Hooked On: Resurgence of B2B FinTech Attracts Investors
March 28, 2019
The year 2019 is set to be the year B2B FinTech witnesses a strong resurgence. With a strong 2018, better business models and the ever-increasing interest shown by investors, it is evident that FinTech players in the B2B space are finally seeing the light at the end of the tunnel. Even though B2C companies were everybody’s darling traditionally, the emergence of new technologies, changing regulatory scenario, and other factors are playing an important role in the surge of B2B FinTech funding globally.
Against this background, the growth of FinTech funding for companies in the B2B space is experiencing an upward trend, seeming unstoppable with the latest analyses finding enterprise financial services & integration, online financial services, enterprise financial software, and Software-as-a-Service (SaaS) risk management as some of the hottest spots for investors this year.
Contextualizing the B2B FinTech Space
Let us contextualize this discussion on B2B FinTech by first defining its scope and range with respect to the focus of this story. In this context, B2B FinTechs are companies that build and provide tech solutions for SMEs and corporates which help them automate both internal and external-facing processes, thereby enabling them to enhance their operational efficiency and reduce overhead costs.
According to MEDICI’s research on B2B FinTechs, companies in this space can be tagged in certain distinct categories such as Accounting/Tax Management, Business Payments, Expense Management, Payroll Management & Corporate Benefits, E-invoicing, and Recurring Billing.
To explain some of these categories, let’s take a look at expense management first. Companies in this area create solutions for helping businesses to approve, process, pay, track, audit, and otherwise manage employee-initiated expenses. They also enable administrators to track employee usage of the business financial resource, control excessive spending, and identify cost-saving opportunities. These platforms also allow companies’ employees to request approval for specific expenses through a web browser or mobile application.
Then there are companies that provide accounting/tax solutions. These include accounting and tax-filing services for SMEs and help them to streamline & automate their traditional/existing bookkeeping processes.
When it comes to e-invoicing, companies providing these solutions enable SMEs and freelancers to create, customize, and track business invoices. It further assists them with functions like payment recovery, payment reminders, account payables/receivables management, etc.
In the recurring billing space, payments solutions provide various module-based services such as escrow accounting and billing solutions (subscription billing or recurring billing).
Here are some other areas in which B2B FinTechs are making a mark:
In banking, artificial intelligence (AI) is playing an important role in detecting fraud.
Cloud computing software is replacing paper-based systems in the business-to-business payment market.
Blockchain technology could also have an impact on the B2B FinTech space in the long-term.
To further illustrate the resurgence of B2B FinTech, we are currently witnessing an upward trend in terms of investors’ interest in the space. Accordingly, it will be interesting to explore which B2B FinTechs received the maximum funding in the previous year globally. Here’s a quick look at the top 10 B2B FinTech companies around the world based on the highest funding received in 2018:
For further context, here’s a brief look at 5 of the companies among the top 10 firms listed above (across subdomains within the larger B2B FinTech space):
Subdomain: Business Payments & E-Invoicing\ Funding: USD $250 million\ About: A global B2B platform that seeks to help companies run more efficiently by leveraging cloud-based technology, Tradeshift empowers them to improve their processes such as supplier financing, invoicing, and workflow. The company also supports the delivery of free electronic invoicing to suppliers, enabling faster payments and more predictable cash flow. Tradeshift also supports enterprises with regard to the supply chain.\ Investors Include:* *HSBC, American Express Ventures, CreditEase Fintech Investment Fund, Notion Capital, Santander InnoVentures, Goldman Sachs, Public Sector Pension Investment Board (PSP Investments), H14, GP Bullhound, Gray Swan, etc.
Subdomain: Payroll & Accounting\ Funding: USD $140 million\ About: Gusto offers an integrated platform that lets companies automate and simplify their payroll, benefits, and HR, and also provides support when required. It was launched in 2012 as ZenPayroll and presently serves over 60,000 companies across the United States. It also helps companies provide employee benefits, such as 401(k) accounts and health insurance.\ Investors Include: T. Rowe Price Associates Inc., Y Combinator Continuity Fund and General Catalyst, MSD Capital, Dragoneer Investment Group, etc.
