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How Digital Payments Are Transforming the Lower Middle Market
647 Plays3 months ago
The lower middle market makes up 80% of the total middle market, representing approximately 160,000 businesses in the U.S. In this episode, we dive into how digital payment innovations are fueling growth in this critical segment with two industry experts: Edward Galvin (Visa) and Andrew Jamison (Extend).Our discussion explores key findings from NCMM research, highlighting the evolving needs of middle market businesses and how financial tools can drive efficiency and expansion. Tune in to hear expert perspectives on how businesses can bridge the gap and future-proof their operations.
Edward Galvin is responsible for North America B2B Commercial Payments Sales at Visa. Visa helps connect businesses to a secure, global network of platforms, products, and services—no matter where you are on your business journey.
Andrew Jamison is the CEO of Extend, a financial technology company building innovative payment solutions for banks and their SMB customers. Extend has built a virtual card and expense management platform as an out-of-the-box product available for issuers to offer alongside their corporate card programs, allowing businesses to access modern spend management software with the commercial card they already have.
Read the report at globalclient.visa.com/middlemarket.
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Transcript
Introduction to Middle Market Podcast
00:00:05
Speaker
Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market. The center is the leading source of knowledge, leadership, and innovative research on the middle market economy.
Insights from Middle Market Leaders
00:00:15
Speaker
Throughout our podcast, we will feature middle market leaders and stakeholders to hear their real-world perspectives on trends and emerging issues.
00:00:24
Speaker
For the past 13 years, the National Center for the Middle Market has been at the forefront of researching the U.S. middle market, the companies defined as having annual revenues between $10 million and $1 billion. dollars But recently, through our relationship with Visa,
00:00:40
Speaker
A more specific focus on emerging middle market companies has evolved.
Focus on Emerging Middle Market Companies
00:00:46
Speaker
These companies at the lower end or 10 million to 50 million in annual revenue represent 80% of the middle market space.
00:00:55
Speaker
and have specific and unique needs relevant to their larger peers. In today's episode, I'll talk to two experts who discussed the implications of the latest report on the emerging middle market and what companies can do to help advance their digital strategy.
00:01:16
Speaker
Welcome to the market that moves America. My name is Doug Farron, managing director of the National Center for the Middle Market, located at the Ohio State University Fisher College of Business.
00:01:28
Speaker
Very excited about today's episode. We're gonna be talking about a very important segment of the middle market, which is the emerging middle market, those companies with revenues between 10 million and $50 million.
Transforming Middle Market with Digital Solutions
00:01:42
Speaker
dollars And joining me today are Edward Galvin from Visa Commercial Solutions and Andrew Jamison from Xtend. Welcome, Edward and Andrew.
00:01:52
Speaker
Thanks. Thank you, Doug. Good be here. So first off, um I'd like for you each to do a little bit of introduction to the audience. to start with Andrew. Andrew, can you tell us a little bit about your background and your current role with Xtend and maybe a little bit about Xtend?
00:02:10
Speaker
Yeah, absolutely. So look, my background is straddling all the different segments in so far as I started my career working alongside ah a for the best part of 10 years. So got to see really what the enterprise segment looks like at its very finest.
00:02:25
Speaker
um And really just learned a lot about payments and ah the broader accounting functions that sit within that fairly ah giant application. I then went and transitioned to work in the in the credit card space.
00:02:40
Speaker
And so I worked there for the best part of 12 years, really sort of focusing again on the digitization of payments and really thinking about in today's digital era, how do we start to move transactions away from paper checks, away from ineffective um and and sort of really process intensive ah platforms to to really more digital means.
00:03:04
Speaker
And that sort of then takes me in the last eight years where i went and founded Extend along with two other of my co-founders, really focused on transforming that middle market and that emerging middle market segment, their ability to access some of these digital rails like virtual credit cards, and really helping with the automation and thinking about how we could simplify the workflows that for those companies really with a consumer-grade technology that had been lacking in that sort of business segment.
