B2B Payments

Mastercard Embraces Existing Rails To Drive B2B Payments Value

When it comes to global B2B procurement, nothing is simple.

For example, suppose a huge global consumer packaged goods (CPG) conglomerate wants to introduce a new shampoo. To do so it needs new supplies of palm oil, and a new supplier in Indonesia has the right quantity and the right environmental profile. Said CPG company would need to onboard the new supplier, which in the past could be a 90-day process full of you’re your customers (KYC) regulations and other laborious processes.

But let’s say new efficiencies allow the supplier to be onboarded reasonably quickly. The work is still far from done because the CPG company needs to pay the new supplier. Does it do so by old-school wire transfer? Relatively new procurement cards? Maybe ACH? Or maybe even fast ACH? Matching the payment mechanism to the project has been a thorn in the side of global procurement since the days of the spice trade.

That’s why Mastercard has taken steps to eliminate the pain point of managing payment preferences altogether through its Mastercard Track Business Payment Service (BPS), a multi-rail ecosystem that sits between buyer and supplier to optimize the movement of both funds and data in a B2B payments flow.

The Track BPS is an evolution from the strategy of owning the underlying rails upon which money moves, according to James Anderson, executive vice president of Global Commercial and B2B Solutions.

"That's an important distinction between what we're doing now and what we think we're going to be doing more of going forward, versus what it took with the card rails," Anderson said in a conversation with Karen Webster. "We started on the process of seriously thinking through what it looks like to add value to transactions, even if you don't control the underlying rails."

Anderson described Mastercard's approach to driving change in the B2B payments arena as checks falling by the wayside, and how innovating upon existing rails can ease the digital transition for corporates looking to optimize their payment workflows.

Driving B2B Payments' Evolution

Slowly but surely, corporates are migrating away from checks. Often, the payment method replacing paper is ACH payments, a substitution Anderson said will be accelerated by RTP.

ACH transactions have their drawbacks, but while it's possible to develop entirely new infrastructure to address those friction points, forcing businesses off of an electronic payment they already use toward a different payment method may not be the best strategy to modernize B2B payments.

"To be a very serious player in B2B payments, you have to say, 'What kind of changes do you want to drive?'" said Anderson.

The answer, Mastercard decided, is to change the way businesses send and receive money upon the existing rails they're already comfortable with rather than tackling friction by forcing a change in payment rail.

One of most significant changes Mastercard is hoping to drive across the ecosystem is in allowing both buyers and suppliers access to richer transaction data.

"One of the reasons why account-to-account payment transactions deliver the money, but they don't necessarily deliver value, is that nobody had actually done the work to standardize the non-payment flow part of it," Anderson noted. "Everybody talks about rich data pipes being attached to ISO 20022. That is technically true, but remarkably uninteresting, unless somebody does the work to standardize what's actually going to flow across those pipes."

Mastercard's account-to-account (A2A) capabilities within Track BPS have tackled that point of friction by standardizing remittance data formats, allowing buyers to know exactly what information to include in a transaction, and enabling suppliers to know what data they're going to be able to get out of it. This is key to not only addressing a payments pain point in B2B transactions, but also to incentivizing adoption of the technology by adding value to data standardization.

A World Of Opportunity

Many of the biggest challenges of B2B payments occur in the context of cross-border transactions. This is another opportunity to build value-added functionality on top of existing payment rails, and to collaborate across the B2B payments ecosystem to further optimize accounts payable (AP) and accounts receivable (AR) workflows, Anderson noted.

While Mastercard Track BPS's A2A functionality is currently live only in the U.S., the company is gearing up to roll the service out internationally next year, and to develop other solutions for cross-border B2B payments.

Blockchain is one promising rail that Anderson said could be particularly effective at addressing friction in cross-border transactions through data. The technology is able to not only move funds across borders, but to also record data as it relates to events that occur in the real world, which could then be used to trigger a transaction. For instance, the data that a shipping container was placed on a boat, and that boat arrived at its intended destination, could trigger release of funds to a supplier.

As Mastercard explores payment rail potential and expands its service to new geographic markets, it will be important to understand that each region has different pain points, and therefore different value propositions. In the U.K., for instance, where paper checks have all but disappeared, the value proposition is not to simply digitize B2B payments like in the U.S. Rather, the U.K. opportunity is to accelerate payments to suppliers as regulators look to address the pain point of smaller vendors that are often forced by their large corporate buyers through delayed payment terms and trade credit.

It's in this way that Mastercard Track BPS looks to drive value beyond providing insight for buyers into how their suppliers prefer to be paid. Increasingly, data is vital to mitigating friction in B2B payments, as is industry collaboration, which Anderson said is a key component to the evolution and adoption of BPS.

It will also be key to the evolution of B2B payments by allowing service providers to address friction on either the AP or AR side of a transaction — not both. Historically, said Anderson, service providers were forced to fulfill the needs of their customers’ customers. Through an open-loop network that can sit in the middle, Anderson said technology has allowed for specialized AP and AR solutions, with tools like Track BPS to eliminate the friction in between.

"Those companies that focus on understanding buyers' needs and understanding suppliers' needs will be the ones that deliver the most value and grow the most," he noted. "What they need is a common backbone to connect."

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NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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