Subdomain: Corporate Benefits\ Funding: USD $125 million\ About: Based in the United States, Brex seeks to rebuild B2B financial products. Its primary offering is a corporate card (backed by Mastercard) for technology companies. It helps startups of varying sizes to get their employees a card with a higher limit while automating expense management and integrating with existing accounting systems. Its aim is to build the next generation of B2B financial services with better technology, unencumbered by restrictions of legacy technology.\ Investors Include: Max Levchin, Peter Thiel, Y Combinator, Ribbit Capital, Yuri Milner, Carl Pascarella, etc.
Subdomain: Accounting/Tax\ Funding: USD $60 million\ About: Freee is a Japan-based B2B FinTech startup that was among the first in the country to raise capital from overseas investors. Its offerings include cloud-based accounting and HR software. It claims that over 3,500 apps and services (mostly financial products) smoothly integrate with its proprietary software.\ Investors Include: DCM, Infinity Investments, Mitsubishi UFJ Financial Group (MUFG), Life Card, and other (undisclosed) international institutional investors.
Subdomain: Expense Management\ Funding: USD $35 million\ About: Divvy Pay Inc., is a B2B FinTech firm that provides software solutions to businesses for expanse management. Its payment platform for businesses empowers them to automate their end-to-end expense report processes. At the same time, it helps companies guard against fraud and prevents wasteful spending while helping manage their online subscriptions\ Investors Include: Insight Venture Partners, Pelion Venture Partners, Waterfall Asset Management, etc.
Stripe: B2B FinTech Success Story Inspires Growth
If you have been following the developments in the payments segment of FinTech, chances are that you will be more than familiar with B2B FinTech payments company Stripe. What’s special about it? Well, today, it stands valued at over USD $22 billion and is one of the most successful companies in the payments space, with a whole array of investors backing it. Also, it is the highest-valued private FinTech company in the world. Its funds have allowed it to scale internationally, letting it expand its offerings and services rapidly in recent times.
Similar to Stripe, there are a number of B2B FinTech startups in the payments space, today, many of which are garnering tremendous attention from investors and some of which are moving towards achieving Unicorn status as well. The payments space is booming and shows every indication that it will continue to grow in terms of the number of deals as well as the amount of funding.
Increase in VC Funding for B2B FinTech: Bright Future
It would come as little surprise that investors are becoming increasingly attracted to the global B2B FinTech space; payments remains a strong contender for VC funding. It is estimated the global payments market could reach USD $2.2 trillion by the end of the decade, presenting a significant opportunity in the corporate payments arena. FinTech funding, in general, has been on the rise over the past two years. According to MEDICI’s research into B2B FinTech investment, a significant increase can be seen from 2017 to 2018:
As pictured, global FinTech funding stood at $21.78 billion in 2017. In just a year’s time, a surge of investor interest led to a spike in funding, growing by almost $40 billion to $58.37 billion in 2018. Of these amounts, funding for companies in the B2B FinTech space also rose from $0.55 billion in 2017 to $1.27 billion in 2018. Similarly, the total number of FinTech deals increased to 1798 in 2018 from 1287 the previous year. B2B FinTech deals received a boost here as well, rising from 55 in 2017 to 80 in 2018.
B2B FinTechs in 2018 raised more than twice the amount of funding compared to 2017, even though they constituted a slightly smaller percentage of total FinTech funding that year. Furthermore, B2B FinTech deals grew by 45% from 2017 to 2018. This truly does bode well for the continued growth of B2B FinTechs globally.
Going forward, as more businesses in the B2B FinTech space step onto the global stage, the B2B market is well-poised for significant growth. It is evident that funding in this area is all set to surge ahead to achieve immense heights in the years to come.