Building the operating system of the CFO: SMBs and beyond

The Opportunity Today

The notion that SMBs have been underserved by financial institutions is not a new one – for years, small business owners have complained about opaque pricing, lengthy onboarding processes, overly burdensome compliance, siloed & poorly integrated integrations, and painfully manual customer support. In many ways, SMBs have been a forgotten middle child; harder to serve than retail customers while lacking the deep pockets of large enterprises. It is no surprise then that only 18% of small businesses in the U.S. completely agree that banks are providing them the services they need to run the financial side of their business[1]. The number is likely lower in emerging markets where incumbent FIs are even more underinvested (and often even more profitable). Despite this, traditional FIs have had neither the impetus (owing to limited competitive pressures) nor the ability (owing to enormous tech debt) to change.

In recent years, we have seen this unstable equilibrium rightfully challenged by a number of businesses, several of which we at TCV have been lucky enough to partner with including Qonto, Brex, Revolut, Razorpay, Mollie, Xero, and Toast among others. While many of these vendors have unique landing points into the SMB (e.g. bank accounts / company incorporation, corporate cards, online payments, PoS), their propositions are widening (and increasingly overlapping), and many businesses are vying to become the Financial OS (Operating System) for the SMB.

Why should we care, you may ask? Simply put, the aggregation of these services makes a lot of sense, and the market opportunity ahead is enormous. The financial services stack of the SMB has become increasingly fragmented over time (see below) and dealing with this fragmentation is not trivial. On the other hand, the benefits of consolidation to both the SMB and the vendor are compelling. SMBs benefit from having fewer vendors to manage, improved integrations between applications that reduce human error and save time for already-overstretched finance teams, and the ability to effectively leverage data across their financial flows (e.g. payments processors who are directly in the flow-of-funds are able to both underwrite loans more accurately and collect repayment more seamlessly). On the other hand, vendors benefit from having improved customer retention (notoriously challenging in the SMB space where structural churn is high), increased ARPU, and more strategic customer relationships.

In addition to this, the SMB market is enormous. SMBs typically comprise ~50% of GDP, and comprise ~99% of total business count[2]. B2B payments are ~5x larger than B2C payments with SMBs comprising roughly half of this[3]. That said, we are at an inflection point today driven by a combination of technological & regulatory tailwinds (e.g. PSD2), growing customer acceptance (in part driven by growing B2C penetration), and the mass-migration to online-only services driven by Covid-19.

Furthermore, while SMBs have historically been able to access financial services through traditional FIs albeit in a high-friction manner, access to software has been severely lacking. Most SMBs today use Excel (or potentially even pen & paper) to manage the bulk of their finances. Given finance teams at SMBs are forced to wear multiple hats and notoriously understaffed, the potential ROI from optimising workflows and increasing automation alone is massive, not to mention the value in having greater control & understanding of your financial position. Today, we are still early in the adoption curve, but the direction of travel is clear and the question is when, and not if.

Understanding the landscape

The suite of services falling under the remit of the CFO is broad, encompassing managing cashflow across customers, suppliers, & employees, compiling management and financial accounts, and increasingly producing forward-looking forecasts that help drive strategy. The universe of vendors attacking the Office of the CFO is similarly broad and can be largely segmented along the two axes below:

The software vs. financial services distinction is an important one, with several key differences:

  • Regulation: software products are largely unregulated while financial products require some sort of license (e.g. payment institution license, banking license etc.)
  • Monetisation models: software products are typically fixed monthly subscriptions while financial products are largely volume-driven (e.g. % payment volumes or fixed cost per payment, interest rate on a loan)
  • Incumbent competitors: traditional FIs have largely offered financial products without providing accompanying software tools; next-gen SMB software vendors are primarily replacing excel and other largely manual solutions today
  • Drivers of ROI: software products mostly drive value through automation & workflow efficiencies while financial services is more around enabling a transaction to happen in the first place

