Fleetcor (FLT) closed on its acquisition of privately-held nvoicepay on April 1, 2019.  Fleetcor’s first quarterly earnings report since the acquisition provides insight into the economics of the B2B payments space.

Nvoicepay

Nvoicepay is interesting, in part, because it is a pure-play payments provider.  The company takes a payment file from a buyer.  It then disburses the funds to the buyer’s suppliers in a manner nvoicepay has determined in negotiation with the supplier.  No muss, no fuss with invoices and certainly not with purchase orders and no fancy financing.  Nvoicepay just makes it easier to pay.  See the chart below from Fleetcor’s earnings announcement:

The Secret is in the V-Cards

You may be asking yourself where is the value-add in cutting checks, sending ACHs, and wires?  And you would be right, there is not a ton of value-add in these activities. There are, however, some clear advantages to having someone else handle these mundane tasks:

• As a buyer, it is nice to simply outsource the payment process to “one-throat-to-choke”.  The payment process becomes one file and process, instead of running several processes depending on how suppliers want to be paid.
• As part of outsourcing this task, nvoicepay takes care of much of the supplier interaction and data management.

The real value in these businesses, however, is in getting vendors to accept a virtual card.  If a supplier will accept a virtual card, with nearly 2.5% interchange (think discount or fee), there is a lot of money to be made on those payments! The resulting interchange is divided between the issuing bank, the buyer (rebates), and nvoicepay.  The more suppliers accept the v-card, and the more interchange Nvoicepay can keep for itself, the better the business.

V-card payments businesses are most successful if they:

• maximize supplier acceptance by tying v-cards to earlier payment options versus other payment alternatives
• are for smaller payments where the absolute interchange fee “feels” small (e.g., $2.50 on $100 versus $250 on $10,000)
• sell to smaller/mid-size businesses, who typically do not have enough spend to demand large rebates (and whose average payment will be smaller)

Nvoicepay Economics

According to Fleetcor’s quarterly earnings report, nvoicepay is “approaching $20 billion in spend”. The company seems to generate about $5 million in revenue per quarter.  If my math is right, this means across all forms of payment, nvoicepay nets about 10bps.  (If you own stock in Bottomline Technologies, EPAY, see if you can get them to disclose this same take rate for Paymode-X, a similar business.  Paymode-X has $200 billion in spend. EPAY reports $265-$270 million in subscription and transaction revenue across several businesses.  As a result. Paymode-X’s take rate is probably well less than 10 bps.)

Nvoicepay has approximately 400 clients equating to approximately $50 million in spend per client. This amount of spend, in turn, suggests an average customer size of $100-$250 million in revenue.  The customer logos on their website are consistent with this size estimate.

Growing the nvoicepay Business Inside Fleetcor

Fleetcor already owns Comdata, which runs V-card programs, and Cambridge Global Payments.  Nvoicepay can now offer a more complete service to its customers and probably provide the service more cheaply.  The plan to grow nvoicepay is clearly laid out in Fleetcor’s quarterly earnings presentation:

Not surprisingly, Fleetcor wants to move more spend on the card, get rid of the current issuer, and sell nvoicepay more aggressively presumably with the Comdata salesforce!  The “V” in V-card stands for Victory!