Everyone agrees the enterprise early payments market (e.g., dynamic discounting, supply chain finance (SCF), and receivables financing) is huge. The numbers are staggering:
- the global economy is $80 trillion
- days payable outstanding are at record highs
- on any given day, US suppliers face $3.1 trillion in accounts receivable
- much of that credit is being extended by suppliers with higher costs of capital than their buyers’
Banks have long been the dominant big players in the SCF market and trade finance generally. Traditional factoring has also been around and a large market for a long time. (For instance, CIT factored $30 billion in 2018.)
The problem for fintechs has been using technology (and their non-bank regulatory status) to dislodge the existing bank players, invoice factors, and asset-based lenders or to expand greatly the percentage of outstanding receivables that “trade” in some way. When it comes to payments, regulations, security concerns, and inertia have been an enormous barrier.
Fintechs and the Enterprise Early Payments Market
To date, one thing stands out about the enterprise early payments market as far as fintechs are concerned: it’s that no fintech has broken out in a big way.
- Orbian, a joint venture of Citibank and SAP, was an early company in supply chain finance. Orbian offered primarily technology and arranged bank financing. It is still around but hardly a household name.
- Prime Revenue may have created SCF in the US. Like Orbian, it started out as a technology provider that arranged multi-bank financing. It has had great people, many of them friends. I’m sure it is a great little company, but it’s not been a rocket ship.
- Demica has also been around a long time with a strange history as part of an industrial products company until 2014. At its origins, it was similar to Orbian and Prime Revenue. Since then the company seems to have progressed rapidly and seems to be one of the leaders in the market.
- Xign was an e-invoicing software pioneer and invented the dynamic discounting concept. Xign had tremendous people (I hired as many as I could). JPMC bought the company and promptly strangled it to death.
- Taulia looked a lot like a replacement for Xign when it started (e.g., e-invoicing plus dynamic discounting), but then added financing. Taulia raised $70 million, achieved some very cool things, but has not yet set the world on fire.
- Other names I hear bandied about are CRX Markets, Oxygen Finance, and Premium Technologies, but not with breathless anticipation.
- Tungsten has huge invoice flows, bought a bank to do SCF, then sold the bank, and still does very little SCF.
Heck, even the procure-to-pay (P2P) suites that have added dynamic discounting and SCF to their offering are not exactly crowing about. Ariba is quiet on this front. Coupa is nascent in payments. The only P2P player that highlights payments is Tradeshift. Treasury management systems, such as Kyriba, also offer early payment functionality, but it does not appear to be a major part of their revenue.
In short, the market has not materialized in a huge way for any of the fintechs. They are growing and making a dent, but they are not delivering the kind of growth that leads to excitement, huge capital raises and IPOs. (To be fair, I am excluding from consideration the virtual card market. Virtual cards have been very successful but are typically about rebates, not early payments. I am also excluding from this analysis the merchant cash advance and small business lending market which is not enterprise-led.)
And Yet…
Despite, or perhaps because of, the lack of a breakout star in what everyone thinks is a huge market, the (in)famous Softbank Vision Fund (yes, the WeWork, Uber, and Oyo investors) has pumped more than $1.6 billion of capital into two enterprise early payments unicorns: Greensill and C2FO. The obvious question: Is Softbank Vision fund visionary or deluded?! Is this market worthy of two companies who have accepted $1.6 billion in capital? Will the injection of capital overcome the inertia in the market?
Greensill
Greensill started not by providing technology, it focused on providing capital to other platforms. For instance, Greensill provided capital to Taulia and Textura (the latter of which was bought by Oracle). This past year the Softbank Vision fund pumped $1.455 Billion into Greensill. Some of this money has been spent on a company called Finacity that helps Greensill perform securitization. Prior investments seem to have also gone to buying a German bank. All of this seems to make sense and is positioning Greensill to scale. The most recent investment seems to have gone to acquiring a company that will help Greensill enter into the alternative to the payday lending market. Presumably, Greensill will also use some of that ample cash to build technology, so that it can more directly compete with the technology providers it once provided financing to.
There’s a lot written about Greensill and its jet-setting founder, Lex Greensill. You can read about him here and here. Let’s just say he seems to fit the Softbank Vision mold of an iconoclastic founder. I don’t know Mr. Greensill, but I know some of his former associates. They are very bright, former bankers, and pioneers in the SCF space.
C2FO
Dynamic discounting was introduced by Xign in the early 2000s. C2FO started as a deliciously simple technology extension of dynamic discounting. C2FO made discounting even more dynamic by adding an auction element. In C2FO’s model, suppliers would now bid for the limited capital available from their cash-rich buyers, rather than simply accept what offers buyers chose to make. The principle sounds great; buyers get another chance at a discount for their products (and return on their cash) and suppliers get to set the price at which they want to get paid early. If the program does not include an egregious terms extension, which SCF often does, it’s relatively supplier friendly.
