction List
Source: Factset, Goldman Sachs Global Investment Research
16 September 2018
43
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Disclosure Appendix
Reg AC
We, James Schneider, Ph.D., Julia McCrimlisk, Bill Schultz, Jesse Hulsing, Ryan M. Nash, CFA, Richard Ramsden, Mohammed Moawalla and Heath P.
Terry, CFA, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies
a
nd its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific
r
ecommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.
GS Factor Profile
T
he Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and its
s
ector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
R
eturns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock. The
n
ormalized ranks for the metrics are then averaged and converted into percentiles for the relevant attribute. The precise calculation of each metric may
vary depending on the fiscal year, industry and region, but the standard approach is as follows:
Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
higher percentile indicating a higher growth company. Financial Returns is based on a stock’s forward-looking ROE, ROCE and CROCI (for financial
stocks, only ROE), with a higher percentile indicating a company with higher financial returns. Multiple is based on a stock’s forward-looking P/E, P/B,
price/dividend (P/D), EV/EBITDA, EV/FCF and EV/Debt Adjusted Cash Flow (DACF) (for financial stocks, only P/E, P/B and P/D), with a higher percentile
indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
p
ercentile and (100% - Multiple percentile).
Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
for the fiscal year at least seven quarters in the future compared with the year at least three quarters in the future (on a per-share basis for all metrics).
For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.
M&A Rank
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companies under our rated coverage from 1 to 3, with 1 representing high (30%-50%) probability of the company becoming an acquisition target, 2
representing medium (15%-30%) probability and 3 representing low (0%-15%) probability. For companies ranked 1 or 2, in line with our standard
departmental guidelines we incorporate an M&A component into our target price. M&A rank of 3 is considered immaterial and therefore does not
factor into our price target, and may or may not be discussed in research.
Quantum
Quantum is Goldman Sachs’ proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for
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GS SUSTAIN
GS SUSTAIN is a global investment strategy focused on the generation of long-term alpha through identifying high quality industry leaders. The GS
SUSTAIN 50 list includes leaders we believe to be well positioned to deliver long-term outperformance through superior returns on capital, sustainable
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
James Schneider, Ph.D.: America-IT Consulting and Outsourcing, America-Transaction Processors. Jesse Hulsing: America-Emerging Software. Ryan
M. Nash, CFA: America-Consumer Finance, America-Regional Banks. Richard Ramsden: America-Large Banks. Mohammed Moawalla: Europe-IT
Services, Europe-Software. Heath P. Terry, CFA: America-Internet.
America-Consumer Finance: Alliance Data Systems Corp., Ally Financial Inc., American Express Co., Capital One Financial Corp., Discover Financial
Services, Santander Consumer USA Holdings, Synchrony Financial.
America-Emerging Software: Alteryx Inc., Appian Corp., Apptio Inc., Avalara Inc., Benefitfocus Inc., Blackline Inc., Ceridian HCM Holdings, Cornerstone
OnDemand Inc., Coupa Software Inc., Guidewire Software Inc., Hortonworks Inc., HubSpot Inc., Intuit Inc., New Relic Inc., ServiceNow Inc., Shopify
Inc., Splunk Inc., Tableau Software, Talend SA, Teradata Corp., Ultimate Software Group, Veeva Systems Inc., Zendesk Inc., Zuora Inc..
America-IT Consulting and Outsourcing: Accenture Plc, Black Knight Inc., CGI Group, CGI Group, Cognizant Technology Solutions, DXC Technology Co.,
Fidelity National Information Services, Fiserv Inc., International Business Machines, Sabre Corp..
America-Internet: Amazon.com Inc., Blue Apron Holdings, Booking Holdings Inc., CarGurus Inc., Criteo SA, eBay Inc., Etsy Inc., Expedia Group,
GrubHub Inc., LendingClub Corp., Netflix Inc., Pandora Media Inc., PayPal Holdings, Redfin Corp., Snap Inc., Spotify Technology S.A., TripAdvisor Inc.,
Trivago N.V., Twitter Inc., Zillow Group.
America-Large Banks: Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., Morgan Stanley & Co., PNC Financial Services, U.S. Bancorp,
Wells Fargo & Co..
America-Regional Banks: Bank of N.T. Butterfield & Son Ltd., BankUnited Inc., BB&T Corp., Cadence Bancorporation, Citizens Financial Group,
Comerica Inc., Fifth Third Bancorp, First Hawaiian Inc., First Horizon National Corp., First Republic Bank, Huntington Bancshares Inc., KeyCorp, M&T
Bank Corp., Regions Financial Corp., Signature Bank, SunTrust Banks Inc., Synovus Financial Corp., Zions Bancorporation.
America-Transaction Processors: Automatic Data Processing Inc., Euronet Worldwide Inc., Evertec Inc., EVO Payments Inc., First Data Corp., FleetCor
Technologies Inc., Global Payments Inc., GreenSky Inc., MasterCard Inc., MoneyGram International Inc., Paychex Inc., Square Inc., Total System
Services Inc., Visa Inc., Western Union Co., WEX Inc., Worldpay Inc., Worldpay Inc..
16 September 2018 44
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Europe-IT Services: Atos, Capgemini, Evry AS, Indra, Wirecard, Worldline.
E
urope-Software: Aveva, Dassault Systemes, Hexagon AB, Micro Focus, Sage Group, SAP, SAP, Simcorp A/S, Software AG, Temenos.
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R
ating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
G
lobal 35% 53% 12% 63% 56% 51%
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