During the past twelve months there has been an ongoing acceleration in the pace of collaborative efforts on the part commercial banking institutions, networks and various fintech entities, to provide better digital solutions for corporate cash cycle management. This is something that Mercator has been expecting as a natural outgrowth from the frenzied venture capital run up of fintech startup investment, which has been estimated at more than $75 billion over the past 4 years. The lion’s share of that investment pool has been going to what can mostly be described as products and services directed towards individuals and small businesses (which are sometimes indistinguishable). Banks of course have taken notice of the speed and dexterity with which fintechs can develop easy-to-use products using latest generation technology. As such there has been a series of steps taken by many financial institutions to get closer to the action, for obvious reasons. Things like special venture capital units, innovation labs and sponsored accelerator programs have sprung up quickly in recent years. It has taken some time for the corporate banking side of the industry to gain new fintech adoption momentum, but it looks as though this is finally occurring. One might say that this is a logical progression, given the endemic complexity of solutions for corporates versus consumers, and what would seem to involve a steeper learning curve for the startup fintech development community to solve for more esoteric commercial products.
Commercial payments solutions have been going digital now for several years. The latest major headline about the increased partnership and general activity in commercial payments appeared last week. It involved JPMorgan Chase making both a financial investment in Bill.com while also agreeing to utilize the fintech company’s platform to deliver improved digital payments capabilities for businesses. This follows a number of other partnership and collaboration announcements during 2017, many to deliver expanded and easier automated payables solutions, particularly targeted towards small-to medium sized and middle market companies. This segment of U.S. businesses continue to have a substantial reliance upon check payments. Of course a unique aspect of this particular announcement is the financial investment (an undisclosed amount), which would seem to underscore the importance with which JP Morgan Chase places on providing a better solution in this space, not to mention a strong commitment to the partner company.
Mercator did manage to have a discussion with both Stephen Markwell, who is JPMorgan Chase’s Head of Treasury Services Product Investment Strategy for the Commercial Bank, and René Lacerte, the CEO and Founder of Bill.com. They were able to share some additional thoughts over and above the information contained in the press release. The Bill.com platform will be fully integrated as a branded JPMC solution and accessed through both the business and commercial banking channels. As such it will be positioned as a solution for a range of corporates across multi-segments and business sizes. This surprised us somewhat since Bill.com is essentially positioned now in the market as a small-to medium (SME) business solution. So the suggestion is that not only does JPMC see a need for the Bill.com capabilities in some of the large market segments, but that there is confidence in the platform’s scalability for more robust large market transaction demands. Although the level and specific nature of the investment was not able to be shared, when asked about how the capital injection might be utilized, Mr. Lacerte did indicate that distribution expansion is a primary goal and opportunity. We did not receive any indication of specific collaboration terms such as length or exclusivity, but the level of integration and financial investment would certainly indicate this is an expected long term relationship. Specific launch dates were not given, but Mr. Markwell did indicate that 2018 will see a controlled rollout, with pre-launch pilots for the various segments as eventually prioritized. The initial rollout is also not expected to incorporate virtual commercial cards (single-use-accounts). The overriding priority is to move companies away from paper processes. Mercator would expect that SUA capabilities will be an eventual add-on, given the general competitor landscape.
These are interesting times for the commercial payments space and we have a hunch that the current pace of activity will not soon be slowing down. It would appear that a large shift away from checks should be in the relative near term horizon given the level of collaboration and expanding distribution channels accompanying all the digital payment activity. With improved technology, faster payments systems gaining industry attention, and cross border capabilities in a transformative stage, we seem to finally be on the cusp of legacy payments replacement.