– Do network features mean network effects?

Is business-to-business (B2B) payments platform competing successfully with network effects?

Companies use to manage payables and receivables. To manage payables on, a company uploads the invoices it receives from its vendors, categorizes the expense, sets an approvals process, schedules future payment and transfers funds (more on this later). To manage receivables, a company creates its own invoices in the system and sends those invoices to customers, linking to an online portal where the customer can log in and pay. I’ve worked with two businesses that use — in exchange for very reasonable per-user subscription fees and $0.50-1.50 per invoice paid, provided us very positive ROI in the form of time saved, increased controls, a clear audit trail, and more precise working capital management. is fully functional as a standalone product; for a typical customer, almost all of the value of the service exists before any network effects are considered. has built its product to work in both the digital and analog worlds. For example, I can have print and mail physical copies of invoices to my customers at the click of a button, just as easily as sending them through email. For paying my vendors, in fact defaults to analog mail for sending payments, printing a check and sending it through the US postal system. However, has also built its system with an eye towards an increasingly digital world, and in this light, is flirting with the power of network effects.

When we send an invoice to one of our customers via, our customer receives a PDF of the invoice and a link to an online portal. For many of our customers, their relationship with ends there. They keep the PDF for their records and send us a check in the mail, typically using their bank’s bill pay mechanisms. However, should they choose to follow the link to the online portal, their relationship with continues.

Using the online portal, our customers can pay their invoices directly using either a credit card or a bank transfer, but, only after they create their own free account. Most of our customers take this route, and thus’s user base expands as our customer base grows. As such, has built virality into its platform, and the result is an extensive network of businesses with fairly rich data on the relationships between them.

So, how does leverage this network to its competitive advantage?

For direct network effects, uses their network to reduce payments costs for its users. We pay fairly typical B2B credit card rates on transactions, well below 1% of sales. However, after signing up to view the online portal, our customers can choose to link their bank accounts and pay via’s own flavor of ACH, branded ePayments. When a customer pays us via ePayment, we pay $0.50 per transaction, well below what might be hundreds of dollars for a comparable credit card payment. As such, we do our part to encourage our customers to pay via ePayments, thereby significantly reducing our processing fees. As’s network of merchants grows, our processing fees decline.

Indirect network effects come in the form of more robust integrations with our other accounting systems. A larger user base encourages providers like Quickbooks (Intuit), Xero, Intacct and Netsuite to integrate more closely with As a user, this provides us tremendous value — the better the integration with systems like these, the better we are able to manage expenses, the lower our accounting costs, and the faster our monthly close. Indeed, we chose in large part due to the quality of these integrations, evidence of the virtuous cycle.

But is this defensible?

At the moment, the jury is still out. The beginnings of a highly defensible network are there, but to a limited extent. Better integrations are a compelling feature, but not unique. To date, has not opened up its platform for third party developers, which might be convinced to develop applications specifically for it. For example, creating invoices is still a highly manual process for us, but not unique for a subscription business like ours. could use third party developers to add functionality for specific verticals like ours which it may not otherwise have the resources or expertise to tackle on its own. The challenge here, though, is that accounting systems providers appear to have captured the platform position in the finance stack.

The payments network which is steadily creating seems to be a more promising path. However, from the point of view of the invoice recipient, the costs of multi-homing across payments networks is very low. The credit card network is much more robust and, while more expensive for payees, is a better deal for payers when things like points are considered. To strengthen the power of its payments network, needs to provide a greater incentive for invoice recipients to pay via ePayments. A points system similar to credit cards may help, but unlike credit cards,’s relationship with its users is bidirectional (both cash-out/payables and cash-in/receivables). Can give discounts on its subscription fee to its receivables-customers whenever they pay their own vendors via ePayment? Doing so may strengthen and boost its network at a reasonable cost, though this does not seem sufficient.



Leave a comment