From what I can tell, C2FO is very good at selling to treasurers, which many other firms are not. C2FO’s supplier marketing also looks excellent. Of course, the constraint on the dynamic discount market is that not all buyers have the cash to pay early, and if they do, the capital is far more limited than what suppliers may want. As a result, C2FO looks like it is now getting into other areas of financing. Presumably, some of the $200 million Softbank Vision fund has invested in C2FO will facilitate this expansion.
Is there a charismatic, Softbank Vision-like founder at C2FO? There’s a lot less written about C2FO’s founder, Sandy Kemper than there is about Lex Greensill. Mr. Kemper was President of UMB Financial Corp., a regional bank that has been in his family for several generations. He is better known, to me, as the founder of eScout and CEO of Perfect Commerce, which was a competitor during my Ariba years. Perfect Commerce was eventually gobbled up and became part of what is now Proactis.
The only insightful story I could find about Softbank Vision Fund’s investment in C2FO was behind a paywall, but its title was a classic “How C2FO’s execs walked into a meeting with Softbank with no pitch deck, then landed $200 million within weeks“. That headline probably sounded better before the WeWork debacle!
WeWork or Alibaba?
In the last bubble, Masayoshi Son, Softbank Vision’s founder, made some great investments and some terrible ones. He likes to swing for the fences. In this era, he’s most famous for at least two investments made based on limited interaction with visionary founders: Adam Neumann at WeWork and Jack Ma at Alibaba. The first investment has been an unmitigated disaster, the latter, some say, is the greatest venture investment of all time. Will the investments in C2FO and Greensill turn out to be more like WeWork or more like Alibaba? Will providing outsized capital to these two players, finally allow a fintech to overcome the inertia in the market and reach escape velocity. Place your bets in the comments section!
Great Blog… Been following this space for 18 years and still don’t understand why it has not taken off more
Bob’s post is yet another great one on what’s going on in the ‘early payments market’. Succinct, insightful and always entertaining. No small feat, this, making early payments market entertaining.
Question of the day:
“Will the investments in C2FO and Greensill turn out to be more like WeWork or more like Alibaba?”
(Disclosure, I personally know the principals at C2FO and Greensill and enjoy fond memories of our mutual pursuits from back in the day. And I truly wish them well, as I wish for SVF to be giddy with their investment)
But to Bob’s question, my answer is ‘neither’ (Bob can be tricky – he did set it up as a false choice).
I don’t think we have a WeWork in the making here. Neither CEO will be found wandering Manhattan shoeless http://bit.ly/2QIzb5g. There’s an open question, though, whether a parallel exists between C2FO/Greensill and ‘best alternatives elsewhere’. This certainly was the case in WeWork. WeWork wasn’t really a new play, but rather a cool version of a short-term commercial office lessor – a 21st century and incredibly unprofitable version of your dad’s Regus. One could argue that C2FO and Greensill offer services not unlike those that traditional trade finance banks and alternative ‘early payment market’ players do, as Bob lays out.
As to Greensill specifically, based on what I’ve read and what I know historically of the players involved, I expect funds will be used to invent new products and push, credibly and with vim, the envelope of what’s possible. This is a good thing. The letter of credit was the last great trade finance innovation created. That was back in the time of the Venetians and Mesopotamians, so we’re due for a refresh. Will it be scalable and rocket-like to provide Alibaba-like returns? Unsure, but I’m certainly intellectually curious here, as Sir Lex never disappoints on the vim front.
As to C2FO, I know less but have been following the story (through Bob and others). They clearly have a good thing going with their model, and unlike traditional SCF, a much more scalable legal infrastructure to deploy. Suppliers don’t have to participate nor consider it as a palliative to a concurrent term extension dictate. SCF always faced the chicken and egg challenge of aligning willing buyers with suppliers who were offered SCF as a tonic to longer-payment-term strategies being deployed by Buyers (at least, such was the approach in the day I was engaged on this). So all of this bodes well for C2FO and SVF but a ROI rocket ship Alibaba? As Bob says, there aren’t that many firms flush with cash to deploy these solutions (or have pre-existing SCF solutions in play that would compete with this). So I’m unsure, but good on Sandy for having convinced a SVF to help out. Were anyone to be knighted in Kansas City, Sandy would have been long ago.
The more intriguing question I have here is whether *anyone* can realize an Alibaba-like ROI in the early payment market. That’s less a function of C2FO or Greensill or even SVF for that matter. It’s a function of the space.
Why have there been no breakaway winners in ‘early payments market’ in the first place? My own observation (having practiced in the space and sold or deployed these solutions on and off over the past 20 years) is that the B2B payments and finance process is loved by many, yet has remained stubbornly unchanged for generations.
