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The Future of Payments in B2B Marketplaces

Online shops – and e-commerce more generally – have taken off since the early 2000s, transforming the way that organizations conduct business. For business-to-business (B2B) transactions, marketplaces serve as an important platform to connect vendors and distributors, offering a seamless buying experience and driving revenue for both parties. Particularly in the last few years, B2B marketplaces have become increasingly common.

But this evolution has developed fairly slowly – B2B relationships are notably personal and offline, relying on trust built over time as buyers and sellers get to know each other. It should come as no surprise, then, that the industry has taken a while to embrace digitization and foster new solutions.

Business-to-consumer (B2C) relationships, alternatively, have been wholly disrupted over the last two decades. Customers have come to expect a top-notch user experience, pushing sellers to develop the technology to make it happen. B2B buyers now expect the same sort of luxuries that B2C platforms offer. The coronavirus pandemic further accelerated this trend, with many B2B vendors transitioning to e-commerce out of necessity.

But there are key differences between B2B and B2C transactions, including order size, product delivery, and cash flow considerations. The question, then, is how to develop solutions unique to B2B marketplaces so that buyers and sellers can remain competitive.

The Landscape of European B2B Marketplaces

Before exploring how to improve buyers’ and sellers’ experiences, it’s important to consider the evolution of B2B marketplaces and what the landscape looks like today. A decade ago, there were just a few dozen B2B marketplaces available. Today, there are several hundred in Europe alone.

In the midst of our research we identified 11 unique verticals, the most common of which are: retail, machinery and heavy industry, contractors and professional services, and transport and logistics. These B2B marketplaces generally feature three distinct business models: conventional, SaaS-enabled, and inquiry basket.

Conventional marketplaces are e-commerce platforms meant simply to connect buyers and sellers, and account for roughly two-thirds of all marketplaces. While established B2C players like Amazon and Alibaba have established B2B marketplaces that encompass a wide range of products across multiple industries, conventional marketplaces are often vertical-specific.

SaaS-enabled marketplaces (SEM), meanwhile, supplement the general marketplace model with a software component, for example management tools to help sellers keep track of their orders, market their products, or manage their inventory. SEMs are most common in the contractors and professional services, transport and logistics, and food verticals.

Inquiry basket marketplaces are general marketplaces in which prices for products aren’t listed, requiring prospective buyers to contact the seller directly before a purchase. In this sense, they combine the networking potential of marketplaces with the personal touch of B2B relationship building. The most common verticals for this model is transport and logistics, as well as commodities.

B2B Marketplaces Poised for Growth

As Bessemer Venture Partners points out, advances in e-procurement occurred well over a decade ago, but the climate necessary to foster a B2B marketplace boom only materialized a few years ago. Burgeoning tech talent are now bringing modern solutions to legacy industries that have traditionally been slow to adopt new technologies. Across all business models, these marketplaces are poised for massive growth in the near future. The question isn’t if previously offline workflows will go online, but when.

A 2019 study from ibi research found that while just 24% of B2B organizations sold their products through marketplaces, 78% percent believed that marketplaces would be somewhat or highly relevant to their business in the next five years. Similarly, Facts & Factors projects that the global B2B e-commerce market will more than double from $7.35 trillion to $18.57 trillion between 2021 and 2026, at a compound annual growth rate of 18.7%.
Put simply, businesses are finally starting to realize the importance of marketplaces.

Disparity Between Payment Options and Customer Preference

With the rise of these platforms across industries, competition is ramping up for individual marketplaces to set themselves apart by improving the user experience and further driving revenue. Perhaps the biggest opportunity lies within payments.

Roughly three-quarters of marketplaces offer payment through their platforms. Of those, 76% offer payment by credit card, though the high average order values in B2B transactions make this impractical for some. 

Only half offer invoice payment through their platforms, despite it being by far the most common payment method in offline transactions. Even fewer platforms (only 21%) offer Buy Now, Pay Later (BNPL), and of those, 38% have an internal solution.

Customers’ payment preference, however, stands in stark contrast to what platforms currently offer. A whopping 95% of B2B customers prefer invoice payment and 84% find it highly relevant, by far the highest value of all payment methods. This disparity presents a massive opportunity for new technologies to help marketplaces bridge the gap with their customers.

Business model implications on marketplace payments

So what impact does business model have on the availability of payment options? While 88% of conventional marketplaces offer payment through their platforms, just 39% offer invoice payment (with 8% being only by request), whereas 72% offer card payments.

SEMs are slightly more progressive when it comes to payment options – while only 62% offer payment through their platform, 56% offer invoice payment compared with 41% who offer card payment. Meanwhile, only half of inquiry basket marketplaces offer payment through their platform with just 32% offering invoice payment.

Key differences among B2B marketplace verticals

It’s also important to note that, regardless of business model, different verticals often favor particular payment options.

Machinery and heavy industry is characterized by higher basket sizes, which entails higher risk for providers offering payment terms and a significant need for sellers to manage their cash flow responsibly. These providers tend to be smaller enterprises, limiting their ability to conduct sophisticated risk checks. Just 25% of marketplaces accept invoice payment, leaving huge potential for increased conversion rates and basket sizes. Prominent examples include E-FARM (a marketplace for industrial farming equipment), and Laserhub (a marketplace focused on metal parts used in manufacturing).

Similarly, transport and logistics marketplaces tend to be highly complex – it’s quite common for wholesalers to require proof of delivery prior to payment. For this reason, they tend to feature repeat customers, and invoice payment is slightly more common. Forto and InstaFreight are just two noteworthy marketplaces operating in this space.

Retail marketplaces are the most similar to those in the B2C space, with checkout and payment through online platforms being standard practice.  Still, most marketplaces prefer card payment (69%) over invoice payment (50%). Leading marketplace Faire offers a wide range of products while others like Waanda (which connects African small businesses with European retailers) focus on particular products or sellers.

While each of these verticals serves different customer needs, they all stand to benefit from the increased flexibility that invoice payment or BNPL offers.

B2B Marketplaces and Mondu

While many platforms offer payment through their platform, only a minority offer the preferred payment option of businesses: invoice payment. But this solution isn’t solely about convenience. Platforms with integrated invoice payment can increase their conversion rate by roughly 40% and basket size by up to 60%.

Mondu’s BNPL solution helps drive both revenue and customer retention, which translates to repeat purchases and future growth. Sellers can still offer customers their preferred payment options without having to worry about the complex operational burden of risk assessment, reconciliation, and dunning. Furthermore, Mondu enables wholesalers and vendors alike to improve cash flow and focus on what’s more important: doing business.

Given the gulf between payment options and customer expectations, it’s vital that these marketplaces adapt to the needs of their users and stand out in an increasingly competitive space.

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