While consumer payment options have proliferated extensively in recent years, business payments have been slower to digitize and automate. Bottomline has been dedicated to helping provide faster, more secure, and more automated payment options to businesses and financial institutions for over 35 years. Today it is one of the larger providers of digital banking, payment automation, and cash management solutions for businesses and financial institutions.
In this episode of Talking Banking Matters, Bottomline CEO Craig Saks speaks with McKinsey partner and payments industry expert Roshan Varadarajan about the company’s approach, how its Paymode business payments network works, and how AI may shape the sector. The following edited transcript shares highlights from their conversation. For more discussion of the banking issues that matter, follow Talking Banking Matters on your preferred podcast platform.
Roshan Varadarajan, McKinsey: For those who may be less familiar with Bottomline, can you give us a bit of the company overview, the mission, the role you play in the payments ecosystem, and maybe a little bit of the history behind the company?
Craig Saks, Bottomline: Bottomline’s focus and purpose are all about enabling business payments. The company has been at it for over 35 years and was listed on Nasdaq in 1999, and Thoma Bravo took us private again in 2022, which is when I joined as CEO.
We have a set of solutions that we sell to banks, which in turn offer capabilities for business payments or cash management to their corporate customers. We also have a set of solutions that we sell directly to corporates, and a number of platforms around the world that facilitate business payments in different forms. We have a digital banking platform for online business banking that’s used by a large number of banks in the US to service their customers’ payments needs and cash forecasting needs. And we have various payment fraud tools that enable us to protect business payments and keep them safe.
Most of our products or services are sold as SaaS [software as a service] solutions. However, one of our lines of business is called Paymode, and that’s a true transactional business payment network. It’s a B2B payments network in the US, and it’s actually a very exciting and rapidly growing part of our business.
Roshan Varadarajan: We have yet to see B2B payments companies become household names in payments. What are the limiting factors to having really large-scale B2B payments businesses? And what will the unlock be for that to change?
Craig Saks: B2B payments are more complex. The sector lacks maturity and the consolidation you’ve seen in consumer payments and even small-business payments. But there’s a massive, unharvested revenue pool involved, particularly in the US. The inefficiency involved is the key thing to unlock. You’ve got to deal with everything, from invoices and purchase orders and delivery notes and matching. You’ve got levels of authority in terms of approving payments. You’ve got cash forecasting. You’ve got the whole complexity of the accounts payable and accounts receivable process in the context of invoice to cash or order to cash and so on. It’s a much larger and more complicated and riskier ecosystem because of the amounts of money involved and the complexity and the fragmentation of the industry.
We believe it is inevitable that there will be a scale business payments network in the US, partly driven by the macroeconomic imperative, because payments thrive on scale and standardization. Also, the US economy needs and deserves more efficient business payments. Right now, there are all these different fragmented efforts that haven’t found the needed scale. And we believe that Bottomline is very well positioned to participate as a scaled network. Paymode is moving or facilitating over half a trillion dollars of payments every year. We have thousands of large payers, and we have 600,000 vendors or suppliers on our network, so we’re moving toward the scale and the density that is needed.
We also believe that business payments need to be offered as a service to the major players in the industry, particularly the big banks. So we focus on creating a platform and a level playing field that enable the largest banks to work with an industry-wide business payment network, which is how we position Paymode. We have several of the biggest US banks as participants or channel partners on the Paymode network, and we are seeing amazing growth with it.
Roshan Varadarajan: We’ve seen other versions of this emerge in industries such as healthcare, real estate, and utilities. What are the differentiating factors in this business? And what ultimately will determine the winner? Or is it mostly a race to scale?
Craig Saks: The question is which model is most likely to scale. Many efforts involve creating a proprietary payment offering where the fintech essentially puts itself in the middle as an intermediary. We think it makes more sense to create a platform that multiple banks and fintechs can use and connect to as a network.
