B2B Payments — Card Players UPDATED on WEX
Fleetcor, WEX, Visa and Mastercard
Pure Play B2B Card Companies
Fleetcor and WEX are both “pure play B2B” payment companies. For trivia purposes only, WEX stands for Wright Express Corporation and they started with a simple Fleet card way back in 1983. In reviewing competitors in various markets over the course of my career, I can not remember ever seeing two companies as similar as Fleetcor and WEX. I don’t mean this derisively at all, but it is striking how similar they operate.
Fleetcor / Annual Revenue $2.6 Billion
From the Fleetcor website and marketing materials, what they do:
“We help simplify, automate, secure, digitize and control payments”
The following data points are from Fleetcor’s 2020 Institution Investors Conference presentation by Eric Dey, CFO of Fleetcor.
Fleetcor is focused on 4 key market segments and has 1 non-focus area.
- Fuel / 44% of revenue
- Corporate Payments / 19% of revenue
- Lodging / 8% of revenue
- Tolls / 13% of revenue (Brazil focused)
- Not a Focus — Gift Cards / 7% of revenue
In March of 2019 Fleetcor acquired a company called NvoicePay for $255 million. NvoicePay delivers integrated payables software that allows AP staff to make payments with a virtual Mastercard and traditional payment modes (ACH, check, and wire) in a single payment run. Three key points about this acquisition
- It is to shore up their growing Corporate Payments business
- It is a move away from their core Fleet business
- It delivers VCN or Virtual Card Number technology and expertise
Additionally Fleetcor has strategic partnerships with both AvidXchange and Bill.com, two large and growing players in the B2B payments market.
WEX / Annual Revenue $1.7 Billion
WEX is very similar in size and focus to Fleetcor with WEX looking to Healthcare payments for future growth while Fleetcor is focused more on B2B payments as both are looking to move away from Fuel cards as their primary revenue source.
From the WEX website:
“We simplify complex payment systems, unlocking insights, opportunities, and efficiencies to give you greater control of your business.”
Just as a reminder of Fleetcor’s summary on their website
“We help simplify, automate, secure, digitize and control payments.”
Do they use the same marketing agency?
Enough about how similar they are, in fairness WEX does break down their very similar markets slightly differently AND they have a focus area around Health that Fleetcor does not have.
WEX has 3 primary market segments
- Fleet Solutions / 60% of revenue
- Travel & Corporate / 21% of revenue
- Health & Employee Benefits / 19% of revenue
UPDATE !
“WEX has advised eNett and Optal that it is not required to close the acquisition of eNett and Optal because of this (COVID) material adverse effect.” Source: Businesswire
At the beginning of 2020 WEX did an acquisition (CANCELLED) that probably looked brilliant at the end of 2019. They acquired two related companies. Optal and eNett, Optal is a part owner of eNett so it is a confusing acquisition. WEX paid $1.28 billion in cash and 2 million shares of WEX stock. WEX (ALMOST) paid 11 times trailing revenue, which seems a hefty premium but could be justified if not for 2020 crashing the party.
“The combined enterprise will be well positioned to capture volume in the global travel market” — Melissa Smith WEX Chair and CEO
JUST KIDDING !
This quote would have been fantastic until COVID19 hit and travel ground to a halt. No one thinks travel won’t rebound. But WEX took on $1.4 Billion in new debt to finance the acquisition of Travel payments expertise and technology with possibly the worst timing possible.
UPDATE: Instead of taking on $1.4 billion in debt, WEX has taken in $400M from a Warburg Pincus LLC affiliate.
Imagine if they instead used that $1.4 Billion in debt to invest in their Health Payments segment?
UPDATE: Now maybe they can invest in their Health Payments business with that $400M from Warburg Pincus.
VISA & MasterCard B2B Payments
At a payments event last year this author talked to some folks with inside knowledge of VISA’s building a B2B payments business. Nothing confidential I assure you, just some payments geeks chatting about business. What stuck out to me in this conversation:
VISA looks at B2B payments with these thoughts:
- They have a -0- revenue goal for 3 years — they were told BUILD, BUILD, BUILD !!! (I doubt this is literally true, but suspect the underlying message is spot on)
- “Building from the ground up on a blank sheet of paper”
- “We realized there are trillions in B2B transactions that we have -0- access to” — (This is not actually 100% true as VISA has P-Cards and such, but the point was they are missing out on large payment volumes.
- “Margins on ACH are bad, so we are building a network for B2B from the ground up”
VISA Launches B2B / Connect
As noted above VISA was very active in building out their B2B payments platform during 2019. Looking back to 2016 VISA announced a B2B effort when they worked with a Blockchain platform called Chain. Chain was acquired by InterStellar in 2018. It is unclear if VISA continues to build on the Chain platform.
