Startups Veem and Melio Payments, based on opposite U.S. coasts, are both angling for a share of the multi-trillion-dollar business-to-business payments market, targeting small and mid-sized enterprises.
They’re not alone. Dozens of fintechs are wooing businesses that are suddenly trying to digitize payment processes with new software solutions.
The market opportunity is huge and there are plenty of niches to be had, industry executives say. Just the lower end of that business-to-business (B2B) market may be worth tens of trillions of dollars annually, while the worldwide B2B opportunity could ultimately grow to $200 trillion, some estimate.
PayPal began digitizing consumers’ personal payments more than 20 years ago, but businesses, especially in the U.S., clung to paper-based systems and checks for everything from vendor payments to money transfers. Now, big new payments players like Stripe, Square and BillPay are leading the way in digitizing payment services for businesses, but smaller rivals like Veem and Melio are carving out their own slices of the market with backing from eager investors.
Melio Co-founder and CEO Matan Bar, a former top PayPal executive, was amazed to find, after doing a bit of research, how far behind businesses were in digitizing payments. “I was shocked to discover that these payments are still very much paper-based,” he said in an interview.
He quickly recognized it as a business opportunity and came to understand that small businesses owners like wine shop and dental office operators were intimidated by even the industry jargon, like “accounts payable automation solutions.”
Those types of softwares were designed for chief financial officers or bookkeepers, but small business owners don't have those professionals, he explained. He set out to develop a product that was less overwhelming for SMB entrepreneurs and one that catered to their focus on cash flow, he said.
Thanks partly to the COVID-19 pandemic, which drove more businesses to seek digital alternatives, Melio handled upwards of $1 billion in transactions last July, up significantly from $20 million in January 2020, Bar said. “Bringing B2B online is a massive opportunity,” he said.
New York-based Melio has attracted $500 million in capital since its founding just three years ago, including $250 million last month, giving the company a $4 billion valuation, according to Reuters. Its investors include Tiger Global Management, Thrive Capital and the bank Capital One, with which Melio also has a commercial arrangement, though Bar declined to comment on the financial details.
The investments are fueling Melio’s growth. It now has 420 employees, with more on the way. The company also announced last month that it’s opening a western U.S. headquarters in Denver and expects to hire 250 workers there. Also last month, Melio said it would begin offering clients real-time payment services, as well as virtual card issuance via a link with JPMorgan Chase.
Investors stand ready to bet on the B2B play. “B2B is a much larger category in terms of spend than consumer payments and there is a lot more complexity in those flows, which makes it a bit harder to attack, but the opportunity is enormous,” Luis Valdich, managing director of venture investing at Citigroup’s venture arm, said in an interview.
Among the bank’s investments in the B2B arena was its participation in a $125 million fundraising round by Houston-based HighRadius, an invoice and payment processing software provider.
The gamut of companies targeting B2B also includes Richmond, Virginia-based Paymerang, which caters to mid-sized companies for accounts payable and receivable services; legacy payments processor GlobalPayments, which just formally entered the B2B payments space with the $500 million acquisition of MineralTree last month; and Melbourne-based Airwallex, which has a major B2B payments foothold in Asia and is now targeting the U.S.
As one indication of the situation today, only about $5 billion in B2B payments runs through the U.S. automated payments network run by Nacha, based on about $1.3 billion in transactions during the second quarter. Still, that amount was a 28.7% increase over the same quarter in 2020, according to Nacha’s second-quarter report.
“The entire thing is a collection up old-fashioned processes that need to be ripped up and modernized,” Veem CEO Marwan Forzley said in an interview. “We’re like Venmo for businesses,” he said, referencing PayPal’s mobile app affiliate.
Forzley says he doesn’t worry about competition because "the bulk of the market is still wide open” and there are so many ways in which companies like his can specialize to grab a piece of the market. Some focus only on certain services, such as accounts payable or money transfers or lending tools, while others target only small business sizes and others zero in on larger outfits.
San Francisco-based Veem, formerly Align Commerce, courts small companies, with 100 employees or fewer, and less than $10 million in annual revenue. Veem offers accounts payable and receivable services, as well as foreign currency exchange, card processing and a kind of buy now-pay later lending to businesses, Forzley said.
So far, Veem has cultivated about 300,000 accounts worldwide with e-commerce companies, import-export businesses, e-tailers and online services, among others. The value of that small- and mid-sized slice of the market is probably about $30 trillion annually worldwide, he estimates.
Veem has been expanding with capital from big-name investors including Goldman Sachs, Google Ventures and Kleiner Perkins Caufiled Byers, attracting $120 million in venture capital since it was founded in 2014, including about $100 million in equity investments, Forzley said. “People realize it’s one of the segments that’s going to continue to grow for a while,” he said.
Just last month, Veem collected another minority investment from payments software company Repay in a partnership pact that lets Repay tap Veem’s foreign exchange services, while Veem benefits from Repay’s virtual card-issuing capabilities. Forzley declined to say how many employees his company has.