When given the volume and simple nature of most B2C payments, you might think that the total value of these payments exceeds that of the more “behind the scenes” B2B payments. However, you would be severely mistaken. In 2021, Credit Suisse sized the global B2B payments market to be valued at more than double that of B2C payments (125 trillion USD vs. 52 trillion USD).
This has been overlooked by more than just the casual reader. For some time now, an opportunity in the B2B payments market has been left open by the traditional large banks and schemes. These players have historically invested a below expectation level of funds into the digitization of B2B payments, instead focusing on B2C, where margins might be higher but on lower volumes. Although this trend is rapidly being reversed, it has allowed space for a trove of opportunistic start-ups to grow and capitalise on the latest B2B payment trends. One such trend is that of user experience – a rapidly growing group of SMEs are expecting similar banking experiences to those found as a consumer. Starling Bank, Qonto and N26 are three prime success stories of the start-up cohort that have capitalised on this trend; however, the list is surprisingly large. These B2B banking start-ups offer value-add services that are simply not found with many traditional business cards, such as expense management tools, automated bookkeeping, and tiered pricing based on business requirements.
In the race to rise from being a small-scale start-up to a more established business-savvy bank, a good deal of related acquisitions have been made by a number of different companies in recent years. This level of consolidation is to be expected when the early entrants to a fresh market start to feel the grip of competition.
The latest acquisition to make the headlines has been the purchase of Penta by Qonto for an undisclosed figure. Penta’s tagline is ‘Business Banking Simplified’; they offer quick eKYC and a tech-savvy app to manage all things from company cards to expenses. They primarily serve German clients and notably have an automated interface with DATEV software. DATEV is a German SaaS provider that many local businesses use to streamline and automate their financial accounting – so having this interface integrated with the API is a very strong selling point for Penta in the market. Qonto, based in Paris and the recipient of significantly more international funding than Penta, has less experience in the German market. Their long-term plans, however, are to be the leading SME banking partner across Europe. Thus, through this acquisition, Qonto has now positioned itself to be a leader in SME business banking in Germany. Furthermore, they have highlighted that they have plans to consume an increasing portion of the market that start-ups, like them, initially created.
Qonto historically has not offered business loans to its partners in France and continental Europe. This contrasts with many other B2B-focused banking start-ups such as N26 and Penta. However, there has been a shift in mentality. With this acquisition of Penta and a new partnership with financing firm October, Qonto has changed its tune in favour of supporting these business loans.
Despite this acquisition, there is still room for the smaller German business banks to rise to the throne, such as Kontist or Pliant. However, the window of opportunity is quickly closing. Traditional banks are quickly launching their own SME offerings. Despite their less appealing nature to the younger generation of businesses, they are still winning many valuable customers and causing a growing headache for the fintechs. To add to this, growing international players such as Qonto are looking at potential acquisitions in Germany to expand their global reach and their list of service offerings. Whilst Penta may still operate as a stand-alone business, Qonto will likely bring some of their own services into the German market through Penta, if they are not offered already. The reality is that business consolidation and competition will continue to rise and not all the aforementioned hopefuls can be successful in their ventures. But for now, the German SME banking sector is an interesting prospect for both investors and spectators alike.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).