In March 2019, Visa acquired Fraedom, a software-as-a-service company in New Zealand that provides products and services such as expense management and accounts payable to financial institutions and their corporate customers. This building block became the basis for VISA’s push into B2B beyond the card volume.
Noting that VISA holds the volume lead in B2B card transactions, from a Yahoo Finance article citing 2018 data
“Visa’s business-to-business (B2B) payments volume grew to $950 billion, or more than 11% of its total payments volume.” Source: Yahoo Finance
VISA announced their B2B network as Connect in June of 2019.
“By creating a solution that facilitates direct, bank to bank transactions, we are eliminating friction associated with key industry pain points,” — Kevin Phalen, SVP, global head of Visa Business Solutions
The head of the B2B payments at VISA is an experienced Transaction Banker with over 15 years of commercial card and wholesale banking experience. Worth noting Kevin started his career at Mastercard before moving to a Transaction Banking career.
Kevin Phalen, Head of Global Business Solutions at Visa has been at VISA for 3 Years. He was brought into VISA after 9 years at BofA as Head of Commercial Card & AP and prior to BofA was in Commercial Cards at JPMC for 6 years. The net of this is that VISA decided to bring in a long time Commercial Banker to head up their B2B Payments business. (you will see the dichotomy in a moment from what Mastercard did)
MasterCard Launches B2B / Track
Mastercard had been putting the pieces of their B2B solution in place for about 3 years after launching their B2B Hub in 2017. Now their B2B solution is called Track (not to be confused with VISA’s Connect) and includes an array of product offerings and partnerships. They have announced partnerships with Bottomline Technologies, a leading B2B provider as well as Infosys, a leading IT services firm.
“The Mastercard Track Business Payment Service is the first global open-loop commercial service built to automate payments between the world’s suppliers and buyers.” Source: PYMNTS September 2019
“Mastercard Track helps supplier and buyer partners tackle the systemic challenges of business-to-business payments, reinventing how businesses send and receive funds so B2B payments can keep pace with innovation and liberate enterprises from the inefficiencies throughout the system.” Source: PYMNTS September 2019.
In contrast to VISA, Mastercard went with a long time insider to lead their new B2B Payments business, James Anderson, Executive Vice President — Commercial Products at Mastercard. James was 12 years at Mastercard prior to his role heading up B2B. He was previously leading Mobile Payments efforts. And his experience prior to Mastercard was in the Telecom and Wireless industry, so clearly not a long time commercial payments leader from a traditional bank. The net is that Mastercard went with long time innovator from inside of Mastercard with no commercial bank background.
I should note I met James years back when we were both in the world of Mobile Payments, good guy and I am sure he will do well in this role.
I am not sure which will turn out to be the right profile of a B2B Payments leader and both could be wildly successful with different backgrounds. I will say my next B2B Payments paper will dive into Goldman Sachs B2B business and they went with a completely different type of leader for their efforts.
The table below outlines Mastercard Track vs. Visa B2B Connect. I am sure there are differences, but they are hard to see.
Both VISA and Mastercard have been busy growing their tech stacks and capabilities with acquisitions. While VISA also has a newly energized Corporate Venture Capital (CVC) group.
Of course, VISA’s $5 billion acquisition of Plaid is the headline for VISA and that certainly adds value in B2B as well as consumer. But they had others as well, for B2B the most notable is Fraedom for nearly $200M in 2018.
What I think sets VISA apart from Mastercard is a more structured and active CVC approach. I also would say the fact that VISA is based in SF/Bay Area gives them an edge in my very biased view. (As a Native of the Bay Area)
Here is a quick summary of VISA’s recent CVC deals, notice the SF focus. This list is likely not inclusive of all VISA venture deals as private deals data can be difficult to get unless publicly announced. Note that none of these are B2B focused.
FACERE25 Analysis of Mastercard and VISA B2B Payments
The net is that both VISA and MasterCard ran out of room to grow in consumer payments, so they shifted their focus to B2B. They are investing heavily in investments, acquisitions and hiring to build a very strong head start in the B2B space. They both communicate similar value propositions and emphasize the network aspect of B2B payments.
Since both look similar from the outside with VISA having a slightly more SMB focus in some messaging it is difficult to say that one or the other wins the lead in B2B payments from a network. American Express has long been the more B2B payment card and yet they are strangely silent on this shift as VISA and MC begin to make aggressive moves in the market.
Conclusion
WEX and Fleetcor have carved out a great niche as Fleet leaders now moving into Travel, Health and B2B payments. VISA and Mastercard are now applying their scale, reach and resources against the trillion dollar B2B payments arena. However, as I have noted in my other B2B papers, there is still see lots of room to grow in this Trillion Dollar market segment and I don’t yet see an 800 pound gorilla.
There is not yet an Amazon like in e-commerce or a Google in search, so many B2B payment segments and sub-segments that are ripe for innovation and a new player.