My own pet theory that is that the Valley thinks moving data around and moving money are the same thing. Enterprises – and tech that have sold to them – have innovated ceaselessly of late in designing and delivering digital products and services they offer to business partners and consumers (think of innovations in mobile technology, marketing, office productivity software, cloud, e-commerce – heck the whole internet – and more). Surely getting money from business point A to business point B, or even accelerating it for a fee, should be a piece of cake.
Yet the ‘back-end’ of these same businesses – the ones tasked with getting money in and out of the door to counterparties, has been notoriously difficult to change. There is no Intel-like Moore’s law in the early payment space (yes, people, p-cards included!) Readers of this space no doubt recognized the scene when the ultra-modern assassins zeroing in on John Wick have to deal with AP’s paper processes, Commodore 64 keyboards, typewriters and rotary phones http://bit.ly/35ocvvA. If nothing else, copy and paste that link for today’s knowing chuckle. (Twenty-two people in the world got that scene, by the way.)
Why? Because, dear readers, practitioners here are aspiring to move *money* around, not just data. You can mis-send a digital PO worth a million bucks and create a new one on the fly to the rightful recipient. No problemo. But losing a million bucks – or paying a bad person, ot getting a bank account mapping wrong on a PIF file – is a big deal with real consequences. Companies put a lot of people and processes to get comfortable with that,and make their banks and regulators comfortable with that, which inevitably means a lot of ‘carbon-based’ technology involved – à la John Wick.
Just ask Zuck and the Libra team how the cat-herding is going. Better yet, read through some of Maxine Waters’s Finance Committee deliberations, or for a more sanguine, dulcet-toned yet equally iron-fisted view, a Canadian’s perspective, none other than Mark Carney, from his perch atop the Bank of England (those Canadians…).
But hey, it’s early days, and lots of work to do. Watch C2FO and Greensill as they will do interesting things in this tough space. I don’t see Alibaba, but it is certainly not a WeWork either.
Awesome comment. Spot on. And I know that you know more about this market than I ever will!
At a time when most article I read are either a repeat of what has been done over the last 10 years, or a grandiose press release of minor achievements, it has been very refreshing (and highly enjoyable) to read your article and the comment from Peter. Thank you for that.
As a current PrimeRevenue employee, and ex-Ariba, I also wanted to add my modest contribution and comments.
I would of course not comment whether Softbank made the right bet with Greensill and C2FO, as I wish success to these fellow SCF practitioners. Nevertheless, your question remains highly relevant: after years of paced growth, will a fintech make it big, exciting big?
In order to make it so big, my bet is not so much on a single Fintech, but rather on the convergence of relevant like-minded players: Funder, Fintech and Procure-to-Pay platform.
Fintechs and Funders have been working together for some time, but if banks remain highly relevant in this field, new sources of funding turn out to be a powerful key differentiator. With SCF becoming more popular, it now attracts more sub-investment grade companies, that banks are unwilling/unable to fund. In addition, non-bank funding can offer a simpler legal framework. Of course, this creativity in funding sources has to be balanced with risks, but this is another debate.
Now, let’s talk P2P. Coupa and Ariba are the clear leaders of this market and similar to the ERP market in 90s and 00s, the race is on to plant the flag and deploy first in all major companies. For them, SCF has not yet been the main focus, not the killer app that would help them win this race. And even though there have been attempts, they are facing few complex hurdles: first, they have been historically much stronger on indirect spend (many suppliers, small spend) than direct spend, hence the opposite of SCF. Second, you do not sell SCF services like you sell P2P software; SCF is an IT-enabled financial service, and the key to success lies in the consulting skills of the provider rather than the pure strength of your code. Finally, even if P2P platforms are now more active creating partnership with banks (see recent announcement on Standard Chartered and SAP Ariba, Westpac and Coupa), they still have a limited network of funders/financial institutions.
Despite these hurdles, think about it: these P2P platforms are growing extremely fast and have millions of companies on their network exchanging electronic POs and invoices. Now add the right Fintech Sales skill set to approach Treasurer and CFO on a SCF offering matching their corporate objectives. Reinforce this with highly specialized Fintech Consultant that can build relevant SCF programs to achieve these Corporate objectives. Now, as a final touch, add the relevant partnership with Funders that can cover all geographies, all ratings (IG, non-IG), all industries. I believe THIS can be really big.
As a side note, in theory, Blockchain could be this massive network on which skillful Fintechs could build powerful SCF programs plugging in ad-hoc funders, but I am still not convinced buyers would push in this direction, the same way they push to implement P2P. But again, this is another debate.
As a last word, I hope you would reconsider your comment that PrimeRevenue “ has had great people” and add that we still have great people.
Happy to prove this and meet on your next trip to Hong Kong, my current beloved home town.
Thanks! A great comment. I have been waiting and working on this great convergence of P2P and SCF for many years. It will come. To your great point though, it’s a different skilset and buyer.