Armor Payments facilitates global B2B payments

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Scott Reynolds spent a number of years employed in the payment space, working for firms like Mastercard and PayPal. He watched as B2B companies began to look internationally for new business and how poorly existing payment solutions suited this endeavor. As businesses get more comfortable working globally, both high end and low end solutions have generally missed the mark on providing optimized, cost-effective payments that serve to reduce the risk of these larger transactions.

Because both parties of a global transaction lack full information about each other, companies typically resort to inspections, background reports, incremental purchases and third party approbations to build added trust. But all of these layer on overhead measurable in time and money.

“Annually, banks provide $3 trillion in letters of credit — a very manual payment method suited for transactions above $1 million,” he said. “On the other end, credit cards and tools like PayPal facilitate online transactions but they’re typically optimized for smaller transactions.”

This gap led Reynolds to found Armor Payments in 2013. While his firm initially focused on domestic payments, it wasn’t long before Armor started to get pulled into international payments. Armor offers online escrow. Buyers pay in and sellers can deliver goods with confidence that they’ll get paid when Armor releases payment. If there’s a problem, either party can quickly enter a dispute resolution mechanism on Armor’s platform.

Armor’s growth mimics the continued emergence of B2B marketplaces in narrow verticals. Marketplaces in fields like beauty products, film rights distributions, and consulting services understand well the idiosyncrasies of their markets, but they’re not generally payment experts. They turn to Armor’s API which enables them to build and conduct secure escrow transactions within their marketplaces.

Payoneer acquired Armor Payments in March of 2016 and Armor now functions as Payoneer Escrow, a division within the global payments firm.

“Fortune 100 companies use our company to hire independent local agents across Africa and the Middle East for compliance and regulatory consultancy,” said Amine Rachdi, CEO of Local Applicant and an Armor client. “With its escrow payments service Payoneer is the only company that could help us build trust between our Fortune 100 customers and agents, while processing our global payments at scale.”

The firm plans to roll out additional services to buyers and sellers that build on that fact that it touches both sides of B2B transactions. Armor is looking intently at developing other trade-related services that could include things like financing, hedging, and inspection.

Payoneer’s strong payment foothold with marketplaces should bode well for Armor. “Like PayPal was to eBay, we believe Armor’s escrow is to marketplaces,” explained Reynolds.

How Payoneer bridged the trust gap in online payments

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Marketplaces are big business online and poised to get bigger. As more people transition to freelance and consulting, marketplaces are how small businesses find willing buyers all around the world. For an SMB getting off the ground, the opportunity is massive and sounds dreamy, but it’s not a free ride —competing against so many other vendors, today’s marketplace sellers have just a few seconds to convince potential buyers that they’re a trustworthy trading partner.

Ecommerce firms like AirBnB, Etsy, and Amazon give small firms the ability to sell through to large audiences and across geographies they could never reach without using a marketplace. These ecommerce platforms have made transactions silky smooth for buyers, but it’s still frustratingly hard for small businesses to get paid. There’s a lot of friction around payouts, especially for international sellers.

Bridging international payments between buyers and sellers

That’s where Payoneer comes in — the NYC-based technology firm sees itself as an enabler of cross border trade, in particular for small businesses. The company helps sellers on dual-sided marketplaces like Amazon sell to buyers around the world and get paid in their local currencies. Payoneer opens virtual bank accounts for sellers in the countries that they’re doing business. Sellers can then cash out by transferring cash to a Payoneer debit card or to a local bank account. Sitting in between the payments of marketplace sellers and buyers, Payoneer is almost like middleware for global trade.

“There’s been an incredible transformation, an opportunity for buyers and sellers to meet across borders, but what hasn’t changed are the challenges in moving money around world,” said Scott Galit, CEO of Payoneer. “In a world where everything is digital, marketplaces were still kind of stuck with letters of credit, wires, and checks. We’re building a digital b2b payment platform that brings together techology and a new global approach to selling and getting paid.”

Marketplaces exhibit strong growth

top marketplaces ecommerce

Indeed, Payoneer moved into a space that seemed ripe for the taking. Marketplaces are seeing much stronger growth than general ecommerce. According to the Internet Retailer 2016 Top 500 Guide, of 26 retailers that disclosed their sales from online marketplaces, marketplaces brought in $455.5 million, or 14.4% of their total $3.17 billion in sales in 2015. That’s up 42.9% from $318.8 million worth of goods sold through marketplaces the year before.

It’s taken Payoneer 11 years to hone its payments ecosystem. The firm has invested heavily in its banking and global compliance infrastructure — it takes years of planning and millions of dollars to expand into new geographies, like the company recently did in Japan. Payoneer handles 200,000 monthly applications from SMBs from 200 countries. “If an entrepreneur pitched me today to raise money for an idea like Payoneer, I probably would have said he’s crazy,” joked Payoneer’s Galit.

Using marketplaces to acquire customers

“Many top fintech companies struggle to acquire customers — we got lucky when we started and then got smarter along the way,” explained CEO Galit. In the early days, individual sellers sought out Payoneer to help them sell internationally. But over time, these same sellers, like those on the leading skills marketplace, Odesk (now called UpWork after merging with Elance) brought the payments provider to the attention of the marketplace’s management. Once Odesk started offering its freelancers the option to get paid using Payoneer, word spread to other marketplaces. Now, two-thirds of all seller applications show up at Payoneer directly. According to Galit, the firm recently held a meetup in Guangzhou, China and had 1000 suppliers show up at the event.

Going upscale, moving downtown to B2B

Payoneer’s ability to handle mass payouts has secured them much of the B2C marketplace business where transactions are small and frequent. But, the firm’s had its eye on expanding into B2B payments where payments are much larger and the trust divide is larger between buyers and sellers. Letters of credit, still the go-to payment structure for larger commercial transactions, are time consuming and expensive. Because of all this, many B2B marketplaces function as matchmakers, receiving payment to connect buyer to seller but leaving them to transact on their own.

To move into this new territory, Payoneer acquired Armor Payments in March of 2016. Armor offers what it calls, Escrow as a Service (EaaS). This service injects an added layer of confidence to B2B transactions — ensuring that each side is protected and encouraged to complete the sale.

Payoneer’s Galit believes the true potential of the merger will emerge in the near future as the tie-up influences B2B marketplaces to move away from the matchmaking model and become fully transactional. “Instead of focusing on listing fees, with Armor and Payoneer, B2B marketplaces can fully monetize the trillions of dollars expected to be transacted on B2B marketplaces over the next few years,” he said.

Photo credit: kevin dooley via / CC BY