00:03:40
Speaker
So that's a little bit of my my my my background. In terms of what we do at Xtend, it really is about bringing spend management and really helping companies drive efficiencies and cost savings, but also make better use of their working capital by helping them essentially make settlements easier, ah whether it's to do with travel or whether it's to do with their other expenses, whether it's to do with subscriptions or shipping costs, et cetera, et cetera.
00:04:10
Speaker
that's a little bit about my background. Wonderful. Thanks, Andrew.
Edward Galvin on Mid-Market Consulting
00:04:13
Speaker
And Edward, do you mind sharing a little bit about your background and your current role with Visa? Yeah. Sure, yeah. So um ironically, I started my career in mid-market consulting with Deloitte in the UK, so spent some time there. Then I went to work for a technology company called Decal in Ireland, and we were the online, one of the premier providers of online technology to support commercial cards and expense management, if you will.
00:04:38
Speaker
And I joined Visa probably 13, 14 years ago, and I've been primarily in the B2B space in our in our commercial card business and payments and on the both sales and product size both in the US and Europe. So today ah lead sales across our commercial business in North America for our large and middle market segment and and you introduced as me being part of Visa Commercial Solutions and Commercial Solutions looks at and payments across large, middle market and small business.
00:05:11
Speaker
And obviously, as we're here today, middle market is ah is a ah core component of that business. And you know we invest accordingly in in building and supporting our partners in driving digital payments in that in that segment.
00:05:26
Speaker
Great. And so my first question, I'm just going to stick with you,
Visa and Xtend's Digital Payment Partnership
00:05:29
Speaker
Edward. Can you explain a little bit of the background about the partnership that exists between Visa and Xtend? Sure. Yeah. we So we, ah to Andrew's point, like supporting digital payments is is a core ah focus of ours at Visa. And we work we we build services at Visa to to help our partners.
00:05:51
Speaker
We work with our financial institutions and we partner with third parties. to continually look at how we can bring the services and solutions that the actual corporate customer wants to support their their payment needs.
00:06:05
Speaker
and And as we look at the this segment we're speaking specifically today, the emerging middle market, we've been focusing with Xtend on how we can bring that consumer easy to use like technology that this market segment is is looking for to to support those needs. So we've been working with Andrew and team to look at how best we can bring technology to that customer segment as they as they manage their their payment needs on it on a day to day basis.
00:06:32
Speaker
OK. And Andrew, what are some of the benefits you see partnering with with the Visa team? Look, I mean, Visa has just an enormous reach, right? that Their brand obviously is is preeminent in this space.
00:06:46
Speaker
And so us being able to collaborate with Visa is really about how do we best go and serve their bank partners, and And that's really where this drives towards is is how we collaborate to engage with those bank partners and really think about ways we can deliver these platforms and solutions in in a fairly frictionless manner, not just to the banks, but ultimately to their end customers.
00:07:08
Speaker
And that's that's where Visa plays a really critical role. Okay. So the National Center for the Middle Market and and Visa have been working together now for a number of years, looking at ah ah different areas of the middle market.
00:07:22
Speaker
And more recently started to focus on this emerging middle market. So there's the lower end, the 10 million to 50 million dollar revenue companies. ah Edward, can you tell us a little bit about why that was so important for Visa? What is the motivation behind that or the specific focus on these emerging middle market companies?
Targeting Emerging Companies with Digital Payment Solutions
00:07:42
Speaker
Yeah, sure. and so So let me just take a step back, Doug. The research and the intelligence that the NCMM has been bringing to the market has really helped us accelerate better discussions with our partners, be it Andrew at Xtend our financial institutions, on where there's opportunity and where payment needs are unmet today.
00:08:06
Speaker
And as we've looked at the core middle market and the large segment the middle market, you know we've been working through leveraging that intelligence over the past number of years. What's become very relevant is there's 160,000 emerging middle market companies out there today.
00:08:23
Speaker
They have two trillion in purchasing power. their their needs There's a massive shift in their needs and their payment needs and the needs that they have from financial institutions and technology providers.