While the earliest businesses to emerge typically serviced one function (e.g. accounting software, online acquiring, lending, payroll etc.), businesses are increasingly expanding their offerings across both of the axes above from their initial landing point. While this may seem straightforward, we’ve learned a few things along the way:

  1. The initial wedge will heavily influence the target customer base…
    1. While SMBs are often treated as a homogeneous group, the reality is very different. The needs of a freelancer, 10-FTE, 50-FTE, and 250-FTE business vary significantly and there is a standard ‘roadmap’ of evolving requirements as businesses scale. For example, a bank account and basic payments are mission critical from incorporation, credit is relatively rare among freelancers but becomes increasingly relevant & complex (e.g. corporate credit cards, loans) with scale, accounting software is most relevant for small businesses rather than micro business/freelancers, most other software products (e.g. cashflow forecasting, spend management) are most mission critical for larger SMBs
  2. …and natural product adjacencies
    1. Not all product combinations are created equal; this is driven by both the maturity curve outlined above (e.g. an accounting software vendor may find it challenging to cross-sell a banking offering as the target customer likely already has an existing banking provider) as well as the strength of synergies between the products (e.g. the combination of corporate card issuing & spend management is particularly powerful)
  3. Product velocity is a powerful differentiator…
    1. While rate of product innovation is important for any business, this is particularly true for those executing along the ‘Financial OS’ strategy, especially as competitive boundaries between historically siloed products begin to blur. Particularly amongst SMBs, the benefits of bringing more parts of the finance stack under one roof often outweigh the benefits of going best-in-breed with the exception of a few more complex/regulated products (e.g. payroll). Increasingly, we expect to see a turf war with the spoils disproportionately accruing to those able to offer a broader, integrated suite of ‘good enough’ solutions
  4. …but be practical about the buy vs build vs partner decision
    1. That said, not all parts of the stack need to be built in-house especially in instances where there are clear regulatory barriers (e.g. providing on-balance-sheet lending and acquiring a lending/banking license) or where there are potential win-win partnerships at hand (e.g. GTM partnerships) particularly where customer acquisition economics permit
  5. Verticalised solutions have the potential to extend beyond financial services
    1. For vertical vendors, there is an opportunity to bundle together industry-specific workflows with financial services potentially taking control of multiple systems of record. This in turn drives enormous TAM expansion, competitive moats, customer delight, and with it, economic potential. This is a concept that we, at TCV, have long advocated through our ‘full-potential SaaS’ framework
  6. Let your customers lead the way
    1. Size is not static and (much like my waist size over the holidays) an S today might be an M tomorrow. Similarly, many Ms will eventually graduate beyond ‘SMB’ designation and into large enterprises. Nowhere does this happen more quickly than among tech businesses which, often being early adopters themselves, typically comprise a disproportionate share of the customer base of next-gen financial services disruptors, particularly in their early innings. The advantages of this for vendors are twofold – 1) business models with a volumetric pricing model benefit from organic customer expansion, 2) vendors enjoy a constant stream of product feedback from increasingly demanding customers thereby allowing them to efficiently move up-market and, in an archetypal expression of Christensen’s Innovator’s Dilemma, leapfrog incumbents serving larger & deeper-pocketed customers

One important caveat – while the benefits of aggregation are clear for SMBs, this also needs to be balanced against the advantages of working with a specialist vendor particularly in instances where the problem being addressed is technically complex or highly localised (e.g. as a result of regulation). This dynamic has been particularly apparent in the software layer where we have seen the emergence of multiple standalone categories (e.g. accounting, tax, forecasting & scenario modelling etc). For vendors in these categories, the key pressure points will be in ensuring seamless integration into the rest of the finance stack, seeking out win-win partnership opportunities, and deepening functionality to avoid the risk of being aggregated into another system of record.

What are we excited about?

Despite the progress made over recent years, the Office of the CFO for SMBs remains a largely greenfield market with traditional FIs still controlling the lion’s share of the serviced market. The sheer scale of the market opportunity (99% of all businesses are SMBs!) and the heterogeneity within the SMB base (both by size tier and even by geography) mean there is plenty of room for many seminal businesses to emerge. Furthermore, this is a truly global phenomenon and SMBs in emerging markets such as India, LATAM, and SEA are even more underserved than their counterparts in the US & Europe. We, at TCV, are incredibly excited to continue backing and working with visionary founders across the world who are building for tomorrow.

