Mastercard Inc. is out to move more small and mid-sized businesses away from paper checks and into digital payments.
The payment card company this week announced the Mastercard B2B Hub, a digital payment processing service it will launch later this year with AvidXchange, a provider of software for automating invoices and payment transactions.
Companies will be able to use the hub to automate the online exchange of purchase orders, invoices and payments between buyers and sellers, with workflow features for routing invoices and payments for approval by authorized personnel.
“Midmarket and small businesses are growth engines of our economy. The Mastercard B2B Hub is the latest way we are working to meet the broader payment needs of this segment,” says Colleen Taylor, executive vice president of new payments business for Mastercard. “The comprehensive automated payment experience we deliver will help improve supplier relationships and accelerate the conversion of B2B payments from paper checks to electronic payments.”
Adds Michael Praeger, CEO and co-founder of AvidXchange, “We founded AvidXchange to revolutionize the way midsize companies pay their bills. The strategic partnership with Mastercard will help us to realize the vision that we’ve had to transform an industry, and to reach the 350,000 businesses that are currently operating in the middle market with antiquated processes.”
Mastercard also said it would take a minority stake in AvidXchange by participating in a $300 million funding round announced last week. Other investors are Temasek, Peter Thiel, and Caisse de dépôt et placement du Québec, which is also known as CDPQ.
Nancy Atkinson, founder and principal of payments consulting firm GTB Consulting, says the service Mastercard and AvidXchange are planning appears to be designed for larger mid-market companies of up to $500 million in revenue and will compete against payment services from such companies as Basware, Payoneer and Bottomline Technologies.
For smaller mid-market clients, the Mastercard B2B Hub will compete against such payment companies as American Express, Visa and Billtrust.
But many smaller companies are likely to continue using paper checks, Atkinson says, for numerous reasons. For example, many sellers don’t accept electronic payments in order to avoid paying the interchange fees required by electronic payment networks; and many buyers among small businesses find it efficient to convert paper checks into electronic images, then emailing them to suppliers who can process them electronically.
Atkinson says that one alternative to paper checks are electronic payment orders, which businesses can create as documents within an email system, integrate with financial management systems, and email to the recipient for electronic processing. EOPs must still clear legal and regulatory requirements, but their future is promising. The EPOs could eventually be “introduced to the Mastercard B2B Hub as another payment mechanism, and perhaps could ensure the value of the hub for small businesses,” she says.
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