Payments in B2B Ecommerce


B2B-interview-V4_linkedin-koornMatthijs Koorn, Payments Research Director at MGI Research, joins us in this Q&A to share his insight and expertise on important trends in B2B payments.

But first, a primer on B2B ecommerce and payments…

  • Mastercard reports the global B2B payments market is $125 trillion industry, 90% of which flows through accounts payable spend, distributed as follows: ACH (68%), check & cash (31%), card (2%).
  • According to Forrester, U.S. B2B ecommerce will reach $1.8 trillion and account for 17% of B2B sales in the U.S. by 2023. Ecommerce has already surpassed $1.1 trillion and 12% of U.S. B2B sales since 2018, and has a projected CAGR of 10.1% through 2029.

Doug: Your LinkedIn profile says “defining the B’s in B2B.” What do you mean by that?
Matthijs: B2B is extremely complex and hard to define, because business comes in all sizes, from sole proprietor to global enterprises, and can be domestically focused or very international.

As vendors, businesses can vary greatly in terms of their customers and sales channels. As buyers, businesses differ in their buying journeys and how they purchase.

Payments is a critical linkage point between vendors and buyers, but there is still lots of friction and inefficiency, and payments is now subject to massive disruption.

Doug: In the context of B2B selling, what does payments mean?
Matthijs: As you define your go-to-market strategy and sales approach, you should address the question – how do people prefer to pay?

“With the consumerization of the B2B space, we see more and more shifting online and selling that resembles a very B2C process.”

With the consumerization of the B2B space, we see more and more shifting online and selling that resembles a very B2C process. With more complex buying we still see some pretty standard online commerce, but customization is appearing as well with CPQ tools to standardize that. Payment is often done via invoice, and the contract phase is sometimes long.

Larger companies use supplier portals to streamline incoming invoices for their accounts payable process and look to monetize this one way or another by working with partners to factor this – or pay on a card to earn a potential rebate. Particularly here, we see a lot of Fintech focus in the mid-market as it is very overlooked, and underserved by traditional banks.

Doug: No offense to you as a payments guy, but for many people, payments sounds like a boring commodity topic. Why are payments important in B2B?
Matthijs: It’s definitely not a commodity, because a good payment strategy improves your customer experience in both B2B and B2C by:

  • Saving costs and improving margins
  • Growing revenue from existing clients
  • Entering new markets more successfully
  • Enabling new business models and revenue streams
  • Improving working capital and automating processes

If people still think payments are boring, then I don’t know what they’re looking for in life.

Doug: Do you think it’s true that if a vendor isn’t offering localized currencies and payment methods, they are either flat out losing the sale entirely or creating so much friction that they’re reliant on that customer buying through a local partner?
Matthijs – Exactly, or their customer will go to a competitor. You’ll see by and large that 70% of people or companies don’t even have a credit card. You’ll lose some people due to the language, and if you don’t offer local bank accounts, you’ll lose more. So I would say you’re at risk to lose 70 percent of your international sales revenue if you don’t localize payments.

Doug: How do payments support a localized buying experience, and how important is it?
Matthijs:  It’s very, very important, and there are a couple of elements to it. It begins with the information pages on your website. B2B buyers go through roughly the same journey as in B2C. They’ll Google it — they’re looking for information, they’ll download a white paper, they’ll look at a webinar, etc.

Then you really need to think in terms of the mid-market, where English is less prevalent in B2B internationally. So that’s already reason number one your marketing material needs to be localized. And Spanish in Spain is different than Spanish in Mexico, so there is sort of localization of the localization. And then of course, the checkout experience – when people want to buy, you cannot have them go to an English page where the only payment method offered is a credit card. You’ll have to offer local payment methods. And you’ll see in B2B something like 80% of transactions are done by wire transfers.

I’m originally a credit card fan, but in B2B you will have to offer some sort of a wire transfer. It’s not impossible to wire cross border, but it’s not easy. It’s typically a cumbersome process, so to make it easy you’ll need a local bank account. These are all things to localize.

From B2C we know that in the U.S. having a local merchant account brings a 30% uplift in your card acceptance rate. In Brazil localizing is the only way to go, as Boleto is the most popular payment method; cards are typically local only; and if you don’t offer installment payments you’ll miss out on 70 – 80% of potential sales by not localizing. This holds true for Latin America in general.

In B2B we see a lot of demand for virtual IBANS. For instance, in Italy you need to pay VAT from an Italian IBAN, but it also means you can present every buyer with a local IBAN.

Then there is the impact of language and support. Assisted selling is big in Asia for instance, where seven out of 10 transactions are closed with some sort of interaction like chat.

Some examples of other payment-related considerations when selling outside the USA:
  • In China it is commonly required to use a China-specific purchase order process called, Fapiao.
  • A B2B company needs to provide a set of IBANs in order to match transactions effectively.
  • Payment reference numbers are seldom used in Japan.
  • B2B in Europe is still dominated by purchase order payments in combination with SEPA wire transfers, but local IBAN and the rise of subscription purchasing online is making cards more attractive. In contrast, in the USA cards dominate online.

Doug: It has been my experience that many B2B companies selling online only offer one payment option, usually credit card, and at best a limited number of currencies. How much money are they leaving on the table?
Matthijs: You would easily be at risk to leave 70% of your potential international revenue on the table.

This is all part of defining the B’s in B2B, but limiting your payment options to just credit cards is not going to cut it. In B2B you always need to offer wire transfer, as the vast majority of B2B is still conducted in that way, but be aware of the process on the buyer’s side. You may enter the world of purchase order numbers, finance shared service centers, and 90 days to pay an invoice. In the digital subscription world this is unthinkable, but a reality in the world at large.

I’d add also add PayPal as it is global, yet localized for the user, strong in SME, and it helps you solve the currency question.