00:08:34
Speaker
And the the research in this study helps us be better informed on what the needs are number one but what how we build products and services and how we go to market and partner with with with with fintechs or with uh our financial institutions to meet some of those needs so It's critical in helping us inform how we build product services and go to market. And and that's why the you know we we we we we leverage the research and we look to bring the research and into the ecosystem. This study in particular um looks at it's
00:09:10
Speaker
It leverages the middle market indicator, which which speaks to our interviews of over a thousand different CEOs or C-suite executives across America on key indicators. And it's very relevant.
00:09:21
Speaker
Like this is from 2004. This is very, very recent data to help us inform how we support the industry going forward. What were some of the highlights for you, Edward? Were there things that surprised you or stood out from the from this recent specific research study?
00:09:36
Speaker
um so So I think what what continues to surprise me is and it's just the the the shift in the in the demographics that's happening right now. okay so there's And just to quote the Wall Street Journal, and the the there's a record number approximately 4.1 million turned 65 in 2024.
00:09:58
Speaker
And this generational shift will continue through 2027. right so we have so so the the next generation this next generation has ignited a demand for digital solutions so while um while our our andrew and team at extend and others are building digital digital technology there's just such a massive shift in the user base and which can which creates a ah great new demand for services and tech and and providers and and services for for and just for services and technology. So that to me was a, well, it continues to be a, and let's say a, probably not surprising, but it's kind it's just, it's it's a continuous point that we we kind of anchor in and reference as we look at some of this research.
00:10:43
Speaker
Okay. And Andrew, um through through your work with middle market companies, um yeah I can just say here at the center, we we look at emerging middle market and we see lots of challenges, right? So these are companies that have outgrown the kind of the small business space.
00:11:00
Speaker
They may be struggling with ways to manage rapid growth. They may be using very ah manual and outdated systems. So from your point of view at Xtend, what do you see as some of the challenges facing these emerging middle market companies or maybe some of their opportunities, specifically as it relates to, you mentioned this earlier, working capital payments and so forth?
Challenges in Managing Growth in the Middle Market
00:11:23
Speaker
so So Doug, this is kind of near and dear to my heart because I i actually fall into that segment. you're Right, right. and As a company, right, we're in that ah segment of 10 to 50 million in revenue, right? We essentially have a lot of the pain points laid out here. So for me, it wasn't so much what surprised me here, more more the fact that actually this resonated entirely with what we deal with as a company.
00:11:49
Speaker
Right. Which is where budget constrained from year to year, like any other company. But those constraints come at a point when you can't necessarily afford to invest in certain HR systems, right, performance review platforms. And so inherently, you are going down that manual path because the dollars are limited dollars you have are still better invested in growth.
00:12:10
Speaker
Right. And so because we need to sustain this 50 percent year over year growth. and that's what we're doing. um And so you so that's one aspect you look at as kind of the budgets. And then you start thinking about, you know, how do i think about technology which is either built for a consumer or built for an enterprise? And I'm neither.
00:12:28
Speaker
um And so you really need to have the appropriate technology relative to scale. Now, here's the real benefit that's happened in the industry is really the entry point for people to go and build technology has come dramatically down because of all these distributed services.
00:12:45
Speaker
and And now it's become a lot easier, which is why you're seeing such a big, big push into what I would call consumer-grade technology built for business. um And then I think the key then is all about how you think about the staffing constraints, right, where there's time, resources needed ah to go and actually not just implement the solution, but then essentially get it up and running and have it properly supported. Is there support there?
00:13:12
Speaker
to to help you as you as you bring this to to to to fruition and start to benefit from some of these efficiencies. So, look, the report really hit on so many of the things that, you know, I live constantly and, and you know, I shared it with with my COO and co-founder.
00:13:27
Speaker
And so for us resonated a lot. So what's the key takeaway that I have from that is, Productivity is really key. And so whatever solutions are out there, this is what needs to be hit at, because everything needs to drive better collaboration.
