Leverage financial automations to make your marketplace a super app for SME customers

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Group 1948755653
Group 1948755652

Leverage financial automations to make your marketplace a super app for SME customers

The world’s biggest online marketplaces, such as Amazon, eBay, and Etsy, are successful in part because as they scaled, they built out a raft of functionalities for the vendors that made their platforms stickier and the costs of switching higher.

This buildout of new functionalities such as fulfilment inventory management, after sales and dispute resolution, invoicing, VAT compliance, and so on, created a virtuous circle that has driven drastic growth for the platforms – the more vendors there are, the more shoppers they attract. And the more shoppers there are, the more vendors that come on board.

Why automating financial processes for SME customers can help you drive drastic growth 

Every marketplace with any sort of ambition would love to have the sticky product suite that Amazon, eBay, and Etsy offer to their sellers. But if you are building out a B2B or vertical-focused marketplace in 2022, it is not possible to invest the resources into your product that the 800 pound gorillas of the marketplace world have.

However, you can accelerate your product offering in other ways, and one of those ways is through automating manual accounting and financial processes. 

Financial automations – think of functionalities such as accounts receivable/invoicing, accounts payable, and payments – are a compelling addition to your marketplace product offering for two key related reasons: 

  • While the SMEs on your marketplace have accountancy needs like any other marketplace sellers, many of them use outdated software, or spreadsheets and manual processes for these purposes. As an example, one recent survey suggests that 50% of small businesses in the US don’t use accounting software. 
  • As noted by McKinsey, digital solutions are often designed primarily for large enterprises, meaning that small companies the world over are unders-served in financial automation and accounting tools. 

Combined, these reasons mean that you have a large addressable market for financial automations which is also currently under-served by existing software vendors, making for a compelling opportunity to increase the stickiness of your marketplace, increase your revenue, and even attract new SME sellers. 

You can accelerate your marketplace towards super app status

If you see an opportunity for your own marketplace to invest in financial automations for your SME customers, you are now faced with three choices:

  • Build your own financial automations. 
  • Partner with a payments provider (such as Stripe or PayPal) that also offers financial automations for SMBs.  
  • Partner with a specialized provider (such as Monite) focused on financial automations for marketplaces and other platforms.

When presented with such choices, it is obvious that we will be advocating for the third choice. However, it is important to understand why that is, so let’s talk through the advantages and pitfalls of each approach for marketplaces specifically. 

Build your own financial automations

To start with, let’s take a look at building an invoicing automation tool as an example of financial automation. As invoices are standardized documents similar across most countries, it may appear to make sense to build it in-house. 

However, a point that is not alway well understood is that finance automations contain an incredible amount of edge cases and hidden complexity. For example, in the case of invoices each country has its own compulsory information, custom formats and industry and/or country-specific layout requirements.

Likewise, country-specific tax and/or regulatory information needs to be added. And as you expand to different markets, this complexity multiplies with new regulations, languages, and more becoming a drain on precious internal resources and stopping you from being able to focus on building what makes your marketplace truly unique. 

Invoicing is not the only finance automation that is more costly to build than it may appear on the surface, and building them internally generally makes little sense when there are existing solutions that you can buy for a fraction of the cost. 

Read more: Four reasons buying an embedded finance solution could be a huge win for your business

Partner with a payments provider that also offers financial automations

Some leading payments providers – Stripe and PayPal among them – offer financial automations including accounts receivable/invoicing, as well as their trusted payments technology. 

This may look like an interesting proposition for your marketplace. After all, this is proven technology that powers payments and other solutions for millions of businesses. However, for several reasons they are not necessarily the ideal solution for marketplaces: 

  • Solutions such as these can be effective for online businesses that want to issue compliant invoices or build a checkout process that’s convenient to their customers, but are not built for the marketplace itself. 
  • Many of them have compliance limitations that can impact international expansion. 
  • There is often a lock-in to their payments solution also. This can be an issue because no matter how reliable the payment solution is, there are always some kinds of limitations in terms of payment methods. And on top of that, if their connection goes down, you have no option to revert to another provider. 

And finally, and perhaps most importantly, they are not dedicated financial automation providers. Therefore, their invoicing solutions are an added layer on top of their payment rails, whereas a dedicated provider such as Monite provides deeper functionality, outlined in the next section. 

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Partner with a specialized provider (such as Monite) focused on financial automations for marketplaces and other platforms

At the other end of the spectrum, you have solutions such as Monite, which are built primarily for marketplaces, neobanks, and fintechs, rather than online businesses that want to embed financial automations in their app or website. 

In the case of Monite specifically, our goal is to provide marketplaces with solutions that help increase retention, upsell and cross-sell, and even attract new customers. We do this not through offering individual products, but building a suite that will ultimately help your business serve SMEs both inside and outside the marketplace. 

For example, where some Payments Service Providers (PSPs)  are building invoicing solutions for businesses as an add-on to their core offering, Monite is building these solutions as its core offering, with a range of features for marketplaces to enable their SME customers to invoice across different markets. But on top of that, with Monite, you can enable your customers to issue invoices for sales that have happened outside AND inside your marketplace. 

With this type of relationship, you are no longer only a marketplace, but expanding your reach to other parts of the business. 

And that isn’t all. PSPs that offer invoicing have a vested interest in you supporting their payments solution for your SME customers. But providers such as Monite have a more agnostic approach to payments. With Monite’s multi-rail payments solution, you benefit from the payment methods, redundancy, and stability of multiple PSPs, with a single integration. Now you can earn not only subscription fees on your invoicing solution, but also processing fees on your payments offering. 

Read more: What is a multi-rail payments solution, and how can it drive growth for your B2B platform?

And finally, solutions such as Monite are constantly building out new features designed to help marketplaces, neobanks, and fintechs grow, meaning that you are not only buying the solution as it exists today, but will benefit from opportunities to add new products purpose built for marketplaces in the future. 

Your marketplace can become a full operating system for your SME customers

So what does the long-term future look like for marketplaces that take this approach? 

Currently, many SMEs use a number of finance tools or even still use Excel. But this situation is likely to change quickly, as nimble marketplaces and other players start to offer embedded financial automations and even full accountancy stacks on a single platform.

Those that do this in a smart, fast way, will quickly move on from being a place to do business, as most marketplaces are today, and into the realm of becoming a full operating system for their SME customers. 

If your marketplace could benefit from financial automations today, contact us.