Digital payments in the B2B arena have lagged far behind consumer e-commerce, even with the big shift to digital brought about by the COVID-19 pandemic. The vast majority of B2B payments occur between small and midsize businesses (SMBs), which are the target market for the B2B financial operations platform BILL. The company seeks to streamline and simplify SMBs’ financial operations, including accounts payable, receivables, and expense management. In addition, BILL provides SMBs with clearer insight into their businesses for improved financial forecasting. In this interview, payments industry expert and McKinsey partner Roshan Varadarajan spoke with René Lacerte, CEO and founder of BILL. The following edited transcript shares highlights from the conversation, held earlier this year.
With consumer payments or retail payments, it’s pretty clear what the transaction is about. But that’s not true with B2B payments. When cash flow is the primary way you manage your working capital, by deciding who to pay late and who to collect from early, all of those decisions are part of payments.
Roshan Varadarajan, McKinsey: BILL was founded in 2006 by René Lacerte, who earlier in his career founded PayCycle. René saw the need for a B2B payments platform that helps small and midsize businesses with a broad array of financial operations by automating financial operations and decision making. Today more than 476,000 businesses use BILL to do just that. The company has connected over 7.1 million network members and has a broad solution suite that spans accounts receivable, accounts payable, and expense management. It also provides insights and forecasting and enables a variety of payment choices. We asked René to share his vision for BILL and its product suite.
René Lacerte, BILL: The way I think about it is we are talking about the processes that are the underpinnings of a business’s finances—having worked as an accountant, I understand that the GL [general ledger] package is a representation of the data a business has. But it’s not the processes that actually contribute to making the data. Think about the fact that we automate payables and receivables. But before somebody enters a transaction, there’s a decision. Somebody obviously has to look at the bill: “Is this for me? Is it not for me? Who else on my team do I want to have a look at it? Do I want to pay it now? Do I want to pay it later? Maybe I’ll make a decision later. Am I happy with the work?” These are all decisions that lead to a transaction showing up in the GL.
The GL just says, “You paid Person A x dollars.” If you can remember all the decision points leading up to it, that’s great. Our software enables you to automate those processes you would have a lot of interactions around. When we create those connections, it’s really creating connections between payers and receivers, between finance and other departments, between employees and the documents they are making decisions around. It’s creating connections between payments and the reconciliation of those payments.
But all those connections require effort to understand and time to process. By doing what we do on the AP [accounts payable] side, on the AR [accounts receivable] side, and the spend and expense side, we save businesses a ton of time—something like 50 percent. When we look toward the future, it’s to continue leveraging our understanding of what the financial operations are, the underpinnings of the business, and to automate those things. We will automate the things that underlie the financial decision making of the business. That’s our focus. We continue to see opportunities to extend, whether that’s adding payment types, or capabilities like spend and expense, or cash flow insights.
Here’s the example I use. The thing my wife loves most about her [Tesla] Model X is the fact that when she drives away, the garage door shuts, and when she comes home, the garage door opens. She never has to push a button. Those are simple processes. How hard is it to push a button? How hard is it to open your car door? But those processes got automated because of the data that was there: the data of the GPS, the data of the location of your car, your fob for the key. That’s how we’re operating and automating things today.
If you think about financial operations and all the things that are involved, there are many opportunities for us to make it simple. You don’t have to worry about it.
Roshan Varadarajan: Today the majority of large payments companies are concentrated in consumer payments, despite the fact that B2B has orders of magnitude more payment flows and faster-growing payment revenues. We asked René what drives this dynamic and how he sees the B2B payments space evolving.
René Lacerte: It goes back to the complexity of a transaction. With consumer payments or retail payments, it’s pretty clear what the transaction is about. But that’s not true with B2B payments. There’s lots of new information every day and lots of optimization happening. When cash flow is the primary way you manage your working capital, by deciding who to pay late and who to collect from early, all of those decisions are part of payments.
B2B payments are far more complex. It takes more software, and that’s where we come in. I do think there will be multiple providers over time. I don’t think it will be fragmented, with 100 different providers. I think there will be some concentration because of the value in the simplicity of how folks connect and do what it is that we do.
Roshan Varadarajan: BILL has made a number of acquisitions in recent years—Divvy, a leading expense management and corporate card platform, in 2021, and later two more, Invoice2go and Finmark. We asked René to walk us through the rationale to pursue inorganic growth and the decision making behind consecutive acquisitions.
