WEX B2B payments growth shifts focus beyond travel

WEX B2B payments were the main strategic focus after the company reported second-quarter results boosted by higher fuel prices and currency movements. WEX said revenue rose 14.2% to $753.5 million and adjusted earnings per share increased 35.4% to $5.35, while revenue growth excluding those macro effects was 4.2%.

The sharper signal came from the company’s Corporate Payments unit, where WEX said direct accounts-payable volume grew 20%. On its July 23 earnings call, President and Chief Executive Melissa Smith told analysts that areas where WEX has invested, including embedded payments outside travel and direct AP, are producing stronger pipelines that are starting to show up in revenue and payment volume.

What is WEX direct AP?

Direct AP lets a business send WEX its accounts-payable file, after which WEX makes supplier payments using virtual cards and other payment methods. The model shifts part of the payment operation to WEX, including supplier enablement, routing and execution, rather than leaving each payment as a standalone back-office task.

WEX said Corporate Payments revenue rose 5.8% in the quarter to $125.1 million. Direct AP now represents about one-fifth of the segment’s revenue, and the company expects that business to keep growing at a mid-teens pace through the rest of the year.

The company said about two-thirds of direct AP growth in the quarter came from new customers, with the balance from higher activity among existing over-the-road customers. WEX also credited an artificial intelligence-based lead generation tool with helping it find prospective customers more efficiently. Smith said the company is improving how it identifies leads.

How embedded payments broadens WEX distribution

WEX’s Corporate Payments business has long included travel-related intermediaries, including online travel agencies. Management is now placing more emphasis on embedding payment services into financial technology platforms and software companies whose main products are not payments.

Under that model, WEX can provide issuing, settlement, compliance and virtual-card infrastructure to platforms that need to move money for their own customers. The software provider can add payment capability without building the full operating and compliance stack internally.

WEX said its embedded-payments pipeline remains strong and is beginning to convert into revenue. The company linked direct AP and embedded payments to its aim of returning to long-term organic revenue growth of 5% to 10%.

Travel volume improved, but mix affected the quarter

Travel remains a significant part of Corporate Payments. WEX said total travel volume increased 6.4% in the quarter, but total Corporate Payments purchase volume fell 3.6%.

Management attributed much of that decline to the timing of activity from a large online travel-agency customer, which shifted volume into the second half. WEX estimated that customer timing and contractual factors cut reported volume by about 5%.

The company said purchase-volume growth should improve in the second half, while changes in customer mix may create modest pressure on interchange yield. In payments, yield measures how much revenue a provider earns from a given amount of transaction volume, so a broader mix of transactions can lift volume while reducing average economics per transaction.

Supplier acceptance remains a constraint

WEX said virtual cards remain useful for buyers because they can support security, spending controls, automated reconciliation and potential rebate revenue. Suppliers may resist card acceptance because card payments can carry interchange fees that checks or ACH payments do not.

Smith said WEX sees some supplier suppression in parts of direct AP and bill pay, but added that it has not been a large headwind in any given period. The company’s results show that the next stage of B2B payments growth may depend less on replacing paper checks alone and more on managing the workflow around supplier payments, data and reconciliation.

This story draws on original reporting from PYMNTS.