For a select few of us, SAP acquiring a majority stake in Taulia is big news.
Embedding financing in procure-to-pay networks has been a bit of a mirage for two decades. It has always made perfect sense, but the two worlds overlapped only slightly and never converged at scale. Perhaps SAP’s acquisition of Taulia will change that.
I say perhaps because:
- one never knows how committed SAP is to its network businesses and transactional revenue (versus SaaS recurring revenue) and
- I have been to this rodeo before.
When I started at Ariba in 2000, the network was used almost exclusively for exchanging catalogs and POs with suppliers. Over time, we added support for invoices, though it took a while for folks to get committed to even that. Eventually, we added support for VAT-compliant invoices to compete effectively outside the US. We even added dynamic discounting to stave off a great little company (Xign) that JPMC bought and proceeded to ruin.
Ariba also dabbled in supply chain finance and receivables financing with Orbian (which, ironically, was started as a joint venture between SAP and Citibank in 1999) and the Receivables Exchange. Mind you this was all before the end of 2010. After I left, SAP Ariba danced with Prime Revenue, Standard Chartered, and who knows who else. Nothing ever really seemed to get traction.
Other procure to pay or AP vendors have dabbled in financing as well:
- Tungsten has recently partnered with Orbian. (Tungsten is up for sale, will SAP go all in?!)
- Coupa added Coupa Pay but that seems to be card-oriented, not financing oriented.
- Avidxchange certainly handles invoices and monetizes early payments via card, but I’m not sure about non-card-based financing and Avidxchange is not targeted to enterprises.
- I’ve worked on a few other partnerships that have some traction but are not yet at scale.
Meanwhile, the financing players largely evolved, though perhaps did not exactly thrive, separately.
- As mentioned above, Prime Revenue stuck with just financing and did not get into invoicing.
- Taulia evolved from dynamic discounting to various forms of financing and e-invoicing.
- Demica, Orbian, Raistone, The Interface Financial Group, and other financing providers continue to grow separately, but partner with P2P networks. (Interface offers dynamic discounting software as well as financing.)
- C2FO progressed from offering just dynamic discounting to all forms of financing but has stayed out of the procure-to-pay flow.
- Greensill, of course, stuck with financing and partnering with invoice networks until it imploded for reasons well beyond normal working capital finance. In fact, it was a Taulia partner!
None of the financing players seems to have become a unicorn. An exception may be C2FO, but with Softbank involved who knows?! (They were in on Greensill as well.)
Why So Separate?
The financing and payment of a transaction depend on speedy approval of the invoice and are deeply connected to the rest of the transaction. So why are these two worlds so separate?
For two, among many other, reasons:
a) A single transaction cuts across procurement, accounts payable, and finance. These three groups speak separate languages, are often different buying centers, and are measured on different metrics.
Procure-to-pay software vendors speak largely to procurement. Even getting them to speak cogently to accounts payable was/is a lift. Speaking coherently to treasury/finance about early payment is another lift. In addition, most procure-to-pay vendors don’t even think of suppliers as customers. As a result, they have no supplier-oriented resources to reach out, enable suppliers, and convince them to take early payment.
For their part, the financing vendors largely did not want or know, where to enter the procure-to-pay transaction. All the financiers want is a valid, approved invoice that is not scheduled to be paid for a long time. That is certainly clean and neat.
b) Payments and financing are largely transactional revenue businesses, not recurring software SaaS businesses. Many software vendors don’t like these kinds of businesses and don’t feel comfortable selling them. How do you compensate a software rep on a transactional product? It’s not that hard, but software companies can make it hard.
(Other reasons involve low interest rates, accounting treatment uncertainty, poor branding, clunky interfaces, and limited appetite for some of these credits. Much of this is changing.)
The SAP/Taulia Match
Unlike many of its brethren, Taulia decided to get into the invoice flow. And SAP does think of suppliers as customers. SAP has the resources dedicated to enabling/selling suppliers. So this match may make sense. In addition, perhaps the time has finally come for this idea. Rising interest rates and supply chain disruption may make mean the third decade of this idea is the charm.