René Lacerte: We’re always looking at the data we have on our platform. And we started seeing some interesting data points around spend and expense. We’d always had people using our platform to pay their corporate card. But we started seeing these other companies showing up as suppliers or vendors of our customers, and significant dollars shifting there.
That got us wondering if this was an opportunity for us to extend the platform of financial operations to include spend and expense. We spent more time understanding what they were doing and why we thought it was appropriate and adjacent to what we were doing. It became clear that it was adjacent. There are workflows and budgets—all different things we were also doing and wanted to do, which would lead to, for example, the cash flow insights and forecasting capability we announced in March that stem from the acquisition of Finmark. Those are things we’ve always envisioned as being part of the suite of financial operations.
Invoice2go was an opportunity for us to strengthen our AR capabilities. We went hard at AP in the early days. We’ve always had an AR solution, but we know there’s more we can do from a process automation perspective. We wanted to get even more AR capabilities from that acquisition, and we definitely have and are incorporating them.
It was easy for us to see different components of traction in each of those products—some inside the business, some from talking to accountants. Accountants will actually tell you a fair bit about what they need. And they will always talk about how being strategic requires insights and forecasting capabilities. That was why we did Finmark.
What you’re seeing in the acquisitions—and back to your first question around the vision—is we want to give businesses tools they’ve never had before for how they manage their cash flow. And you have to have all these processes automated to be able to do that.
Roshan Varadarajan: Every industry that serves SMBs finds distribution is one of the primary challenges, given the fragmented customer base and high turnover. BILL has been fairly innovative on distribution from the start, leveraging a mix of direct and indirect channels and, in particular, pioneering the use of accountants as distribution partners. We asked René to dig into the company’s distribution strategy, and how the company thinks about different intermediaries, including banks, as partners to fuel its growth.
René Lacerte: Reaching SMBs is hard. There are not as many [SMBs] as consumers, and they’re not as profitable [to serve] as enterprises. So most businesses give up on them; they don’t have the patience. One of the things I talk about a lot is that as an entrepreneur, you have to have the impatience to start something, and you also have to be patient from time to time. Obviously, 18 years into the business, I’ve been willing to be patient on some of these fronts. But we’ve innovated every day we’ve been around. I think the reason I got to three channels is that in the direct channel, you get to control the experience entirely, and you get to understand faster and iterate more quickly around your products and your go-to-market.
Accountants and banks are the most trusted advisers businesses have. I grew up in businesses that were sold to accountants. The data-processing companies my parents and grandparents had were always sold to accountants, so I understood the value accounting brought to the business. In fact, the reason I went into accounting is that a partner during the recruiting process said to me, “Seems like someday you might be an entrepreneur. The language of business is accounting; you should go learn that.”
What I learned is that when banks put their muscle behind a service, it makes all the difference. Anytime you’re doing adoption, crossing gaps, there are different waves that come. I expect there are a few more waves for us, and I think banks will be a part of that—in part because banks understand that payments are integral to society.
Roshan Varadarajan: Payments today is no longer a discrete business but rather a function that sits within a whole set of more complex software-driven workflows. Take the example of Toast, which has penetrated the restaurant industry by bundling a software and payments solution that addresses restaurants’ existing challenges beyond just payments, such as inventory management and reservations. So really, building a payments company, especially for SMBs , means you’re building a software company as well. We asked René what it takes to build great products at the intersection of software and payments.
René Lacerte: When I started PayCycle, I was running the business, and I was not using the bill payment products I’d built for QuickBooks. I was spending time at night thinking, “OK, why am I not using technology?” I do like to be an early adopter of technology. It wasn’t long before I got the answer that business payments are complex.
If you think about a business, you have all these invoices coming in. They’re not the same every month, so now you have to think about it. Consumers have three to five bills every month, and the only one that changes is your credit card bill. That’s the only one you have to look at, and maybe you don’t even look at it because it’s below a certain amount.
As a business, as soon as you get, let’s say, ten payments a month, there are three to five that are the same every month. But there are five that are different. You have different contractors coming in, doing different things; you have different events you’re planning for. All that difference means there is a process to review, and that creates more complexity.
From a software perspective, we wanted to solve the operational mess, clean it up, and earn the right to actually do the payment. All the complexity matters a lot, and you have to solve it. That’s why we started with the software. Then we went to the easy payments. Then we went to ACH [automated clearinghouse]. Then, over time, we’ve added all these other payment types that allow us to monetize differently.
Software is the envelope that packages the opportunity so that businesses don’t have to think twice about how they’re going to do business. We execute the transactions, and we make it super easy.
