Over the 19th and 20th June 2018, commercial payments professionals from across North America (and beyond) came together in Chicago for the 5th annual Commercial Payments International (CPI) U.S. Middle Market Summit.
The Middle Market is clearly an exciting segment in commercial payments. There are currently around 200K Middle Market companies in the U.S. with revenues from US$10M to US$1BN, accounting for 60% jobs in America and a third of GDP. Moreover, these are companies with rapidly changing financing and cash flow needs as they look to grow their business. Investing in payments automation and integrated payables can be an attractive proposition as they find themselves dealing with a growing number of supplier invoices.
Within this context, card issuers, schemes, processors and FinTechs alike shared their perspectives on how the industry can best serve this segment and succeed. In particular, the growing prevalence of FinTechs and their approach to A/P automation and integrated payables, is clearly prompting further thought on how to effectively position commercial payments and bring them to market.
Value propositions and sales messaging should increasingly focus on the value delivered beyond rebates
Over recent years, FinTech organisations in the commercial payments space have introduced a deeper way of talking to customers, that highlights multiple elements of their value proposition rather than relying on rebates alone. Nearly all FinTechs have been more creative in demonstrating the value they offer their Middle Market clients.
Discussions at the event seemed to acknowledge this phenomenon, as speakers shared the view that incumbents’ sales teams have been too reliant on rebates to sell commercial payment solutions. With an increasingly diverse competitor landscape and changing customer expectations (partially carried over from our consumer lives), there was a call for incumbents to place greater focus on the broader value delivered by their solutions. This may also include refining vertical-specific offerings / positioning, and tailoring value propositions to different audiences within the business.
One such feature of a more creative value proposition for integrated payables is that it allows Middle Market A/P departments to attract and retain their younger workforce who are potentially more averse to monotonous tasks such as data entry. In addition, as millennials become key decision-makers, technology and UX become increasingly paramount to selecting a provider.
However, that’s not to say the financial return on these solutions is not important. In fact, providing reliable and concrete data on the ROI is increasingly common, as is the message of turning A/P into a profit centre. Along with rebates, FinTechs are implementing tools to show prospects their ROI based on the number of invoices, spend etc. Yet, a word of warning, providers need to ensure they are delivering on these ROI projections to maintain credibility and avoid attrition.
All the above involves taking a more customer/solution-centric sales approach than focusing on rebates only. The question is, are incumbent issuers doing enough to train and educate their salesforce to do so? And are salesforces being effectively incentivised to push solutions that are a harder sell?
Sales teams may be interested to consider how approaching their Treasury base with a conversation around A/P Automation and Integrated Payables is a good way to invigorate the relationship and engage with a broader set of client stakeholders, such as senior executives in the A/P department/controller, thereby heightening their stickiness.
Incumbents and FinTechs alike are calling for greater clarity and ‘openness’ from prospective partners
I moderated two roundtable discussions on FinTech partnerships, where contributors from issuers, schemes, processors and FinTechs all shared some fascinating perspectives on the state of collaboration today and what they would like to see moving forward.
Among many other interesting insights, the two main calls to action were for greater clarity and openness.
Participants expressed concern that partnerships fail when there’s a lack of clarity in the early stages of partnership development. They would like to see greater collaboration in clearly mapping out divided responsibilities, risk and ROI. It is vital that, before signing on the dotted line, excitedly pushing out a press release and popping open the champagne, both partners agree on the granular details of how the solution will be brought to market, implemented and serviced. In addition, setting very specific performance metrics and ROI for the partnership are more likely to ensure the longevity of the partnership and buy-in from the management.
‘Openness’ is also a talking point. We often hear in the industry how FinTechs bring agility to the table when it comes to partnerships and can bemoan the legacy organisational structures and cultures that make incumbent decision-making and product development very slow.
However, banks were also keen to highlight that FinTechs themselves could do more to be open to new ways of thinking and doing business. While it’s true FinTechs are laser focused on solving specific client pain points, some banks perceive they are not always open to learning from their partner’s long-standing experience in the wider Treasury space and relationships they have with their clients. FinTechs need to avoid hubris and be more open-minded in adapting their strategies and solutions once the incumbent shares that experience with them.
Selecting partnerships remains challenging
Getting partnerships up and running remains a challenge on both sides. For FinTechs, navigating the compliance ‘juggernaut’ is still a huge financial burden and ‘getting a foot in the door’ remains a challenge. As part of our roundtable discussions, we discussed multiple ways for FinTechs to approach this issue; going via the card schemes alongside targeting Product and M&A teams were all considered viable tactics.
The sentiment of incumbent issuers seemed to demonstrate a willingness to partner with FinTechs. Nevertheless, some incumbents feel deterred from forming close partnerships for fear their FinTech partner will later be acquired by a competitor. Although we see many FinTechs positioning themselves as ‘bank/network-agnostic,’ there are no guarantees this will always be the case, and FinTechs whose end game is acquisition clearly need to consider how they can deal with this. In addition, banks are continuously inundated with partnership requests which can lead to paralysis; however, all parties agreed that the schemes in the U.S. are providing valuable support facilitating this selection process.
The event demonstrated clear intention from both incumbents and FinTechs to collaborate. In addition, the changing competitive landscape and the threat/opportunities presented by FinTechs is starting to have a tremendous impact on incumbents’ creativity when it comes to go-to-market strategy and value proposition refinement.
We look forward to seeing how industry players implement some of these ideas, and how U.S. Middle Market companies respond to them.