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Mastercard (MA) Expands Digitization of Business Payments

Zacks Equity Research
·5 min read

In an effort to further digitize the business payments process, Mastercard Inc. MA is adding Account-to-Account (A2A) and Global Card Payments feature to its Mastercard Track Business Payment Service.

In May 2020, the company announced the commercial launch of its Track Business Payment Service for U.S. buyers and suppliers. Now, businesses of all sizes can use this service to pay and get paid with card through new distribution partners around the world.

Mastercard Track  is a unique Mastercard solution designed to simplify and automate the exchange of payments-related data between the world’s buyers and suppliers and is one of the first open-loop commercial solutions to do so globally. Via this innovative solution, Mastercard is striving to create a paradigm shift on the B2B payments landscape by putting an end to the operational and financial challenges created by inefficient processes and multiple varying point-of-origin payment systems.

According to Mastercard, the physical system of payments as it exists today leads to late payments and reduced cash flow for 91% of the B2B merchants in the United States (because of late payments by their customers), $3 billion of total losses from inefficiencies and the risks caused by fraud, and 35% of the suppliers have to face manually maintain  40 % of their invoices. The existing system of inefficient payment thus creates an opportunity to digitize the B2B payments system.   

The Mastercard Track business payment service has a whole payment ecosystem built around it, which includes buyer and supplier partners plus non-bank receivables and payables providers. The payment types involved are via cards, Automated Clearing House (ACH), real-time basis and cross-border remittances.

For buyers, the Mastercard Track business payment service provides improved working capital management, increased security and quick access to supplier payment terms as well as receive notifications when payments are made.

For suppliers, the Mastercard Track business payment service provides greater control over cash flow, savings in employee hours, higher efficiency and improved security.

The A2A payments feature in Track Business Payment Service is now available in the United States and will be available in all regions by the end of 2021. Cross-border payments are also in the cards for next year. The A2A feature holds greater attraction for suppliers as payment via this mode doesn’t require them to share their bank account data with their buyers.

Mastercard has been working incessantly to support multiple payment rails to make payment process easy for the B2B community.

The company developed a robust B2B solution through the acquisition of the U.K.-based automatic clearing house (ACH) company VocaLink in 2017 and the payment company Nets in 2019.

Mastercard Track is a program that aims at extending the company’s reach in the vast B2B payment market. The global B2B payments market value was $125 trillion in 2019. According to ResearchAndMarkets.com, the global digital B2B payments market observed stable growth in the past few years and the market is further expected to rise at a staggering rate during the 2020-2024 forecast period.

Growth in the global digital B2B payments market will be bolstered by a host of drivers like expanding real-time payments, rising adoption of cloud-based solutions, escalating smartphone penetration, emerging B2B e-commerce industry, swelling business process automation, rising urbanization, growing cross-border payments, etc.

B2B business payments have all the more gained centrestage, given the financial and operational stress due to the sluggish business activities caused by the coronavirus outbreak. This, in turn, induced small businesses suffer fund crunch associated with late payments and slow processing for cash and checks. At a time when solid liquidity is the need of the hour, a single payment delay is enough to topple the operations of small businesses. This technical glitch prompted many small-time players to turn to digital services for expediting their payment mechanism.

A  Mastercard survey highlighted that owing to better speed, security and transparency, more than half (57%) of small business players are increasingly opting for digital services regarding business-to-business (B2B) payments since the onset of the pandemic. Also, nearly two-thirds (64%) of small businesses are actively trying to dissuade clients from using cash and checks.

Another company Visa Inc. V is also expanding its reach in the B2B market via its Visa B2B Connect, which is a non-card based payment network enabling seamless bank-to-bank cross-border business transactions.

In the past six months, Mastercard has rallied 16% compared with the industry’s growth of 10.3%.

Other companies in the same space, namely Discover Financial Services DFS and American Express Co. AXP have also gained 93% and 35.4%, respectively, over the same time frame.

The stock currently carries a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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