With inflation concerns and supply chain issues roiling businesses, business payment platform Plastiq seeks to bolster its customers’ payment capabilities.
Businesses are trying to stay ahead of inflation by buying inventory in bulk, and “to do that, you need more working capital,” said Stoyan Kenderov, Plastiq’s chief operating officer.
“A lot of businesses, in this inflationary cycle, can’t get a loan even if they were getting loans before, because the lenders are now increasing their underwriting requirements,” Kenderov said. He also anticipates additional Federal Reserve rate hikes designed to curb inflation will make bank loans a pricier option for business owners.
That means credit cards “become the first substitute for needed workflow capital,” Kenderov said. He sees massive potential for Plastiq in targeting entrepreneurs who seek small business loans, given Small Business Administration lending in fiscal year 2021 totaled $44.8 billion.
San Francisco-based Plastiq, founded in 2012, initially focused on consumer markets but has since shifted its focus to business-to-business (B2B) work. The company gives businesses the ability to pay vendors with credit cards and helps businesses accept credit cards, Kenderov said. In April, it introduced a service to manage accounts payable for companies, automating back-office operations related to vendor payments.
A business can find itself in a tight spot if it’s awaiting customer payments to pay its vendors. Although credit cards can expand an entrepreneur’s access to working capital, “90% of your business payments cannot be done on a credit card because the accepting party doesn’t accept cards,” especially for larger purchases, Kenderov said.
Plastiq aims to serve as the connection point, with its clients making a card payment to Plastiq and Plastiq paying that client’s vendor their preferred way, often via check or wire transfer, Kenderov said.
The company makes money from credit card fees – it charges a 2.85% card fee on transactions – and from monthly software subscription fees, which can range from $59 to $119, he said.
The company wouldn’t share its revenue, but Kenderov said in the last year, Plastiq has doubled its payments volume run rate and added “tens of thousands of new customers” to its customer base. The company wouldn’t provide a more specific number.
Plastiq, a Kleiner Perkins portfolio company, has raised about $140 million in venture capital. The company has 160 employees and processes billions of dollars in payments annually, according to Kenderov.
Plastiq targets direct-to-consumer brands, wholesalers, manufacturers and real estate or construction businesses that generate between $500,000 and $50 million in revenue. Many are in growth mode or are experiencing short-term financing challenges, Kenderov said.
Kenderov also noted supply chain shortages have complicated operations for Plastiq’s customers, who need sufficient supplies to manufacture products like nutritional supplements. As those businesses stock up on inventory, they also need to pay warehouse and logistics providers and suppliers on time, and the ability to use a credit card buys them time, he said.
Kenderov said Plastiq management was “worried, that with the inflation cycle, businesses may start pulling back,” but the company has not noticed a slowdown in customers’ spending as they grapple with economic pressures.
Bill.com is Plastiq’s biggest competitor, but Plastiq strives to be a more affordable option, Kenderov said. A BMO analyst report notes Bill.com is “a leader” in the U.S. small and medium sized business accounting market with “immense” long-term opportunity to digitally transform back office operations.
Plastiq is “choosing not to be profitable” as it grows and adds customers, Kenderov said. “We’re in a stage where we want to take the lion’s share of this market,” he said.
Among those digitizing B2B payments, Plastiq’s model is somewhat unique in that “they flip the typical credit card structure on its head” by putting the fee burden on the payer rather than the merchant, said Scott Reynolds, founder and principal of consulting firm The Fintech Strategy Group.
But that approach creates “some real headwinds for them to continue to really expand and take a significant bite out of the B2B payments space,” Reynolds said.
“I think they found an important niche where buyers are willing to pay some fee to take advantage of the float and convenience of using a card, but there’s a natural ceiling where a majority of buyers, particularly in the B2B space, aren’t willing to pay that additional fee just to process a payment,” Reynolds said.