Mastercard, Microsoft partner on B2B fintech network that could save billions

Mastercard and Microsoft have developed a B2B global trade platform that creates a directory of businesses for verification purposes and a payment and clearance network to challenge what is today a mostly paper-based system.

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Mastercard has launched a new global B2B network built on Microsoft's Azure cloud service that aims to reduce inefficiencies and inaccuracies in verifying supply chain providers and create a near real-time electronic payment system.

Mastercard Track is a global trade platform for the procure-to-pay-process, which today can be a highly manual effort. The B2B network enables banks, insurance companies and tech providers to streamline services to business customers, such as enhanced data analytics and trade finance.

The new platform, unveiled last week, will help businesses verify supplier authenticity, as well as ensure those suppliers are in compliance with local and international regulations.

In B2B supply chain transactions, "know your customer"{ (KYC) or know your supplier is the method by which a company verifies the identity of its business partners and assesses risks for the business relationship. Early next year, Mastercard Track will go live with a Track Directory – a central, global "white pages" of more than 150 million registered businesses in 76 countries that integrates information from 4,500 compliance lists for companies to use in screening suppliers.

What Mastercard Track does

When a company logs onto the directory, a buyer can look up potential suppliers, get a quick sense of them from a KYC and regulatory standpoint to determine whether there are any government sanctions against them, and see their credit reports in some countries, according to Carlos Menendez, president of Mastercard Enterprise Partnerships.

"It's a one-stop shop on what sort of company this is, which should facilitate their onboarding," Menendez said. "Most large companies only actively manage about one-third of their supplier base. So, we have a subscription service built into that directory that will send daily updates as the status of the company changes."

Mastercard Track Mastercard

MasterCard Track also includes the Global Payments network, a B2B electronic payment system that addresses what is today a mostly paper-based system where a check being used to pay suppliers can take as long as 21 days to clear.

"The B2B payments market, which is about five times bigger than the consumer payments market at over $120-odd trillion, is still filled with a lot of friction," Menendez said. "There's also a challenge in payment visibility – 'What am I getting paid for?' I may have been paid for $50,000, but I'm not sure which invoices it makes up. Essentially, there's a lot of back and forth between reconciliation between buyers and suppliers."

Payment information on the Global Payments ledger will enable suppliers to indicate what part of the money was used toward specific invoices.

"The suppliers will be able to see this $50,000 is made up of these two particular invoices paid in full and this third one is only partially paid," Menendez explained. "That facilitates the call to the buyer saying, 'Thank you for the $50,000, but I noticed invoice number #1456 is short $6,000. Can we talk?'"

Krista Tedder, research analyst at Javelin Strategy & Research, said there's nothing currently in the market to compare Mastercard Track with; Mastercard and Microsoft have found a way of addressing key issues in the B2B marketplace.

B2B payments market lags behind consumers

During the past 20 years, the consumer payments marketplace has evolved quickly. (Consider the number of mobile payments and banking apps that enable consumers to view credit card charge and payment history online.) B2B payment tracking, however, has developed far more slowly, which is why it remains largely paper based, according to Tedder.

Today, if a business wants to pay a supplier, it's often done by their bank cutting a paper check. The process incurs administrative costs, and if the supplier is out of country, the check takes time clear. And tracking who has or hasn't been paid, and whose supplies have arrived, is a highly manual process.

"Today, if I have 10 suppliers, I have 10 stacks of paper," Tedder said. "By pulling that into a single system, I can get a dashboard view to know who's paying me, are they on time or late [and] do I have to charge fees?

"If you're a consumer, think about how you go into online banking and how you can track what your bills are," Tedder explained. "This is starting to do that for businesses."

For a small- to medium-sized business, being able to track who has or hasn't paid – and getting that money in near real time – is crucial to meeting supply demands.

"They need that money to ship the goods. Sometimes those checks are used for their payroll," Tedder said.

For example, if a major retailer such as Walmart likes a company's product and orders mass volumes of it, the manufacturer needs money upfront to pay its parts suppliers in order to build and ship the product. If the supplier is a small or medium-sized company, they have even less upfront money to begin mass production. So, getting payments fast can mean life or death for smaller companies, Tedder explained.

Mastercard estimated the B2B industry has to pay $500 billion annually just in administrative costs, including the inefficiency of the nearly half of all global business transactions that are still performed by paper. Tedder said those administrative costs claimed by Mastercard seem credible.

"One of the other things I liked about what Mastercard is doing is you can connect into it via API. There are so many different ways of doing business and so many companies that support B2B. By having it be an API-based technology, platforms can come in and offer it out to a larger scale," Tedder said.

In other words, Mastercard Track platform can be integrated with other B2B networks, back office accounting and invoicing applications.

Mastercard has so far partnered with nine B2B networks and procure-to-pay service providers, including Basware, BirchStreet, Coupa, the Infor GT Nexus Commerce Network, Ivalua, Jaggaer, Liaison Technologies, Tradeshift and Tungsten Network. Those networks will be the electronic highway through which companies can verify the credibility of potential suppliers and pay them.

"From a supplier's perspective, because we're tying into multiple networks, it's also a one-stop view of all their accounts receivable," Menendez said. "Today, many suppliers use whatever network their particular customer has. We've met with suppliers that have from 10 to 30 different [accounts receivable] networks they're on."

Rajiv Ramachandran, vice president of Business Acceleration at Coupa, said Mastercard Track customers can now bring their Track data feed directly into Coupa Risk Aware, a cloud-based spend management system, and instantly have access to supplier risk scores at the moment of transaction (across sourcing, invoicing, contracting, etc.).

"Whether creating a sourcing event or a requisition or approving a PO or an invoice, Coupa and MasterCard customers are now able to monitor financial health information, news sentiment, judicial filings, restricted party risk, etc. of their current and potential suppliers in a real-time transaction based model," Ramachandran said via email.

Through its APIs, Mastercard Track has also already been integrated with Singapore's National Trade Platform, a government-sponsored trade information management system that underpins Singapore's supply chain and trade financing hub.

Challenges remain

Mastercard's B2B platform still faces an uphill challenge; to be successful, it must find buyers and suppliers who'll join.

For a B2B platform to work globally, both merchants and suppliers have to participate, Tedder said. "The good news is both sides of the equation will find value, but that's still the biggest challenge – building awareness for businesses to go to their suppliers to say, You have to do business this way,' then they will," Tedder said. "If I'm a merchant, I have to make my vendor use this. How do I get them to do that?"

To build acceptance, Mastercard Track will need an significant numbers of merchants to sign onto the platform and require suppliers to use it, she explained.

"I think it will be interesting to watch this now that Walmart has partnered with Microsoft [to take on the] Amazon Web Service industry. If a Walmart says you need to do it this way, then there'll be faster adoption."

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