MasterCard and Basware Sunsetting Bank Payments?

Today’s announcement of a partnership between MasterCard and global B2B network Basware scores another point for the likely uptake of the B2B payment networks model—a model that I predicted in a recent blog post would come to the fore. The combination of B2B trade networks and payments infrastructures is clearly emerging as a paradigm that  enables the exchange of physical and financial supply transactions between trading partners and financial institutions. This may be the sunset of bank-centric payments networks as we have known them.

According to the new model, companies will exchange payments via the same network infrastructures they already use for business-to-business (B2B) transactions, such as purchase orders, sales orders, and sales and procurement forecasts. B2B platforms have been in place for years and connect hundreds of thousands of companies, logistics providers, and distributors in extended networks of trading partners. It makes perfect sense to extend the reach of such networks to the execution of payments instructions, leaving the “last mile” of interbank connectivity to specialized payment networks (e.g., SWIFT).

Past attempts to link the physical supply chain with card networks have seen varying results:

• OB10, with its Express Payments solution powered by American Express, offers financing capabilities on the back of electronic invoicing and payments services, but the initiative is a new one and its U.K. center of gravity does not make it truly global.
• Syncada from Visa, a joint initiative between U.S. Bancorp and Visa, failed miserably in its attempt to leverage the power of a bank-owned platform with the granular reach of a card network.
• Ariba, now part of ERP giant SAP, and Discover Financial Services, a direct banking and payment services company, have joined forces to support B2B payments over the Discover Network. The solution is focused on eliminating paper transactions, providing better visibility into cash flow, and producing rich remittance information to improve reconciliation processes for buyers and sellers. No financing capabilities have been offered so far.

The real news in the Basware and MasterCard announcement is not the creation of yet another payables and receivables finance platform but the true end-to-end extension of two interconnected networks that cover the physical and financial flows of modern B2B networks. Almost all other SCF platforms expect an already processed invoice to be provided by an external source; where that invoice comes from and how it is processed is not part of these platforms’ added value. The Basware and MasterCard network is different because the platform runs all way from the upstream supply chain (sourcing a supplier, creating a purchase order, approving and issuing the purchase order), to creating and sending the invoice when goods are delivered via Basware, to the financing segment through a network already connected to just about every bank and every corporate—MasterCard’s credit card network.

One important point is still open, however: Though credit card companies have hardly figured out how to service corporations that buy from and sell to each other, the greatest penetration that card providers have managed is corporations’ travel and entertainment (T&E) and purchasing card businesses. I expect to see MasterCard adapt its revenue model to new scenarios that go beyond basic T&E and purchasing cards (and which require moving from a percentage fee to a flat fee). I also want to see how Basware will effectively keep its commitment to open interoperability, allowing customers to connect across partner operator networks. Will that also be extended to non-MasterCard payment networks?