00:13:42
Speaker
And it also needs to be in a way that it has a better distributed and and accessibility across the different teams within within within your company.
00:13:52
Speaker
Yeah, ah you you mentioned a couple of the, you know the deterrence or the headwinds, right? So having the right budget to be able to invest in these things, having the time to to put toward it.
00:14:05
Speaker
Are there any other deterrence that you see when it comes to um any type of digital ah investment or digital implementation at these companies? I think very quickly people are looking at sort of how quickly do I get a return on the investment?
00:14:21
Speaker
I think it's, you know, in today's sort of economic environment, I think it's even more key that people see the the rapid return on on putting that because it's always competing. Right. As I said, we we are hyper constrained typically on the resources that we have because we don't have, you know, bigger companies have the ability to go and cut back in big areas and create capacity. And that's not the case in the middle market.
00:14:44
Speaker
Right. You don't have that as an option. And so for us, it's really about how quickly do we can we access a tool, how quickly can we then deploy it across the teams and really start to see the benefits of that digital side of of of payments.
00:14:59
Speaker
um And that's why partly why we're in this space of payments and and credit cards. It's a fantastic space because that Yes, they fu fulfill a function of a payment, but they also play a critical role in working capital.
00:15:12
Speaker
And that's one of the biggest things that I looked away, but took away from the report was also just how much can actually go on a credit card. And the report highlights that, you know, nearly two thirds of all expenses.
00:15:24
Speaker
So what did I do? I went straight to my CFO and went, so help me understand how to start a salaries and rent. How much do we as a company, right, who are in this space put actually on on on the digital forms of payment like like credit cards? And it turns out, surprisingly enough, that we do actually put two thirds of our payment on payments.
00:15:45
Speaker
on credit cards, whether digital or physical. So it's very real what comes out of this report. And again, maybe we're on the sort of frontier of this partly because we're in this space, but we see just tremendous value in that working capital benefit that we get from it, but also from the efficiencies we're getting by having employees not having to go and submit their reports or ask for you know cash back on on on cash that they put up front. So again, a lot of that is where we're seeing efficiencies in the process.
00:16:13
Speaker
Right, right. ah So, Edward, you mentioned earlier, um you know, some of the changes that will be taking place across these companies in terms of leadership transition and just becoming kind of younger, so to speak. What what are some of the other evolutions that you might see over the next couple of years as we think about emerging middle market companies?
00:16:36
Speaker
Yeah, I think um so.
Investment in Digital Solutions for Emerging Companies
00:16:39
Speaker
So I think another another key one that I think the study brought up is that they're continuing to fuel growth through investment in digital solutions. Right. So today, and i think the investment and in IT is something like 24 percent, training development 20 percent, facilities 19 percent. So I think we continue to see more of that.
00:16:59
Speaker
and i think when it comes to payments, like more than 70-77% of emerging companies are likely to shift to digital so solutions embedded in their ERP or accounting software, enhancing transparency and automating accounting processes. So I think as as the so so first and foremost, there's the digital experience that the user has with technology. But then there's a big push to to drive more integration of these systems into ERPs and our payment modes into ERPs or other other internal systems as well. So I think we continue to see see more of that as we as we go into the future.
00:17:36
Speaker
Yeah. And Andrew, you mentioned you you sit in this space. What what about Xtend? How do you see your company evolving over the next couple years as you continue to grow? Look, one of the things that we dive deep on is really around, as I think I mentioned it a little bit, of this collaboration, right? How do you get better collaboration at attainable price points?
00:17:55
Speaker
You know, i keep looking at tools like Figma, which are taking off really fast versus Photoshop. I look at Google versus Word, right? And you start thinking the reason why Figma, Google are growing so fast is they're very self-service. You have a per seat license.
00:18:10
Speaker
right And it's really about so driving that. So my view around how this evolves and why I'm excited about where this sort of middle market piece goes, specifically around payments, is because I think we are actually providing tools that will drive productivity and time savings that actually end up delivering a much better customer experience because so much of it it goes back to this.
