What Do Vendor Management and Fintech Have in Common? Although not obvious, fintech and vendor management often work in symbiosis which fuels revenue growth on both sides.

These two fast-paced industries, booking record revenue growth despite the pandemic and plunging financial markets, have more in common than one might think.

During the last two years, consumers and businesses alike had to switch to online and mobile payments. Even people notoriously conservative towards online and mobile payments had no other choice than to adopt them. After all, we all relied on home deliveries for quite too long.

Deloitte has estimated that the fintech industry will be worth USD $213 billion in 2024 and that forecast surprised nobody. Frankly speaking, as a fintech expert and a professor at Zigurat Business School, I believe that the potential of the fintech industry is even bigger for a simple fact – most countries invested a lot in Internet infrastructure during the pandemic. Unstable or non-existing Internet connection was a major showstopper to fintech adoption for more than a decade. Moreover, as people needed to work remotely, they had to enhance their digital skills and financial literacy. All these factors combined will inevitably lead to the higher adoption rate of fintech solutions in the years to come.

Speaking of remote work during the pandemic, it appears that hybrid work arrangements fueled the skyrocketing growth of payroll on-demand and vendor management system providers. People had to switch fast to new ways of working and that included the shift to self-employment and entrepreneurship as lots of businesses had to cut many jobs to ensure business continuity. Having said so, those businesses still needed the expertise of those people they had to fire but it was impossible to afford it on a full-time basis. Thus, their expertise was acquired on an on-demand basis. Managing an ever-growing number of consultants, vendors, self-employed and freelancers was yet another challenge for already struggling businesses. The administrative burden around administering onboarding, compliance, billing and payment automation would mean extra costs most businesses couldn't afford. Hence, they turned their eyes to global payroll on-demand and vendor management systems that flourished during the pandemic.

The vendor management software market is expected to reach USD $12 billion by 2027 according to The Insight Partners. The worldwide vendor management system market is expected to expand at a CAGR of 12.4 percent during the projection period from 2019 to 2027. Two major factors are driving vendor management software industry growth – the ever-increasing number of one-off vendors and suppliers on-demand and the thinning profit margins across many industries. These two factors combined push businesses to look for reliable automation solutions that can cut costs and lift the administrative burden.

So, what do fintech and vendor management software have in common?

Thin profit margin and independent contractors.

Not only do they have a lot in common, but they also work in symbiosis. Thinning profit margins result in enhanced reliance on independent contractors, vendors on-demand, self-employed and freelancers. According to SAP Fieldglass:

The modern workforce is experiencing a seismic shift. Forty-two percent of workforce spend* is now on the external workforce: contingent workers and services providers.

Moreover, the number of freelancers globally is estimated to 1.1 billion, or approximately 31.4 percent of the global workforce. In the U.S. alone, freelancers contribute USD $1.2 trillion to the United States economy each year.

Advanced vendor management systems (VMS) provide billing and payment automation, some of them like Transformify (disclosure: I'm the CEO) go a step further adopting the CaaS ( company-as-a-service) model which allows payment aggregation and vendor syndication. Put simply, TFY acts as an authorized re-seller of the services provided by numerous freelancers, service providers, affiliates, one-off vendors, etc. Hence, businesses have just one vendor to receive invoices from and transfer payments to. Having said so, all those hundreds of thousands of cross-border payments are automatically processed in a partnership with payment providers like Payoneer, Revolut, Stripe, etc.

How does that symbiosis work?

It's a two-way avenue – the growing demand for global payroll on-demand and vendor management software results in growing revenues for the fintech providers the vendor management software providers partner with.

Usually, due to the big volume of payment transactions, vendor management software providers integrate via an API with the fintech companies they are partnering with. This integration allows those freelancers, service providers and one-off vendors using the vendor management system to seamlessly open accounts with the fintech providers. Put simply, vendor management systems introduce hundreds of thousands of new users to fintech companies for free. It's an extremely valuable partnership as the client acquisition cost ( CAC) in the fintech industry is high due to the fierce competition. Moreover, those new users are likely to have a higher CLV ( customer lifetime value) and extended life span as they will continue to receive payments via the vendor management system.

On the other hand, the fintech companies are interested in referring new business customers to the vendor management software providers they are partnering with as both parties benefit from increased payment volumes and a growing number of users.

Although not obvious at first glance, fintech and vendor management software industries have a lot in common and fuel each other's revenue growth. Both industries have a big potential in the years to come and are on the radar of many investors proved by the growing valuation multiples and numerous funding rounds despite market uncertainty.