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The views and opinions expressed are those of the writers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the writers and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.


[1] Designing Digital Financial Services that work for US SMBs, 11:FS, 2020

[2] 2020 Annual Report on European SMEs, European Commission

[3] “How the Next Payments Frontier will unleash small businesses”, Goldman Sachs Publishing, 2019


Hypergrowth, High Value Partnerships, and Hyperlocalization at Mollie, All By Putting the Customer First

Growth Hacks – Moving the Metric

Mission statements, company values, guiding principles — every company has them. Yet even at the most mission-driven companies, it can be easy to focus more attention on activities such as unlocking growth and winning market share, than it is to make sure the company values are being consistently conveyed.

On this episode of Growth Hacks, Kunal and Katja speak with Ken Serdons, chief commercial officer at online payments processor Mollie, about how being loved by customers is more than just words on a mission statement. Ken takes us deep into the strategy of how Mollie restructured its hiring process, reengineered its partnerships with external service providers, and strategically chose the number of markets it entered, all in pursuit of creating a Mollie experience that its customers loved. In the process, the company gained tremendous market share in each of its local markets.

Key Takeaways:

  • Why Mollie adopted a customer-first mentality. After seventeen years of growth, the Mollie team realized they’d outgrown their initial mission statement that cited values such as passion, courage, and impact. When they coined “Be Loved” as the first of three new company values, they found that applying it to every part of the customer experience helped them offer a vastly different consumer experience from their competitors. Whether it was figuring out how to “Be Loved” by customers based on how they price their product, or on the breadth and functionality of partnerships with other apps and services, that hyper-focus on the soup to nuts customer experience has helped Mollie gain market share year over year.
  • How to drive partnerships that unlock their full potential. Because of Mollie’s global footprint, the team has inked countless partnerships with companies of all sizes that also provide services to online merchants. But signing a partnership and building an integration is just the start of a successful partnership. Ken’s team also innovates on ways to create value for partners outside of monetary incentives, whether that’s joint marketing activities, or providing trend analysis for partners using Mollie’s transaction data. To successfully maintain such robust partnerships, Mollie split the traditional partner manager role into two jobs — the first for “hunters” who love finding and structuring creative new partnerships, and the second for partner success managers, who continually think about ways to create joint growth with Mollie’s partners.
  • How a localization strategy that prioritizes fewer markets can unlock hypergrowth. When Ken first joined the Mollie team in 2019, like most companies, Mollie had ambitions to scale to as many markets as possible. Yet they made a conscious decision to focus on markets where they knew they could see demonstrable success. One example was when Mollie pulled back on expanding into Italy, in order to focus its efforts and resources on growing in Germany, France, and the UK. Though the number of countries Mollie was available in was lower, the company’s market share has soared in each market, seeing successes in Belgium in 2020, and growing more than 1000% in Germany year over year.
  • Why they don’t do any bespoke development at Mollie. A hyper-focused localization strategy doesn’t mean the company doesn’t want to be able to hit the ground running when expanding into additional markets. That’s one reason why Mollie decided early on never to create bespoke development. “Bespoke development creates legacy technology, and that’s expensive to maintain and it’s also not scalable,” says Ken.
  • How to hire candidates for their future roles. Because of the pace that Mollie is growing, effectively doubling its headcount year over year, Ken has learned that hiring the right candidate for right now is short-sighted. Instead, they aim to hire people slightly overqualified for the initial role, knowing that Mollie is going to continue expanding, and the job with it. “That only works if you hire low ego people. People who put the customer first and the company first,” cautions Ken.

To learn more, tune in to Growth Hacks: How Mollie’s Mission to Be Loved by Its Customers Has Fueled Hypergrowth.

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The views and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This interview and blog post are not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this interview and blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.