We want to partner with the banking industry in a way that gives access to the bulk of the transaction value that flows through business payments in new ways. We want to create a level playing field for all banks to participate, so there’s no competitive disadvantage between participants. We do not get in the way of a bank’s brand, so it’s a white-label offering. We leave the money in the banking system, which is very bank friendly, so we’ve got no floating time. The money doesn’t appear on our balance sheet ever, which is really attractive to larger banks that are moving large amounts of money around. We don’t need a money transmitter license as a result. And because we don’t act as a money transmitter, we don’t take the money onto our balance sheet, which is really important to banks that want to partner with someone. They’re in the business of managing balance sheets and earning interest income out of that. We enable them to have our business payments offering for their largest corporates where there’s the majority of volume without getting in the way of their core business of managing the customer relationships, managing their brand, managing the flow of money, and managing their credit business.
We all recognize that there is this massive, untapped revenue pool in business payments that hasn’t been cracked. So for them, this isn’t about cannibalizing something else. This is about getting a share of a new and growing pie.
Roshan Varadarajan: What you describe sounds very compelling. What are the areas of pushback you get when you’re in conversation with banks?
Craig Saks: The questions you’re always going to have in business payments are “Why should I pay a fee for something that could be free? What’s in it for me?” and “What are the incentives for each of the different participants?” We think there’s a lot of value to being in a secure network when you compare the fraud that you would have in more open network or when you’re using checks. Our fees are based on efficiency of processing on both sides, AR and AP [accounts payable and accounts receivable]. Our payers want to pay in a certain way, and vendors want to be paid that way, as long as the fees are fair.
With our Paymode network, it’s an at-will relationship. No one has to pay or accept through Paymode; you choose to do so as a payer or a vendor, which is quite different from a lot of the other business payments networks in the SME [small and medium-size enterprise] space, where the business payments provider essentially controls the choice of payment. That gets in the way of a brand, and it gets in the way of a customer end user experience. We leave that power in the hands of the payers and the vendors and our bank partners.
Roshan Varadarajan: What are the biggest changes you’re seeing in the industry now—how customers are engaging with you, bank readiness to partner, and maybe why this is the moment for business payments to really accelerate versus five or ten years ago?
Craig Saks: If I look at the industry broadly and particularly the US, there is a massive drive by the banks to get rid of checks. The fraud profile and inefficiency of paper is getting to the point where we are moving beyond “Let’s keep checks because customers like it” to “Let’s encourage customers to use something better.” It almost feels like a trivial driver, but the volume of money that is moved via paper today and the paper processes involved in that create a significant driver for change. We’re seeing our customers’ marketplaces generating attractive revenue flows with easier payments, so moving away from risky instruments like checks or even ACH payments, which are free but more difficult to use, begins to make more sense.
In the long run, there will be multiple business payment networks, and we are certainly seeing great momentum as the stars align: there’s a revenue pool, there’s a fraud imperative, there is an efficiency imperative, and there is customer demand to make payments more efficient in the scope of business payments.
Roshan Varadarajan: Where do you take things from here? Your network is growing, so do you focus on continuing to grow it, or do you focus instead on adding more and more services to the end points of that network?
Craig Saks: The question networks always need to wrestle with is, Are they neutral participants, or do they get into the fight themselves? And the balance we are continually working with for Paymode is how much service do we add before we actually disintermediate or interfere in the incentives of the payers, the vendors, and the bank partners. For example, we get significant volume from fintechs that are wanting to add a payment capability to their own business-centric offering in the marketplace. We certainly do not want to go and compete against them. For example, there’s very little incentive for us to get into spend management when we are processing a lot of the payments for some very large spend management fintechs in the marketplace.
The way we think about that opportunity is to build Paymode up as an industry-centric network, where any bank and any large fintech can connect their payment volumes and process them through us, and really continue to build the network’s scale and participation. We still have only tapped a fraction of the addressable market opportunity in the US, so for me, the next five years are about finishing the onboarding of the large banks and then maximizing their usage and participation through the network.
