How to approach payments as an early B2B marketplace

How to approach payments as an early B2B marketplace

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According to Statista, Amazon Business' market share is forecast to grow to 2.4% of all B2B sales by 2025. But Amazon is not the only one getting in on the B2B marketplace trend. B2B marketplaces are rapidly growing in popularity. Three years ago, Digital Commerce 360 was following about 75 B2B marketplaces. Today, that number has grown to over 400, across 18 industries.

The sheer volume and value of B2B transactions alone makes it a huge elephant in the proverbial ecommerce room that no supplier, integration tool, designer, or even retailer can ignore - ultimately, it’s affecting all of us, in several different ways.

This hasn’t always been the case, though. B2B marketplaces have a long history of failed promise, mixed results and lackluster interest from buyers and sellers - until now.

B2B marketplaces first appeared on the ecommerce scene years ago (over 20 years ago, actually). While the concept of a universal platform where buyers and sellers can meet, view available products and services, and make purchases sounded good at first, multiple B2B marketplaces launched over time but ultimately failed.

The major issues ranged from inadequate ecommerce technology that enabled buyers and sellers to complete complex transactions easily and quickly, and a lack of interest from big companies with a substantial market share.

In general, B2B marketplaces appeared destined to occupy only a minor niche in the U.S. So what changed?

In the last two years, a series of events literally transformed the future of B2B marketplaces. Boosted by major ecommerce players like Amazon business and Alibaba, among others, plus the rapid launch of dozens of vertical industry marketplaces, online marketplaces are by now the fastest growing B2B ecommerce channel. If businesses once thought that customers wouldn't buy into the marketplace model, that's all changing. According to McKinsey, 60% of B2B customers are comfortable purchasing on a marketplace.

Comfort of B2B customers purchasing on B2B marketplaces

Take Flexport, which raised $935 million in new investment money led by Andreessen Horowitz and MSD Partners. According to Flexport, they've moved $19 billion of merchandise across 112 countries in 2021.

And it all makes sense, doesn’t it? At the end of the day, if there's one thing that any seller wants, no matter the industry, whether consumer or B2B, it is - distribution. And marketplaces allow manufacturers to explore different ways to sell to buyers and reach news ones in new ways they themselves couldn’t beforehand. Plus, 60% of B2B tech buyers are millennials, wanting to diversify and expand their channels as much as possible.

All of this is further supported by the fact that:

  1. In terms of collections going through B2B marketplace platforms, we’re looking at 130% growth YoY in 2021, accounting for 3.5% of all business ecommerce sales.
  2. Amazon Business is moving quickly to become a more dominant company in B2B ecommerce, according to a new research brief from Bank of America Securities internet analyst Justin Post. He predicts that Amazon Business could generate $31 billion in gross merchandise volume this year, a figure that could accelerate to as high as $83 billion as soon as 2025.
  3. B2B marketplaces are diverse and not one-size-fits-all. Much like their consumer counterparts, hundreds of new vertical industry marketplaces are now designed to bring together digital buyers and sellers in a specific industry.
  4. Here’s where it gets most interesting - covid changed many aspects of B2B ecommerce, to a point where 40% (!) of business buyers now purchase at least 50% of their organization’s goods and services on marketplaces.
  5. AND - they’re going public. ACV Auctions inc. raised more than $400M on the NASDAQ last quarter, and more are about to follow suit.

Business marketplaces are not only here to stay - they’re growing in a massive, mind blowing pace.

They’re industry specific, with major manufacturers or distributors playing a prominent role in the rapid expansion in the U.S and worldwide. They’re uniquely built and fitting their category’s specific needs - yet they’re all experiencing the lack of integration and automation tools and infrastructure that can help them create a better, healthier experience and business. One example of that is payments.

B2B payments as the lever to growth

Outdated or inefficient payment infrastructure can be a huge business blocker. Paper checks are just not going to cut it. For marketplaces to really work online, they need to provide their customers with all of the traditional needs they're used to from the offline world (net terms, milestone payments, invoicing, payment methods) but in a seamless, digital way.

And it's not just about convenience for buyers and sellers. Marketplaces can't monetize if they don't have a way charge a take rate, and one that their customers are going to want to pay. Take rate is based on the overall service you are providing. By processing the transaction, offering net terms, paying vendors out upon delivery of goods, marketplaces maximize the kind of value they can add to the transaction. And that's critical in order to build a solid and successful business model.

Payments isn't something that only later stage marketplaces need to think about. It's the starting point for helping buyers and sellers move online. Ultimately, ecommerce is a massive shift to how merchants have done business for the last 20 or 30 years. That transition online needs to be as easy as possible. If B2B marketplace payments can be as seamless as it is to buy on Amazon, there is no reason merchants won't be excited about taking their offline selling and purchasing, online.

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