00:18:33
Speaker
It's collaborative, it's self-serve, it's easy to deploy. And actually, for a lot of the companies that we work with, it creates a competitive advantage for them because they start to embed right these digital forms of payment into an end-to-end process or workflow that has them trying to reconcile you know potentially court filing fee that they went and did for a client with actually the settlement on the back end, and they can rebuild that client instantly.
00:19:01
Speaker
Or maybe they're running a software platform right that is optimizing your shipping costs from point A to point B, and essentially they go across all the different providers, identify one, and then they use a digital credit card to make the settlement and rebuild the client.
00:19:16
Speaker
so So much of it is is in that space. And again, as as I mentioned before, these access to these different APIs and to these different digital layers is really creating tremendous opportunities for these businesses to gain the efficiencies that will then allow them to continue to invest in other areas.
00:19:33
Speaker
Yeah, absolutely. Can i add something to that? Yeah, please. A parallel point, I guess. But what what was really, for me, powerful in the report is always like a lot of these companies,
00:19:46
Speaker
do not have a clear digital innovation plan. right So I think when you think of as as to how they will evolve going into the future, i think a lot of these these emerging middle market companies are so focused on their business today and trying to drive innovation and trying to build new products that they need help and support as they think about that plan, a digital innovation plan for the future.
00:20:09
Speaker
okay So I think that's a key point that we we as as providers and service providers to these these companies need to think about. They need help. I think we need to be at the ready to help them think through what the future will look like as they continue to grow their businesses and you know and ah in the in the fast way they actually do it and today.
00:20:31
Speaker
Yeah, that's a great segue, Edward, into a question I have actually have for both of you.
Addressing the Skills Gap in Digital Tool Use
00:20:36
Speaker
So as we've been studying the middle market, yeah a lot of these companies, but i think this is even a bigger issue in the emerging middle market.
00:20:44
Speaker
Tell us about their... um skills gap issue. So talent, we talk about the technology, certainly the productivity and the time, and but what type of effect does this have on the people that work in these companies? Right. So making sure that they have the right training, they have the right capabilities, they have the right skill sets to be able to effectively use these types of tools.
00:21:09
Speaker
ah Can you both comment on that somewhat? Yeah, and I guess he One view is that i think the service providers need to, as we bring technology and services to these companies, we need to layer in and help them better integrate, implement, bring to market, execute these technologies and solutions. We just can't just drop them in. and We need to help our need to help our customers ah relies the full value with with adequate implementation, training, ongoing support post implementation.
00:21:45
Speaker
And I think that's an iterative cycle. We listen, we hear, we implement, we deliver, we listen, we hear, we implement, deliver again. That's kind of my view on it. and And it also helps us just be closer to the customer and in my in my view.
00:21:57
Speaker
Yep, Andrew, what do you think about the talent aspect of all this? Well, it's interesting, you talk about training and skillsets, and look, this brings me back to my SAP days, right? It took months to end up training folks um to make sure they had the right skillset that they wouldn't even know how to use the platform.
00:22:15
Speaker
And I think that's the big evolution in my mind is we're moving towards this consumer grade where workflow makes things easy and that you're much more focused on self-service and having to rely on and someone else to go and do this. I think that's a big part of this of this of this evolution, this movement that is happening right now, which I get really excited about because I think you remove the need for a lot of this training tip because it's it's all about intuition and it's intuitive platforms.
00:22:39
Speaker
I think the biggest challenge that people have, though, is they're overwhelmed today. Right. And so awareness, I think, is going to be key is what are the solutions and a little bit being able to sort of work your way around some of the smoke and mirrors of how people talk about what they do versus what they actually do. So i think awareness is going to be key. And so the launch of ah these reports, but then also the the announcement that we have with Visa is key is like aware that these platforms now work.
