Many companies in the payments industry see B-to-B transactions as ripe for modernization, and Mastercard is no exception. Its recent participation in a $300 million funding round in AvidXchange enables a new approach to this market.

The companies are working together to create a "Mastercard B2B Hub" designed to optimize invoice and payment processes with accounts payable and payment automation tools that improve the speed, ease and security of their commercial payments.

“We see this solution as helping organizations maximize every minute and every dollar that they invest in their business” said Colleen Taylor, executive vice president of new payments business for Mastercard, in a Thursday press release. “The comprehensive automated payment experience we deliver will help improve supplier relationships and accelerate the conversion of B-to-B payments from paper checks to electronic payments.”

Bloomberg News

Significant market opportunity

Small to medium enterprises (SMEs) are truly the backbone of the U.S. economy.

According to the U.S Census Bureau, SMEs make up 99.7% of U.S. employer firms, yet many of these firms are tied to archaic systems for both incoming and outgoing payments. The burden that this imposes on SMEs is significant — cashflow for fledgling businesses is critical to survival, yet comprehensive tools for enhancing payment management have been slow to come to market.

But Mastercard's rivals are already working to disrupt the B-to-B market. Visa is working with Viewpost to target small and mid-size companies; and American Express is launching a Blue Business Plus card to urge business owners to shift their spending to its card.

Speed is of the essence

A particular frustration for SMEs is the slow speed of funds settlement.

A YouGov survey highlights that 51% of U.S. SMEs are frustrated with delays in payments reaching their accounts. Further, 38% of U.S. SMEs stated that real-time payments are critical to their business and 65% would consider switching their FI in order to have this capability. This should cause some concern for traditional payments players — there have been a number of companies springing up in recent years that have taken on core banking services such as lending, investing and remittance and the myriad competitors in the consumer P-to-P landscape could pivot to B-to-B transactions as more of a greenfield opportunity.

In addition to Mastercard, the funding round's other participants are Caisse de dépôt et placement du Quebec (CDPQ), Temasek and Peter Thiel.

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Nick Holland

Nick Holland

Nick Holland is a senior analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.