Online shops – and e-commerce more broadly – have taken off since the early 2000s, transforming the way that organisations conduct business. For business-to-business (B2B) transactions, marketplaces act as a significant platform to link suppliers and distributors, providing a smooth purchasing experience and boosting income for both parties. Especially in the recent few years, B2B marketplaces have become increasingly common.
But this evolution has developed quite slowly – B2B relationships are notably personal and offline, relying on trust built over time as buyers and sellers get to know one another. It should come as no surprise, then, that the industry has taken a while to embrace digitisation and foster new solutions.
Business-to-customer (B2C) relationships, on the other hand, have been completely disrupted over the past twenty years. Customers have come to expect a top-notch user experience, pushing sellers to develop the technology to make it happen. B2B purchasers now anticipate the same sort of luxuries that B2C platforms provide. The coronavirus pandemic further hastened this tendency, with numerous B2B suppliers shifting to e-commerce out of necessity.
However, there are significant differences between B2B and B2C transactions, such as order size, product delivery, and cash flow considerations. The enquiry, thus, is how to create solutions distinct to B2B marketplaces so that buyers and sellers can stay competitive.
The Landscape of European Business-to-Business Marketplaces
Prior to examining ways to enhance purchasers’ and suppliers’ experiences, it is essential to contemplate the development of B2B marketplaces and the current state of the landscape. 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 typically feature three distinct business models: traditional, SaaS-enabled and enquiry basket.
Traditional marketplaces are e-commerce platforms designed simply to link purchasers and sellers and represent approximately two-thirds of all marketplaces. Whilst established B2C players such as Amazon and Alibaba have created B2B marketplaces that encompass a broad range of products across numerous industries, traditional marketplaces are frequently specific to a particular sector.
SaaS-enabled marketplaces (SEM), in the meantime, complement the overall marketplace model with a software element, for example management tools to assist sellers in keeping track of their orders, promoting their products, or handling their stock. SEMs are most common in the contractors and professional services, transport and logistics and food sectors.
Enquiry basket marketplaces are general marketplaces in which prices for products aren’t listed, necessitating potential buyers to contact the merchant directly prior to a purchase. In this regard, they merge the networking potential of marketplaces with the personal touch of B2B relationship development. The most common sectors for this model are transport and logistics, as well as commodities.
B2B Marketplaces Set for Expansion
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 materialised a few years ago. Burgeoning tech talent are now bringing modern solutions to traditional industries that have typically been slow to embrace 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 organisations 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 realise the importance of marketplaces.
Difference Between Payment Methods and Customer Preference
With the increase of these platforms across sectors, competition is intensifying for individual marketplaces to distinguish themselves by enhancing the user experience and further driving revenue. Perhaps the largest 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 massive 95% of B2B clients favour invoice payment and 84% find it highly relevant, by far the highest value of all payment methods. This disparity presents a huge opportunity for new technologies to help marketplaces bridge the gap with their trade customers.
Business model implications on marketplace payments
So what effect does business model have on the availability of payment options? Whilst 88% of traditional marketplaces provide payment through their platforms, merely 39% offer invoice payment (with 8% being solely by request), whereas 72% offer card payments.
SEMs are a bit more advanced in terms of payment options – whilst only 62% provide payment through their platform, 56% offer invoice payment compared with 41% who provide card payment. Meanwhile, only half of enquiry basket marketplaces provide payment through their platform with just 32% offering invoice payment.
Key differences amongst B2B marketplace verticals
It’s also important to note that, regardless of business model, different verticals often favour 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.