It has taken awhile for fintechs to venture into the B2B space, but it has been occurring much more frequently, something we predicted a couple of years back in a related Mercator fintech Viewpoint document. The reasons for the more tepid pace of B2B development (versus consumer-related capabilities) is primarily related to the more complicated nature of the corporate processes and associated regulations, which can typically involve multiple jurisdictions. It simply requires more time for the business cases to come together, and a longer lead time for possible revenues. Therefore solutions take more time, and are targeted less towards ‘deep space exploration’ and more for visible corporate pain points where banks have not necessarily progressed by leaps and bounds. One of the target service areas for fintechs as they further venture into B2B has been cross border payments, where a number of solutions have appeared in the past several years. This piece appearing in TC (techcrunch.com), discusses an acquisition of one of these fintechs by the name of Banking Circle, the brand name for the Saxo Bank subsidiary called Saxo Payments, a 2013 startup based in Copenhagen.
Remittances and the process of transferring money between people and organizations continues to be a huge business — worth some $613 billion globally, according to the latest figures from the World Bank. Now one of the bigger players in the world of B2B payments is itself changing hands. EQT — the investment and private equity firm — is buying Banking Circle from its previous majority owner Denmark’s Saxo Bank. A Banking Circle spokesperson told TechCrunch that the deal is valued at 2 billion Danish kroner, or $300 million.
The main focus of the acquisition is clearly to take advantage of a major pain point for both small and large businesses in the interconnected global economy. In the crosshairs is SWIFT, the Belgium-based financial messaging cooperative, as well as expensive and opaque bank wire transfers, a major underlying source of revenues for correspondent banking. To their credit, SWIFT has responded with SWIFT gpi, a faster and more transparent cross border messaging solution (also exploring blockchain uses), and is gaining adoption amongst member banks. But the blockchain and hybrid distributed ledger solutions (e.g.; Ripple) and mass payout players such as Payoneer and Hyperwallet (just acquired by PayPal) point towards such demand, hence the greater interest among investors and global networks (i.e.; Mastercard Send, Visa Direct).
EQT is a prolific investor in tech startups, as well as an acquirer of them. Just last week, its private equity division EQT Partners picked up the commercial Linux distributor Suse from Micro Focus for $2.5 billion. EQT Ventures, which is also partly financing this deal, describes itself as “half VC, half startup” and aims to put in more than just money to the companies that it backs or acquires. It’s not the only one trying to do so, of course: the focus on using new digital rails for payments, and instruments like mobile phones and the internet to facilitate money transfers means that a number of startups have entered the fray. Some of the biggest that started out initially working with individuals, such as TransferWise, are now also building up substantial B2B businesses, too. This is one reason why EQT, with an eye on smaller startups, saw an opportunity to invest in, and supercharge, Banking Circle.
We expect continued innovation in the more challenging areas of corporate banking, and try to keep you ahead of the curve.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group