When it comes to investing in the financial sector, venture capital and private equity have long been less keen on interesting in B2B companies. But McKinsey & Co’s latest research suggest things might be changing and investors are now targeting financing solution for both buyers and suppliers, together with automated account management tools. Can fintech conquer the B2B sector?
Rising levels of investment
The report by McKinsey & Co estimated the global payments industry to be $1,8 trillion in 2015. This is expected to grow to $2.2 trillion by 2020. However, the estimates for the size of the B2B market remain scarce, with some suggestion placing the market size to around $250 billion.
But investment by venture capital, private equity and strategic investors is on the increase. Last week, New Jersey-based Biltrust announced it has raised $50 million. Prior to that, Payoneer from Israel raised $180 million in growth equity from TCV and AvidXchange attracted $18 million last November. The automated accounts-payable provider had previously received $225 million from Bain Capital Ventures.
Increased investment isn’t the only thing driving the market change. There have also been a number of notable acquisitions and IPOs. FLEETCOR acquired cross-border payments firm Cambridge Global Payments for $675 million just this May. In 2016, Coupa Software, which develops management technology, and Blackline Systems, a cloud-based accounting system, went public.
Plenty of opportunities in the difficult market
The B2B market is not an easy market to pave a way into. The industry tends to favour those that have strong balance sheets and strong security practices in place. The sector is also highly regulated so companies need to have a proven record of adhering to regulatory standards. For new fintech firms, these are all tricky hurdles to overcome.
Banks have previously been the ones in charge in the B2B payments market. According to Jay Wilson, an analyst at Mercer Capital, banks might opt for the acquisition route rather than develop fintech in-house. However, this is not straightforward because of the regulations.
Furthermore, there is plenty of room for disruptive innovation in the market. Matt Harris, managing director at Bain Capital Ventures, told Forbes, “My view is that there are so many more unsolved problems in B2B payments.”
According to a recent study by Roland Berger, B2B fintech will grow in 2017 and more startups will position themselves on the market. Over half of fintech companies are pitching their products and services in the B2B landscape, according to the data.
CurrencyCloud has also written positively about the changing landscape. According to the B2B money-transfer company, the ecosystem in which fintechs operate is changing due to “influx of senior executives from traditional financial service institutions and banks bringing with them a wealth of experience.”
Fintech innovation is undoubtedly changing the financial services sector. Instead of focusing on the B2C sector, companies might start looking more towards the opportunities in the B2B sector. How this will change the market landscape remains to be unseen – but it could mean good news for business and investors.