In terms of currencies – offer as many basket currencies as possible so people have the idea it is a local transaction. You may have to swallow foreign transaction fees, but that’s better than no sale.

Doug: For B2B technology vendors, the rise of the cloud and subscription economy in the last 10 years has obviously been a huge shift. What influence does this have on payments?
Matthijs: We’ve gone from transactional commerce to more varied monetization and frequency of billing, involving different business models, a variety of ways to pay, and different billing tools. It’s made things increasingly complex.

In terms of payments, we’ve gone from wiring money to paying on cards, and now increasingly on single-use virtual cards. Against payment cards you can generate a lot of data that can give you a lot more control around what’s happening: what’s purchased, against what supplier, and all that. That’s another reason to start accepting cards and to sell direct.

Doug: One payment option that’s become very popular with vendors is mass-market self-service credit card gateways, like Stripe. Is there a downside or any limitation from using a solution like this?
Matthijs: Stripe and the like offer an amazing onboarding and very speedy way to take payments. Hundreds of thousands have preceded you, so it’s a proven solution.

Some drawbacks I hear from clients:

  • It is a one-size-fits-all platform, physical and digital products alike
  • You need a separate account, and thus a local entity per territory – with all the associated paperwork and FTE
  • You have to settle taxes yourself
  • There is no alignment from a revenue-sharing perspective

In short, if you are successful, you’ll quickly outgrow Stripe.

You are there as a digital company selling B2B, so it’s very specific, it’s digital goods. However, you now have a payment gateway platform that sells everything B2C and B2B, physical goods, and digital goods. So chances are that the functionality that you want is not there, and your chances to influence the development agenda are around zero. If you go abroad or internationalize, you’ll need a separate account, and typically, you’ll need an entity in the countries that you go to, and probably a new integration.

Doug: For B2B vendors, what do you think is the most important development right now in payments?
Matthijs: You have to be online and you have to sell direct. And I think you have to be very open minded and not shy of trying and making some errors. Make sure to engage with your current customers to find out what they liked and didn’t like in the journey when they bought from you and what an online experience could have done to change it. Focus on automation.

You will see different preferred payment methods in different countries, verticals and company sizes, so you need to adapt your strategy locally. In Europe you’ll see more direct debit and wire transfers so make sure your dunning is in order and includes suspension of service, as an example.

Doug: Should vendors using ecommerce to sell globally open entities all over the world so they can offer local payments or should they consider using a Merchant of Record (MoR) vendor, like cleverbridge?
Matthijs: Below a certain size in terms of people or revenue – perhaps up to $50m of targeted online revenue – there is no other route than working with a MoR provider. Their core business is to monetize what you brought into your sales funnel and given the revenue share model, there is alignment based on shared success.

“If you’re a product company and want to grow, you should go with a Merchant of Record (MoR) provider because of the alignment.”

I think any company first needs to ask (and it’s very black and white), are you a management company managing people and processes, or are you a product company that wants to grow? If you’re a product company and want to grow, you should go with a Merchant of Record (MoR) provider because of the alignment. It’s a proven solution. They can localize. They only make money when you make money, so you’re perfectly aligned to grow.

If a company were to do this on their own, just think of everything they’d have to do. For example, if they wanted to sell in Asia they have to go to Asia, open entities. It’s very, very costly. It’s very difficult. In Brazil, it’s the same thing. It takes 70 days to open up a company, you have to hire a local person, somebody has to fly back and forth and work with a lawyer, etc. Closing down an entity in Brazil is even more difficult, slower and more expensive than opening up. So you are guaranteed a lot of headaches.

Maybe at first glance, you’ll spend a little bit more with an MoR, but what you’ll pay is based on actual revenue, not a fixed cost. It’s a proven solution, and it’s localized. And these companies have half an entity there, and then you can always migrate away if you outgrow them, or take a plan B. But if you’re really serious about growing, it’s certainly easier with the MoR model because all you have to do is have a good product, and then through marketing drive traffic into your online pipeline. Once that happens, your provider will help you in the conversion and handling efforts. That’s where the alignment is.

Doug: How does your payment vendor selection affect customer acquisition or renewal in a subscription scenario, particularly if some payment methods don’t lend themselves to a recurring billing scenario?
Matthijs: You definitely have to pay attention to this. When you select your payment vendor you have to look at the tools they offer, either themselves or through partnerships. For example, do they offer renewal recovery or smart BIN routing of credit card transactions, or whether they’re willing to work on the revenue share basis.

You need to evaluate where the alignments are between you and your vendor, as a lot of payment companies are not aligned. They’ll charge you for every click or attempted transaction, and then you can end up with many attempted transactions, but no revenue, and then there is still a bill to pay, unless your arrangement is a rev share.

Rev share means there is alignment between seller and vendor, because you’re both going after selling something. The vendor is incentivized to invest in tools and innovation, to have conversion, to have localization, and to always look for where they can we do better because they’ll get rewarded for it.

Specifically for B2B, and specifically in the U.S., it’s very important to have Level III data. Level III data is for sophisticated corporate card and procurement card users.

About Matthijs
Matthijs Koorn is a research director and head of payment strategies practice at MGI Research. Matthijs is a recognized payment technology industry expert with a deep knowledge of the entire payment processing cycle covering all aspects of the four-party model both B2C and B2B. He has broad international experience and a successful track record as an executive, research leader and a strategic advisor.

Prior to MGI Research, Matthijs held senior research, sales and executive roles with companies such as Gartner, ING Bank, MasterCard, Avangate, WorldPay and others. He holds a degree in International Business Studies from the European Business School in London. He is based in The Netherlands where he lives in The Hague with his wife and three sons and enjoys playing tennis and spending time with his family. Find Matthijs on LinkedIn and Twitter.

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