In our broader business around the world, we have an ongoing strategy to continue to enhance the value of our various payment plans. We have a SWIFT bureau, and that’s the gateway for commercial payments for banks. We do SEPA Instant Credit Transfer payments, and the BACS platform in the UK. We do the local immediate-payment programs in Europe that are the local equivalents of ACH. Every time there’s a new payment type or a new payment offering or a new mandate, we add that to the platform.
So broadly speaking, our transactional business in the US is Paymode and is all about building and scaling the network. And there’s just so much white space there. For our SaaS businesses, it’s a continued expansion of capabilities for our existing customers and new logo acquisition, just as we have these really compounding offerings in those different markets.
Roshan Varadarajan: What is the role of AI for Bottomline?
Craig Saks: Like everyone, I think AI offers an immense set of opportunities for internal efficiencies, from support to sales to coding and so on. Within our world, there are two parts to the opportunity. There’s the generic internal operations and inefficiencies that you look for. Within the world of payments, I think there are a few very obvious use cases. Fraud is one. It’s an arms race between the good guys and the bad guys, and it’s only getting sped up by AI. We have a massive advantage there because we’ve got so much data from processing so many trillions of dollars of payments each year. I also think AI is going to help us and our customers make sense of payment trends.
Another niche use case that I find quite intriguing is revenue management. AI can open up a world of revenue enhancement and retention plays when your network has millions of independent trading pairs. For example, how do you find the patterns to create more flows or adjust pricing over time? These are really interesting use cases that we are exploring.
Roshan Varadarajan: You’ve been CEO at Bottomline for just over three years. What are some of the highs and lows of the experience?
Craig Saks: Bottomline has taught me so much. They have always worked very hard at building an incredibly wholesome culture, and when Thoma Bravo took the company private and brought me in, I was amazed by the open-mindedness and creativity that met all the change we had to go through. I had expected a lot more resistance. It just highlighted the absolute power of a positive culture, and it’s been a real highlight of my career to continue that journey of maintaining and building it.
A second highlight for me has been the privilege of working for a company that is an accelerating business. We were a “rule of 20” company when we started our new life as a private company, and we’re a “rule of 55” company today. I think it’s because we’ve managed to unlock so much revenue opportunity and so much operational efficiency through a whole different set of players and catching an amazing market opportunity at the same time.
Perhaps my biggest reflection was learning to work with a private equity company. Running a public company is a very different proposition from running a private company. In a private company, you have the advantage of owners and a board that are far more involved and bring an immense amount of experience and perspectives to us. If I’m honest with myself, it took me a little bit of time to adjust and to find humility to accept all that help. But it has been incredibly positive. The perspective and the pattern recognition that a good private equity company like Thoma Bravo brings is immensely valuable. Once you get over yourself, I think it just unlocks a ton of value.
Roshan Varadarajan: How do you approach leadership of such an organization, where there is already such a strong culture that is working well?
Craig Saks: Managing through culture and cultural expectations is important. I love the saying that culture isn’t necessarily what you aspire to but what you tolerate. I look to have a higher expectation of good behavior and holding people accountable to that, because I respect the power of culture.
I also try to focus on the big picture and create a passion and purpose around it. I can’t possibly micromanage the tasks of the thousands of people that work for Bottomline, but what I can do is create a vision and an associated passion and commitment to it and the culture that underpins our success. No one succeeds individually; companies succeed through the efforts of well-balanced, diverse, and open-minded teams. At the same time, every individual needs to have the opportunity to own and be accountable for something, to shine and succeed and feel good about their contribution. I work very hard at balancing the effective functioning of teams with accountability and empowerment of individuals and the opportunity for people to shine in their own right and to feel a sense of ownership and pride in their own work while fulfilling their own ambitions.
Roshan Varadarajan: Craig, thank you so much.
Craig Saks: Thank you so much, Roshan.
