Our last article in a series on B2B marketplaces looks at the players battling to provide embedded finance and payment options to propel world-wide growth for B2B marketplaces.
Previous articles in this series outlined the explosive growth in B2B marketplaces over the last decade, and the fact that they’re set to total more than USD$18 Trillion in value by end 2026.[1] We’ve also covered the different business models these marketplaces use, and why embedded payment and financial services are the most promising of these models.
Various providers are now competing to provide financial services to B2B marketplaces and their client merchants. In what follows, we review the different providers in this fight, and where they stand competitively.
The Players Engaged – And What They Bring
Various FI Players Offer Different Ecosystem Options For Marketplaces
Source: KoreFusion analysis
At first sight, some might suppose established banks hold the most cards due to their existing relationships with merchants who use B2B marketplaces. However, this ignores the fact that too many established banks remain slow to introduce new products and are still paper-based and manual in their approaches – especially when it comes to fraud management and dispute resolution. What’s more, they can also be less proactive when it comes to creating and implementing new products.
While Digital Banks offer an attractive alternative, since they don’t have legacy systems issues to overcome, they tend not to enjoy the same level of client relationships as traditional banks and may lack both the scale and product range to serve marketplaces. Much the same might be said of many fintechs, which are – like digital banks – plagued with issues of poor product ranges and the scale required to serve B2B marketplaces. However, fintechs enjoy the advantage of having worked with many of the merchants (mid-range SMEs and micro-businesses or, “Mom and Pop” shops) that use B2B marketplaces for everything from payments to lending – and that could be a deciding factor.
What’s Happening On The Ground?
A close examination of how lending to SMEs is developing world-wide hints at which players might have an edge. SMEs globally have taken advantage of two different routes to access lending – other than traditional bank loans and supplier credits – over the last half decade. The first of these came through BNPL players and POS Sales Financing. In both cases, the credit extended is based on the SME’s purchase volumes, or sales, through that channel. The second is through Peer-to-Peer (P2P) payments providers, who offer SMEs credit based on their volume of P2P transactions. By 2020, these channels accounted for USD$ 52 billion or some 47% of non-bank/capital market financing for SMEs. This model is prevalent in much of the developing world and is wrapped in multiple flavors of the Rotating and Savings Credit Associations (ROSCAs). Some ROSCAs are entirely formal, others are entirely social and informal, and many function in between. Importantly, 30% of loans offered by P2P payments providers to SMEs were to unbanked companies – a segment which, by definition, banks would not be willing to serve.
As we outline in the above graphic, traditional banks may enjoy strong relationships with their clients and have the scale marketplaces need. However, the extent of their technical debt and their relatively slow transformation to a digital environment mean that they face serious competition – especially, as the above example of lending shows, from fintechs.
We expect competitors to banks will vary by region. In Asia, Chinese Super Apps such as WeChat and AliPay are already offering micro-financing and lending options alongside payments, cards, invoicing, and other services; they are being joined by Indonesia’s Grab, Kazakhstan’s Kaspi and other players keen to emulate their success.
In Latin America, meanwhile, fintechs such as Brazil’s payment acquirer PagSeguro are offering digital-first propositions to SMEs, and have evolved into a digital bank themselves. They can easily extend this service proposition to marketplaces – holding the advantage of familiarity and client relationships with those SMEs to become marketplace clients. In Africa, the aforementioned ROSCAs are increasingly wearing a fintech hat, like The Lending Club and Prosper in Nigeria. Finally, in North America we have seen fintechs such as SumUp that serve all kinds of medium to larger enterprises expand from a simple online payment-for-service model through to accounts, cards, and pay-in and pay-out management.
Given the strength and depth of traditional banks client relationships and their proven power to deliver at scale, it would be rash to count them out at this stage. However, there are several hurdles for traditional banks to overcome if they are to become a provider of choice for B2B marketplaces, from technology debt through to a less-than-nimble approach to product development and implementation. All that said, this remains a fight the banks could still go out and win.
KoreFusion optimizes SMB payments strategy across 80 countries. We help banks, brands, and fintechs develop embedded payment and financial services for SMBs. Fore more information, please contact hello@korefusion.com.
[1] See Globe Newswire, November 2021: “B2B e-Commerce Marketplaces”: https://www.globenewswire.com/news-release/2021/11/02/2325466/0/en/Business-to-Business-B2B-E-commerce-Market-Size-to-Grow-Over-18-70-CAGR-to-Reach-USD-18-57-Trillion-by-2026-Globally-Facts-Factors.html