One of the most highly targeted areas for growth in the digitization of products and services for financial operations is the middle market. There are a number of ways to define middle market, but it is generally seen as that vast mix of companies in sub-segments across multiple vertical industries, with revenues in the range of $20 million to $1 billion.
In this release from the payments automation fintech AvidXchange, we read about a recently completed study of payments made across the company’s network during the past couple of years, including the first three quarters of 2020, which of course reflects the impact of COVID-19 and lockdown policies on economic activity.
‘AvidXchange…has launched its first-ever report examining middle market spending trends. Based on data captured from the 12 million payments processed annually through the AvidPay Network, the research shows that middle market spending is pivoting back to a positive trajectory after two years of growth that was interrupted as a result of COVID-19. Overall spending by middle market companies was down four percent in Q2 2020 compared to Q2 2019, but rebounded in Q3 to a flat percentage year-over-year.’
The spending trends included in the report are results across five major industries: technology, finance and insurance, construction, transportation and warehousing, and accommodation and food service. After reading the report we had a chat with Dan Drees, Chief Growth Officer at AvidXchange, in order to better understand the findings.
An important distinction to be made for readers who have already read (or are planning to read) the brief report is that the spending trends are inbound payments to the indicated industry segments, not outbound payables. Therefore one can associate the data more along the lines of revenue to these industries. It will likely come as no surprise to most that out of these selected industry segments, the hardest hit have been related to transportation and travel/leisure.
We have also been hearing about a general acceleration of cash cycle digital transformation, and that is reflected in this data, with middle market companies increasing quarterly tech spend by up to 14% year-to-date.
Since AvidXchange is one of the companies delivering products and services in this space, we asked Mr. Drees how the company is faring in the midst of the pandemic, and he indicated there was record demand in Q2 with truncated engagement times. More recently they are seeing smaller sized companies also engaging.
One additional bright spot for AvidXchange is their financial services channel, which was given a large boost by the 2019 acquisition of BankTEL. This has created 1,500+ additional banking relationships for the network, mostly in the smaller asset classes where automation is sorely needed. “The company has been dedicated to servicing the middle market throughout its twenty year history, and as one of the important engines driving U.S. economic growth, we are not surprised by the resilience of the sector during these tumultuous times,” said Drees.
‘AvidXchange’s Middle Market Spending Trends report is based on customer spending data across the AvidPay Network….the network allows businesses to make payments more efficiently and cost-effectively by transitioning suppliers to electronic options like virtual card and AvidPay Direct (APD). Offering services including maintaining supplier payment conditions and fielding calls on outstanding invoices, the AvidPay Network allows AP teams to focus on more strategic initiatives that support future growth, rather than printing and mailing paper checks.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group