B2B payments may have lagged behind the consumer side of the industry in terms of investment and new startups or solutions emerging, but there’s no doubt they’re catching up now. One indication is the growing willingness of investors to back payments companies operating purely in the business to business world. Tel Aviv-based Zooz has just raised USD24m in funding for its merchant payments platform in a deal that points to growing willingness among VC backers to invest in these businesses. Double the size of its last investment, the deal also suggests investors are putting money into growth-stage rather than just early stage B2B payments companies, and highlights growing maturity in the segment.
What's Zooz got to do with it?
So what does Zooz do, who invested in it and what does its solution tell us about the issues around payments facing businesses and merchants today? The firm offers merchants a simplified payments process for merchants who often rely on a single payments provider, which incurs high fees and can lead to high decline rates, but for whom using multiple providers is complicated and time consuming. Zooz plugs into multiple providers, aquirers and payment methods, routing each individual payment to the best financial institution for that particular transaction. At a high level, what the company is offering is a degree of standardisation a payments and finance industry that has never looked more fragmented.
The company says it’s using the money to accelerate growth, develop new products, break into new markets and deepen its footprint in the markets where it is already operating. Since its last funding around two years ago, the firm has opened offices in London, Berlin and San Francisco. Its presence in Europe is interesting, not just because of the size of B2B payments markets in the UK and Germany but also the incoming PSD 2 regulation in the region that will help reset the rules in the financial industry and dislodge the position held by banks has key holders, making space for new entrants to pick up the reins and create new standards.
The Series C funding was led by Target Global Ventures, with participation from Fang Fund, iAngels and Kreos Capital. Previous investors include Blumberg Capital, lool ventures, Rhodium, Claltech, XSeed Capital, CampOne Ventures and angel Eilon Tirosh.
B2B payments boom
For more evidence that investors are jumping into B2B payments, just look at AvidXchange, which picked up a whopping USD225m towards the end of last year to improve accounts payable and deliver payment automation. Bain Capital invested in the deal, one of the biggest in the space to date. AvidXchange has more than 5,000 clients in the midmarket space spanning industries from real estate to energy to construction. Indeed the breadth of sectors its customers operate in only serves to highlight the size of the addressable market and depth of demand for payments services in this space.
Another sizable recent deal in the space is StoneEagle, which picked up USD76m in a deal from FTV Capital. The firm provides a platform for outsourcing payments in the shape of cheques, cards and ACH and aims to eliminate reliance on paper.
Trapped in a culture of cheques, paperwork and bureaucracy, it’s not a surprise that innovation and disruption has focused on the lower hanging fruit of consumer payments until recently. While change tends to be slower when corporates are involved, the size of this multi-trillion dollar addressable market means we can expect to see investment in this segment soar over the next few years.