A Quick Look at AribaPay

Navigator Edition: February 2015
By: Brian Rutland

In July 2014, Discover Financial Services and Ariba launched a new B2B payments solution called AribaPay. This solution combines Discover’s payment network with Ariba’s cloud-based business commerce applications and allows buyers to create purchase orders, receive invoices, and send payments in a secure electronic portal. The solution also benefits suppliers, which receive more-detailed remittance information and more visibility into when they will receive their payments. As shown in Figure 1, AribaPay allows buyers to initiate electronic payments from their bank accounts, with Discover directing those payments to the supplier’s bank account. The only requirement for participation is that both the buyer and supplier to be on the Ariba network.

Figure 1: Procedure to Pay with AribaPay

Fig-1_-Procedure-to-Pay-with-AribaPay_v2Source: First Annapolis Consulting research and analysis.

 On Discover’s Q4 2014 earnings call, management stated that AribaPay generated $1.5 billion in volume in the fourth quarter. David Nelms, Discover’s Chairman and CEO, believes the AribaPay business can generate “over time very significant volumes, but at much lower than the typical network fees that we might expect on the consumer side.” Even with the low margins, the volume is expected to be so significant that AribaPay will be quite profitable for Discover.

First Annapolis estimates a $20 trillion B2B payments market, as shown in Figure 2. Although electronic payments have been growing (see Figure 3), a significant portion of that volume continues to paid via check. This suggests that AribaPay is just scratching the surface and has a significant opportunity for growth.

Figure 2: 2014 Tax Reporting for Active Corporations in the U.S. (in trillions)

Fig-2_-2014-Tax-Reporting-for-Active-Corporations-in-the-USSource: First Annapolis Consulting analysis of 2011 IRS Tax Stat data grossed up by revenue and profit growth per U.S. Census data.

Figure 3: Large Corporate ($500M+)
% of Payment Transactions Made

Fig-3_-Large-Corporate-500M+Source: “2014 Treasury Management Monitor™ and Service Quality,” Phoenix-Hecht, April 1, 2014. “Treasury Management 2012: The Shifting Sands of Credit, Pricing, and Customer Service,” Phoenix-Hecht, 2012.

Right now, Discover is focusing on ensuring satisfaction among existing customers, but eventually may consider bundling additional products and services with the AribaPay solution to improve margins and increase volume.

For more information, please contact Brian Rutland, Associate, specializing in Commercial Payments, brian.rutland@firstannapolis.com.

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