Bottomline Technologies (EPAY) is a public financial services software company that is not very well-known, despite its enviable name.  EPAY’s relative anonymity may stem from several sources:

  •  They are headquartered in New Hampshire.
  •  They have a bunch of legacy banking products, which are not the stuff of dreams these days.
  •  They do not talk a lot to the investor community.

But buried within Bottomline are two multi-sided platforms.  In their recent earnings call, Bottomline provided more information on how they intend to improve monetization of these multi-sided platforms.

PayMode-X:  Multi-Sided Platform #1

The first multi-sided platform is the Paymode-X Settlement Network.  EPAY acquired Paymode-X from Bank of America in 2009.  Paymode-X helps enterprises pay their vendors by ACH (and other electronic means) instead of by check–which is costly and prone to error. Bottomline and BofA traditionally sold this product to enterprise buyers on a per transaction basis (it was free to vendors).  Over the past few quarters, Bottomline has largely changed the business model to charging vendors rather than buyers.

Paymode-X Multi-sided Platform

 

 

 

 

 

This quarter, EPAY’s CEO said about Paymode-X (my emphasis added).

We signed a record 16 new PayMode-X deals under the vendor pay model. We now have 87 payer organizations that have signed under our vendor pay model, with about half of them live, we are just beginning to see vendor pay revenue contribution currently at an annualized rate of just over $4 million and growing well over 100% annually, but that is not the important metric, at least not today and at least not in my view.

What is important is the model works. Vendors pay a percentage-based fee for the technology platform, much like a Visa or MasterCard interchange. In return, they receive automation, better information and faster payments. The record 16 deals in the quarter was more than double a year ago.

Clearly, we are gaining sales momentum as the vendor pay model becomes accepted and businesses seek to maximize the automation and the value of the payables.

We have a network of 295,000 vendors today and almost 40 billion was processed in the second quarter alone. This is a very valuable Bottomline Technologies’ asset. We will continue to grow it going forward, but will do so under the vendor pay model, driving dramatically better monetization.

My bottomline (sorry!) on Paymode-X :  EPAY must still prove it can on-board enterprises, get them using the network, and convince vendors to accept new fees. The proof will be in the execution, but 300,000 vendors and a $160 billion annual run rate is more than a start!  A very small number of basis points on $200 billion makes a tidy business.  Of course, Ariba, Sungard, Billtrust, and many others understand this opportunity and are fighting for it.

Legal-X:  Multi-Sided Platform #2

The second EPAY multi-sided platform is one I know less about.  It is a specialized e-billing network called LegaleXchange, or Legal-X.  Over the years, there have been several successful e-billing solutions; this one remained a little opaque.  Apparently, Legal-X specializes in legal work associated with insurance companies and claims, rather than general commercial work.

Legal-X Multi-Sided Platform

 

 

 

Bottomline unveiled a new monetization strategy for this multi-sided platform as well (again my emphasis):

…PARTNERSELECT is a new offering to extend and complement our legal spend management business. This is a new product and new business model, but it is a sure bet if ever the worst one (sic).  What PARTNERSELECT does is it helps automate the very important process of law firm selection, management and evaluation. Platform sits between the buyers, which are our insurance carrier customers and the many law firms vying for their business.

Insurance companies pay a small fee, but the bulk of the revenue is from lawyers paying a fee to post the professional profile. For each new case, they are awarded. For the first time, we will be monetizing the 12,000 law firms and tens of thousands of lawyers, who interact with our legal spend management platform.

PARTNERSELECT provides a significant competitive differentiator as well as a new revenue stream. The reception to our data platform has been very positive and success in the form of new revenue streams is virtually certain to follow.

We have an install base of approximately 250 insurance companies who will benefit from, pay for and most importantly drive lawyer enrollment on the platform.  We estimate the total market to be approximately $125 million with the third of the available market represented by our current customer base, so we protect our competitive lead. At the same time, have the opportunity on an additional $40-plus million of cloud-based highly leverageable revenue. The investments we are making are primarily focused on platform, hosting and marketing.

I am not sure if EPAY will be successful, but I love the thinking.  Bottomline is trying to add matchmaking to its supply chain automation value proposition. And anyone who has 12,000 law firms on their multi-sided platform deserves some positive karma.

I am not trying to pump the stock (though I do own a little!).  EPAY’s considerable challenge is to monetize these businesses in a time frame investors can accept. Investors are fairly forgiving if they see topline growth, but the revenues streams are very small right now and the costs of these multi-sided platform businesses come well before the benefits.

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