Today’s middle-market companies are tomorrow’s investment-grade companies.
But as Alan Koenigsberg, senior vice president and global head of large, middle market, treasury and working capital solutions at Visa, told Karen Webster, when it comes to giving them the tech-enabled tools they need to blossom and scale, “the middle market seems to be underserved.”
And for Visa, the mid-market firms belong to a class all their own: the corporate growth segment.
There are several ways to define a company in this segment, Koenigsberg noted, with many observers using revenue as a marker, mostly for underwriting purposes.
In the U.S., the typical definition is one where the top line ranges from a few tens of millions of dollars to $1 billion. Elsewhere in the world, the definition considers assets on the balance sheet or even the number of employees (which can broaden the classification of the “middle market” significantly).
Koenigsberg cautioned that it’s best not to get hung up on numbers. For Visa and the financial institutions (FIs) and FinTechs it has been partnering with to energize corporate growth, these businesses are too large for small business working capital and other commercial business solutions. But they are too small for traditional complex enterprise solutions. These corporate growth firms need the same solutions available to enterprises, although perhaps the lens of a consumerized-feel solution suitable for their age and stage.
A mindset shift on the part of providers must underpin the bid to better serve corporate growth firms.
“It’s the movement from purveying a panoply of 40 different solutions for a corporate growth company to packaging solutions around workflow, payables, receivables and reconciliation that make those solutions much more powerful,” he said.
For the FIs that get it right, the positive impact can and will be significant. The loyalty of corporate growth companies to their FIs has been well-documented, noted Koenigsberg, who attributed that loyalty to the setup of banking itself, which creates a sense of trust and familiarity that is hard to break.
There’s a growing recognition of the value (and need) in giving these firms a better range of working capital tools, and more providers are coming into the space. Koenigsberg said that’s a shift from his own days in banking only a few years ago “when everyone wanted to do business with investment-grade companies — and those are the easiest firms to do business with and to underwrite.”
But the great digital shift has leveled the playing field, at least a bit. Like their larger brethren, corporate growth companies are going global, scaling into new territories and reaching new audiences. But that’s no easy task in the current environment, he said, as the cost of capital increases.
Among the most pressing operational needs for corporate growth firms are better access to credit, better working capital management and improved accounts receivable and payables management. The desire for operational efficiency transcends all verticals.
In just one example, research from Visa in collaboration with PYMNTS revealed that 80% of healthcare companies plan to use a working capital solution within the next year — a 27% rise in usage compared to the past year. Corporate or virtual credit card use to finance working capital needs is set to increase fourfold.
These developments show that the use of dynamic discounting and other non-credit methods of managing relationships between buyers and sellers is waning, in part because treasurers and chief financial officers are re-examining how they put their own money to work on a day-to-day basis (even including overdraft as a cash management tool) as payments move from paper checks to digital channels. And with a nod to back-end modernization, he said, only a bit tongue in cheek, “I haven’t seen this kind of excitement in accounts receivable since 2004.”
“The movement to card is moving faster because it’s a matter of straight-through processing,” he said. “The payments are easier to reconcile, and the whole process is more holistic.”
The re-examination of the back office is giving Visa, in partnership with FinTechs and banks, the opportunity to change the dynamics of supply chains themselves — as buyers and suppliers can choose from a range of options when it comes time to pay and be paid, Koenigsberg said.
A healthy supply chain comes first and foremost, as corporate growth firms seek to capitalize on new growth opportunities.
“One thing that everyone has recognized as a result of this pandemic is how important the supplier relationships are and how this notion of collaborative commerce can be made actionable with working capital tools that are in the best interest of all parties,” he said.
That collaborative effort can help avoid a situation in which suppliers are stretched by payment terms — so much so that they find it tough to stay in business.
The greenfield opportunity to serve the banks that, in turn, serve the corporate growth market has transformed Visa in just the past five years, said Koenigsberg.
“In the traditional business model, we were dealing with issuers, acquirers and merchants,” he said.
But in the past half-decade alone, the payments network has been acquiring companies, building new commercial solutions and partnering now more than ever before to broaden its reach into money movement across accounts, wallets and cards, he said.
In a nod to only some of the innovations developed and still developing through the past few years, Koenigsberg pointed to the fact that over 60 real-time payments projects are in the works around the world. Elsewhere, in Latin America, card rails offer a working capital lifeline to agriculture firms in an economy where 20% of individuals and families make their living from that sector.
“We’re arming our frontline salespeople to have a bigger portfolio of solutions that are accessible and accretive to the corporates,” he told Webster.
Looking ahead — and in a teaser of what’s to come — Koenigsberg said Visa would be introducing a working capital “index” designed exclusively for middle-market/growth corporates that takes stock of roughly half a dozen key verticals, including healthcare, agriculture, commercial fleet and mobility.
“We’ve got an incredibly robust build-and-partner strategy,” he told Webster, adding that for the corporate growth clients, “if you’re able to cover them, provide services to them — you’ll catch them on the way up … and we’ll enable banks to purvey the services that help accelerate their growth.”