Last week, two major players in B2B payments, Bill.com and WEX, reported earnings. The companies promptly lost 33% and 20% of their market capitalizations, respectively. Both companies lowered their guidance on topline growth and mentioned difficulties monetizing their payments. It’s worth digging deeper to determine any possible implications for B2B payments generally.
First, Some Background on B2B Payments
Here’s a quick primer on how to make money by executing B2B payments. Buyers pay suppliers in several ways:
- Check
- ACH
- Wire
- Credit cards
- Cross-Border (not really a method, but a different type of payment)
A B2B payments provider charges the buyer (and/or supplier) a per transaction fee for each of the first three payment types. Mailed checks cost about $1.50, ACH $0.50, and wires $15.00+; see here. A large B2B payments provider can buy these services wholesale and make a 30-50% margin on each payment. It’s a nice business, but not one that makes investors drool. Payments made via credit cards and cross-border payments are much more lucrative. Why? Because for these payments, the fees charged are “ad valorem,” to use the fancy term Bill.com uses. This means the costs for these payments are proportionate to the payment size, not flat. Getting a percentage of a buyer’s payments is much more exciting than $1.50 here and there!
Ad Valorem Payment Rails
When a B2B buyer pays a supplier via credit card, the supplier incurs an acceptance cost of about 3% of the payment; over 2% of this is interchange. The interchange is then split between the buyer and the payment provider. Currency conversion is often embedded in cross-border payments, yielding ad valorem fees. Currency conversion costs are doubly opaque since few of us know whether our conversion is being executed competitively!
As a result, the business of B2B payment providers is partly about moving as much of the mix of a buyer’s payments to ad valorem rails as possible. A B2B payments provider ideally wants to target customers:
- whose spending can be moved to cards
- has to make many cross-border payments and
- who does not understand interchange or is too small to negotiate a large share of it
B2B payments providers also create new ad valorem payment methods using any feature to encourage suppliers to pay basis points rather than a flat fee to receive payments. These features might involve better remittance data, easier processing for the supplier, lower ad valorem rates, and faster payment. (To be clear, B2B payment providers can also create value with invoice or sales order workflow software, fraud protection, and financing products, but here, I’m examining just payment execution.)
Bill.Com Last Week
Bill.com, as you know, provides AP, spend management, and payment products to SMBs. I wrote about it when it went public 5 years ago, and it has been a tremendous topline grower, though its stock has been a roller coaster.
Bill.com lost $3 billion in market cap last week when it reported earnings. The market does not like that a company that has historically grown about 50% per year is projected to grow about 10-15% next year. If you read the earnings transcript, you will see that much of the discussion focused on getting more payments onto ad valorem rails. In addition, Bill.com mentioned that Google made changes to discourage companies from using credit cards to pay for their ads in favor of bank transfers (ACH). (Google had $264 billion in ad revenue in 2024, so this change would save Google a lot of money and cost many small business owners a lot of airline miles!) If suppliers do not accept cards, making money as a payment provider is challenging.
Between slowing growth and mix shifts in the payment flow, investors reevaluated the company’s discounted future cash flows. As you can see from the chart, investors frequently do this with Bill.com, so the story may not be over.
WEX Last Week
WEX lost $2 billion in market cap last week and lowered its forward growth guidance from 8-12% to 5-10%. But let’s dig deeper.
WEX is famous for its fuel cards (now called the Mobility segment). The company also has a segment in healthcare payments and one in corporate B2B payments. These latter two segments account for about 45% of revenue. (I have written about the latter two segments here.) WEX’s corporate B2B payments business differs from Bill.com’s in that it is not targeted at SMBs and has a heavy travel component, particularly with online travel agencies. However, the similarity between the two businesses is that they make money by how much spend they can settle on cards and how much interchange they can capture versus sharing the interchange with partners and buyers.
Here’s a chart of WEX’s Corporate Payments Purchase Volume (which represents the total dollar value of all WEX-issued transactions that use WEX corporate card products and virtual card products) and the Net interchange (the percentage of the dollar value of each payment processing transaction that WEX records as revenue from merchants, less discounts given to customers and network fees) over the past 7 years:
The purchase volume is on the left axis, and the blue bars and the net interchange is on the right axis and orange line. A lot is happening here, including the effect of COVID-19 on purchase volumes in the travel portion of the business. However, the main thing to focus on (and that investors concentrate on) is that purchase volumes have declined for the first time (except during the pandemic), and net interchange has stayed consistently in the mid-40 to low-50 bps range.
Travel Vs. Non-Travel Net Interchange for WEX Corporate Payments
We can dig deeper into this purchase volume’s travel and non-travel composition thanks to WEX’s detailed reporting. Look at these two charts, which break down the above averages. The first is from 2021, and the second represents the last four quarters:
In the 2021 chart, you see:
- the bounceback in travel spending after COVID-19 began, but you also learn that WEX keeps less of the interchange associated with travel spending than other corporate payments. This is because the large online travel agencies WEX works with negotiate a larger share of the interchange than corporate customers.
In the 2024 chart, you see that:
- travel spending fully recovered, but it started to decline in the last two quarters
- net interchange for both segments has declined over the previous few years
On its earnings call, WEX mentioned that one of its large online travel agency customers is moving away from using WEX and that net interchange rates in corporate payments will continue to decline. However, the company noted that incremental profits from the new purchase volume remain handsome. The company also mentioned investing more in its AP business, which presumably looks like Bill.com for larger firms. At least one analyst is concerned that WEX has a fortress in the mobility segment and is now investing in segments that are much more competitive. As with its competitor, Corpay (nee Fleetcor), investors wonder if the company should be split up.
Summary
Companies are not their stock prices. And stock prices are not always rational. WEX is a great business, and Bill.com has built a fantastic business. I’m not questioning either of those premises. However, these B2B payments enterprises are getting more challenging, and expectations are constantly being readjusted. It’s getting easier and cheaper for software companies to issue virtual cards and make and receive bank transfers. The pricing of these services is getting more transparent. All of this makes it more competitive for embedded payments providers. In addition, more large suppliers are pushing back against card fees or surcharging buyers for card use when they can. The market is slowly becoming more efficient and rational. The “easy money” (not that there ever was any!) has been made.
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