Roshan Varadarajan: It’s hard to have a conversation about payments without bringing up the topic of real-time payments as a new payment rail. BILL has integrated multiple payment options on its platform, including ACH, wire, card, and virtual card as well as others. We asked René how he views these options, both in terms of customer preferences and in terms of monetization, and in particular, whether he sees any risk that real-time payments will eventually be a threat to BILL’s virtual card revenue.
René Lacerte: The premise we’ve had all along is that choice wins. Customers value choice. Suppliers value choice. We’re not going to force a payment type. We’re going to give people options. We might give incentives to get people to try different payment options because of the monetization, but it is a choice.
What we see in all our payment types is that customers and suppliers make choices. Sometimes customers pay in FX [foreign exchange]. Sometimes they pay in US dollars. Sometimes customers connect electronically via ACH. Sometimes it ends up being a virtual card, because it can be same-day payments. Sometimes the supplier may say, “I want an instant transfer today. And I’ll pay something today, but I’m not going to do it next time. But I’ll do it the time after that.”
The choice means we see repeat usage across all our payment types by our customers but not 100 percent adoption, which tells us we’re building a platform that can continue to grow and extend. When you’re forcing people to do something, you don’t have the opportunity to monetize.
It’s not just any one of the tools that we monetize. It’s having all the payment vehicles so we can optimize the experience for customers. We believe that will optimize the monetization, and monetization will continue to grow because of it.
If you look at any of our payment products, like virtual card and international payments, as examples, they’re close to five years old. We’ve learned a ton about how to execute that part of the business. If you looked at it from the outside, you’d say, “OK, I need to have FX payments.” Now you’ve got to do all that work for five years to figure out how to actually go do it, and it’s not easy work. So we’re constantly innovating and adding things on top of that.
When I look at the competition, I generally step out of the pool. I look at the race and make sure I understand how they’re winning, what they’re doing that’s different, and what strokes I think I might want to do myself. Then we adjust our road maps and go. Strategically, we feel very strong about the position we have from a leadership perspective and how we need to continue to innovate to leverage that going forward.
The other thing that is not easy: payments are regulated. One percent of US GDP goes through BILL. All 50 states care about what we do. The federal government cares about what we do. Our own team manages and reviews every transaction. We’re using AI to assess which transactions need to get flagged, that need a human. But that’s a tremendous amount of learning over 18 years to build up to 1 percent of GDP.
So everybody else has to go figure that out. And we can continue to leverage that learning and those capabilities to maintain our leadership. Ninety percent of the payments we do are accelerated. Who needs RTP [real-time payments] when we’re accelerating? We already can because we understand the risk equation. I guess I’m somewhat flattered that everybody’s coming after us. But I’m more focused on how we continue to innovate and lead.
Roshan Varadarajan: Passionate business leaders often have great origin stories. René’s story starts well before him. It starts with his parents and even his grandparents. In his parting thoughts, René shared how his family history contributed to his own career and his passion for serving SMBs.
René Lacerte: My parents and grandparents started a data-processing business in the early 1960s. And in that business, they would go to accountants. They would basically get the ledgers, and they would enter the books so you could print them out and have a digital version of your accounting. The accountants would bring in SMBs. This is where the passion for SMBs began.
The night I was born, a large defense contractor that had been sourced through an accounting firm had a GL payroll AP job that had to get done. My mom was not feeling well, it was around 9 p.m., and my dad said, “Let’s just finish this job, and then you take tomorrow off.” So they did the work. They finished the job at 12:30 a.m., and I was born at 3 a.m..
I tell that story because I have been in and around fintech since the day I was born. Talking about payroll, talking about AP, talking about small businesses—I fell in love with the energy that I saw my parents had and that their customers had. I feel very fortunate that that is part of my history, because it led to all the ideas I’ve had around both PayCycle and BILL.
What I fell in love with is how SMBs are the glue of our society. They’re the fabric that weaves everything together. Helping them reach their vision and get back to what they want to do, whether it’s to be with their family or go add another product in their business—that’s what I want to do. That’s where the passion comes from.
I think, for all of us at BILL, the stories, the focus we have on understanding our customers’ experiences, is the motivating factor, because it’s just amazing. It really is amazing what people come up with and what they do. It’s the most positive thing I can think of in society when somebody is willing to take the amount of risk it takes to start something, that they are willing to put themselves out there, saying, “You know what? If I fail, I fail in front of everybody.”
