WEX's B2B Payments Rebound Is Real, and It's Not About Travel

WEX Inc. (NYSE: WEX) reported second-quarter results Wednesday (July 22) that showed the company is still at the mercy of fuel prices and currency swings. Revenue climbed 14.2% to $753.5 million, and adjusted earnings per share rose 35.4% to $5.35. Strip out those macro tailwinds, and revenue grew a more modest 4.2%.

The number that mattered most came from inside the Corporate Payments segment. Direct accounts-payable (AP) volume jumped 20% in the quarter. Roughly two-thirds of that growth came from new business, not higher spending by existing customers. The rest came from increased activity among over-the-road clients.

That mix suggests the long-awaited B2B payments recovery is taking shape through channels that look different from the ones that built WEX's franchise.

"Within Corporate Payments, in the places we've been making investments, which are the embedded payments outside of travel and AP direct, we are seeing really strong growth in our pipelines," Melissa Smith, WEX's president and CEO, told analysts. Those pipelines, she added, are starting to convert into revenue.

Corporate Payments revenue rose 5.8% to $125.1 million during the quarter. Total travel volume increased 6.4%. Direct AP now accounts for roughly one-fifth of segment revenue and is expected to maintain mid-teens growth through the rest of the year.

The product is straightforward. A business sends WEX an accounts-payable file, and WEX executes payments to suppliers through virtual cards and other methods. The shift is that the payment is no longer an isolated transaction. It becomes part of a managed operational workflow. Companies are not simply replacing checks with electronic payments. They are outsourcing supplier enablement, payment routing and transaction execution to providers that can manage those processes at scale.

That outsourcing pitch is winning new customers. The fact that two-thirds of direct AP growth came from new business, not existing-client expansion, signals the acceleration was not just a function of stronger spending by incumbent clients.

Some of that new-business growth traces back to technology. WEX credited an artificial intelligence-based lead-generation tool with helping identify likely customers more efficiently. "We're doing an even better job of identification of leads," Smith said. AI is not changing how a virtual card clears. It is improving the economics of finding, underwriting and onboarding the businesses most likely to use one.

Direct AP is only one part of WEX's strategy. The other is embedded payments, particularly outside travel. WEX built much of its Corporate Payments franchise around online travel agencies and other intermediaries. That business remains important. Management is increasingly focused on embedding payment capabilities into FinTech platforms and software providers whose core product is not payments.

Those companies may need to move money on behalf of customers or may view payments as a way to generate additional revenue. WEX can provide issuing, settlement, compliance and virtual-card infrastructure without requiring the software provider to build those capabilities internally.

The model expands the addressable market beyond companies actively shopping for a payment product. Platforms serving procurement, logistics, insurance, travel or business spending can themselves become distribution channels. WEX said its embedded-payments pipeline remains strong and is beginning to convert into revenue. Together with direct AP, the business is expected to support the company's goal of returning to its long-term organic revenue growth range of 5% to 10%.

Travel remains a major part of Corporate Payments. The quarter also showed why reported volume alone can obscure the segment's underlying performance. Although travel volume increased 6.4%, total Corporate Payments purchase volume declined 3.6%. Management attributed much of that decline to timing involving a large online travel-agency customer that shifted activity into the second half.

WEX estimated that customer timing and contractual factors reduced reported volume by approximately 5%. The company expects purchase-volume growth to improve during the second half, although changes in customer mix could place modest pressure on interchange yield.

That trade-off is typical of a maturing payments platform. Growth does not always come from maximizing the economics of every transaction. It can come from processing more transactions across a broader network at a slightly lower average yield.

Yield mechanics are not the only friction point in WEX's network. Virtual cards remain attractive to buyers because they offer security, control, automated reconciliation and potential rebate revenue. Suppliers, however, may see them differently. Accepting a card often means paying interchange fees that would not accompany a check or ACH transfer. That tension can lead suppliers to discourage card acceptance or request another payment method. WEX acknowledged that it encounters such suppression within portions of its direct AP and bill-pay businesses. The effect remains limited.

"It's not for us a big headwind in any given period of time," Smith said.

Supplier acceptance remains one of the central competitive challenges in commercial payments. The providers best positioned to win will be those able to route payments through methods suppliers are willing to accept while preserving value for buyers and software platforms.

WEX's quarter illustrates why the next phase of B2B payments growth may look different from the last. The original digitization thesis centered on replacing paper checks. That transition continues. It is no longer enough to differentiate a platform. The larger opportunity lies in controlling the workflow surrounding the payment: ingesting AP files, identifying suppliers, selecting payment methods, managing compliance, reconciling transactions and returning data to customers' financial systems.

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