00:23:05
Speaker
making sure that they get easy access, that it's not, you know, the the the accessibility of the tool itself isn't overwhelming. And that's why we've worked really closely with with Visa to say, like, let's make it accessible from the existing card you already have in your possession, right? So don't you don't to sign up for anything. You don't need to into anything else. You just have what you have, and you can sign up with the 16 digits on your card and get going with these digital tools.
00:23:28
Speaker
Then, for me, it's all about... How do you make sure it's integrated with the tools they already use? right In this segment, they'll often be using the likes of QuickBooks or Intact, and the upper end of maybe using NetSuite. So make sure it flows back and forth in and out of that tool correctly.
00:23:46
Speaker
And I think like where this is headed is more into the embedded side of things, right? Which is how is this digitally native to a tool that I'm already using? Because then to your point, you remove the need for sort the training and the skills gap that might exist because it's kind of already in the experience that they're using. And that's, that is, it's happened in the consumer segment.
00:24:08
Speaker
I think it's now finally coming into the business segment and um But it's just been that much more complicated because of the software solutions that people use in business are exponentially more complicated than those people use in their day-to-day lives.
00:24:20
Speaker
Sure. Yeah, that makes a lot of sense. So my last question for you both, and um I'll start with you, Andrew, which is you know middle are emerging middle market companies who...
00:24:31
Speaker
read this report, what would be one big takeaway or something you would tell your peers like, hey, you should really be paying attention to this insight from the report? What do these companies really need to know as they think about what their peers are doing across the emerging middle market?
00:24:48
Speaker
Look, I think what's really clear is if they're not doing something, they are falling behind. um And I look at it across the board, right? i know there's a lot of discussions around AI. and And I think, you know, the reality is there's a lot of hype out there and we haven't seen a lot of the results, but the results are coming, right? I'll give you an example is we just went and linked our data into Claude and started asking questions and it was returning incredibly solid answers, which says, okay, so you don't really need a business intelligence layer anymore because it's going to come through these pipes. So
00:25:24
Speaker
All that to say that there's a lot of tools out there. And so they do need to lean in because I think they are going to see the productivity benefits. And I do think the technology has moved towards them.
00:25:36
Speaker
That gap or vacuum that existed in middle market, because it was kind of the ignored middle child, is now truly being served. So I think the time is ripe um for them to do it.
00:25:48
Speaker
I think there's a lot of immediate benefits to be had, not just in automation, but actually in finance and working capital, because digital credit cards beyond the rewards, right, they do provide the working in capital and and provide a lot of efficiency on the back end.
00:26:02
Speaker
Not to mention, I think they'll drive higher satisfaction amongst their employees. right because they will be supported by tools that they start to recognize that they you know they get the benefits that they've been having in the consumer world.
00:26:15
Speaker
So the time the time is now in my mind. yeah e Edward, any other tips or advice for emerging middle market leaders that you would add? Yeah. um Again, i go back to this concept, like 43% don't have a clear digital innovation plan. I would spend, as as an AMM leader, spend time thinking about a digital innovation plan, what that means for you and your business,
00:26:39
Speaker
in parallel with you know working with your financial institution provider on better access to to working capital. Whether that's true card or whatever the case may be, i think and just continue to to to push back on your financial institution provider to support better credit underwriting, just getting that capital to help you sustain your business growth. You're in a great business segment, it's growing fast, and there's clearly a lot of technology to support you, but build a plan around it and get help and con continue to get cash to to support the needs.
00:27:07
Speaker
Yeah, that's great. Well, I want to thank you both for making time to to speak with us today. i think this has been an awesome conversation, lot of great insights and points brought up, specifically referring to the EMM report.
00:27:24
Speaker
And again, just want to thank you for ah for chatting with me today. Thank Doug. Thanks, Doug. Thanks, Andrew. For more about Andrew's company, Xtend, you can visit paywithxtend.com and of course, visa.com for more information about Visa Commercial Solutions.
00:27:42
Speaker
And the report will also be accessible on our website, which is middlemarketcenter.org. Thank you for listening and we'll talk again soon. Thanks. Thank you for listening to The Market That Moves America.
00:27:55
Speaker
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