Mastercard eyes US$5.5t opportunity in B2B procurement settlements

AS ASIA-PACIFIC businesses grow to serve a growing market of customers, their spending on procurement has increased in tandem. Yet, the settlement process for most procurements remains inefficient.

Mastercard’s Asia-Pacific president Ari Sarker described the existing procurement ecosystem as complex and fragmented with numerous stakeholders – including end corporates, financial institutions and networks playing different roles.

The financial services company is therefore eyeing a business opportunity for its payments network to improve efficiency and connectivity for all parties within the business-to-business (B2B) ecosystem.

According to Mastercard, the annual B2B spend in the Asia-Pacific region surpassed the US$23 trillion mark in 2020.

Of this sum, 24 per cent, or US$5.5 trillion, spent in the areas of electronics, retail or fast-moving consumer goods (FMCG) could be settled on cards, Mastercard believes. Yet only 1 per cent of annual B2B spend is carded.

Sarker said the company is working with financial institutions to look at the B2B supply chain holistically and tailor offerings to address the changing needs of businesses as they scale.

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For instance, within the freight and logistics industry, Mastercard found that the industry faces high error rates in invoicing. The prevalence of cash and cheques has also resulted in poor operational efficiency for reconciliation.

Furthermore, freight and logistics providers for middle market and small to medium enterprise clients face credit risks from bad debt. Still, the company found that traditional players have been slow to adopt new technology.

One way the company is helping industry players to solve for these inefficiencies is to enable payments to carriers using virtual card numbers (VCNs). Companies can use these VCNs to limit how the virtual cards are used by transaction amount, type of purchase and time frame, among other factors.  (* see amendment note below)  

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For carriers, the solution improves collections efficiency, reduces bad debt and improves operational efficiency.

In addition, the company created Track Business Payment Service (BPS), which has a built-in business directory to match buyers and sellers based on their working capital requirements.

Sarker noted that the top 20 per cent of a company’s suppliers tend to supply 80 per cent of their purchases. Smaller suppliers who are less of a priority may hence be less well managed, with frequent late payments.

This could prove challenging for certain suppliers, as even minor delays in payment would hurt their ability to procure supplies to finance existing orders.

Sarker said Track BPS’ two-sided open loop network provides greater transparency and flexibility for both buyers and suppliers, and reduces each party’s time spent finding a partner whose payment preferences match theirs.

Such transparency could unlock more opportunities to make payments digital. Suppliers could specify scenarios where they are able to accept card payments or not, instead of simply having to accept cards in all instances. With digitalisation, details including invoice numbers, amounts payable, remitted amount and credit note amounts would also be standardised for easier reconciliation.

Beyond making procurement and other purchasing processes more seamless, Mastercard is also focused on shifting the narrative around the use of cards.

Sarker pointed out that buyers tend to see credit cards as simply a “last mile” method of payment, but the company hopes to persuade companies to also see cards as a means of freeing up working capital.

For instance, a company could choose to pay for an invoice with a credit card. After the statement is received, the buyer will then have additional time to settle the payment before interest is incurred. The cash that is kept on hand could then be used to fund other business operations.

“This isn’t new – but it’s a cash flow strategy that’s underutilised, and that’s perhaps in part because of how people frame their thinking about business credit cards.

“This is an option that’s available to countless businesses, which is why we believe the narrative needs to be shifted,” Sarker said.

Still, Mastercard will need to convince suppliers to adopt digital payment methods.

Sarker said Asia-Pacific suppliers are often unwilling or unable to accept card payments, especially for payments such as taxes, customs duties, education fees and real estate transactions.

Mastercard is partnering other fintech companies through its Business Payment Aggregator programme to help bridge this gap. Its partners serve as an intermediary by accepting card payments from buyers and disbursing funds via electronic funds transfer to suppliers.

The company also works with fintechs to identify which suppliers are willing to accept card payments, and helps onboard them with acceptable merchant transaction fees. The fees may then be borne by suppliers, buyers or split between both parties.

“In fact, card products offer an incredible amount of flexibility when it comes to managing buyers’ cash flows; but it doesn’t need to come at the cost of high fees for suppliers. There is a lot of room for negotiation on the economics of B2B transactions,” Sarker said.

For more stories, go to bt.sg/sff2022

*Amendment note: The article has been edited to clarify how Mastercard helps freight and logistics stakeholders solve for inefficiencies.