Gauging the complex needs of the LMM space

The large and middle market is often used as a catch-all phrase but, in fact, the sectors are distinct with very different needs in terms of financial solutions. Visa typically defines the mid-market as organisations with between $10M and $1B in annual corporate revenue. Large businesses are typically those with revenues above $1B. At Visa, we consider these definitions to be mere guideposts; because to truly understand whether a $10M company is small or middle market or whether a $750M company is middle market or large market, we also factor in characteristics such as number of locations, number of employees, complexity of business processes and industry sector. Also, we must account for how the financial institution defines each customer segment within their banking relationship model.

This sub-segmentation and targeted approach also line up with how fintechs are often specifically focused on a segment and/or industry sector. Fintechs are often specialized, which means that they are experts in a specific industry, like commercial real estate or construction, or business process, like accounts payable, or supplier enablement or bill pay.

Bringing digital solutions to the fore

COVID has not only been a catalyst for the move to digital in the consumer world, but of B2B as well, with a notable demand to displace checks and move to digital payments quickly. Across the large and middle market space, digital solutions are in demand to solve a range of business problems with particularly new emphasis on all sides of the order-to-pay cycle.

In a Visa Barlow Research Flash Panel conducted during COVID, middle market companies highlighted their sudden need for digital solutions: one company commented, “We're trying to figure out how we'd make payments electronically rather than physical checks.” Another stated “We need additional options for electronic banking if we can't issue checks”. These comments are indicative of the challenges faced by companies of all sizes. And the challenges don’t start and stop with the initiation of the payment but are present throughout the procurement, accounts payables and accounts receivables processes. For example, companies of all sizes are looking to deepen their supply chains to source goods and services from alternative suppliers when primary suppliers are either struggling or haven’t been able to keep up with inventory demands.

A recent National Center for the Middle Market COVID report¹ found that middle market company leaders struggle most with disruptions to supply chains - both upstream and downstream - and the need to preserve, mitigate and manage working capital.

So digitization is an immediate need in the supply chain and in the initiation of B2B payments, this carries through to pre and post-payment activity as well such as the ability to set granular, temporary use rules for specific cardholders or payments; visibility into spend post payment; and streamlined reconciliation. As digital solutions are implemented across this spectrum from pre-payment to supply chain diversification to payment initiation, payment receipt, reconciliation and reporting – “cash” flows more seamlessly and with better predictability and less risk for buyers and suppliers of all sizes.

In its recent, COVID-19 Global Survey, Inside Business Impacts and Responses, the Association of Chartered Certified Accountants (ACCA), which polled over 10,000 members and other stakeholders across the world, found that cash flow problems were the second biggest business impact faced by respondents owing to the outbreak of COVID-19².

So digital solutions and payment methods that offer these benefits are getting more traction. Commercial payments in the form of physical cards and “virtual” plastic-less accounts, that can be applied to invoices or used in temporary ‘cardholder’ scenarios, bring together the full spectrum from pre- to post-payment controls and automation. The digitization across the spectrum of pre- and post-payment activities is often powered by a combination of agile fintech solutions, coupled with the expertise and resources of financial institutions, along with the reach, breadth and depth of payments processing networks. This is especially true of virtual account use cases that streamline and speed payment in multiple scenarios, such as enabling companies to pay a strategic supplier with a virtual account and neither party (neither buyer or supplier) ‘touches’ the payment, or enabling a company to issue an account from a mobile app for an employee that does not have a physical card but needs a payment method for one week to support conference expenses. In a recent Visa Integrated Payables Research Report³, 50 percent of buyers responded that their organisation plans to grow the percentage of payments they make by virtual payments within the next 24 months compared to just 8 per cent who expect a decline.