Traxpay Inc. wants to provide flexibility and speed when business-to-business payments hit unexpected snags that traditional banking systems can't resolve.
The German B2B payment provider works with corporate payment network providers to turn what has long been a system of "static" payments into dynamic payments with the data and services needed to track and resolve problems, says David Desharnais, Traxpay's chief marketing officer and senior vice president of product.
Banks have not updated their payment networks to adapt to corporate product ordering systems, leaving much of the data regarding B2B deals out of the payment trail, says Desharnais, who works from the company's U.S. office in Mountain View, Calif., as well as in Germany.
"There are many levels of approval, many aspects of a delivery that can go wrong, and various other business events that can happen such as a disagreement over the number of days to pay that bank systems do not monitor," Desharnais says.
The challenge for B2B payments comes into play when the data stream and the money stream do not mesh. "The bank becomes a black box when a company receives only $1,800 on an order for which it was expecting to receive $2,500," Desharnais says.
In that situation, a company has to call the buyer and the bank. "And then they have to decide if any kind of discount that was offered for payment in a certain timeframe is honored if it turns out the money is stuck in the bank until issues can be addressed," he adds.
Traxpay provides a cloud-based option that plugs into any corporate payment network provider's system to keep transaction data and payment flow in the same place, thus providing real-time payment or resolution when a snag occurs.
Traxpay operates under a banking license for B2B payments and receives the payment stream programmed through a company's accounts payable department. "We initiate the transaction and handle all of the data, and clear it and settle it," Desharnais says.
Banks generally cannot handle invoice data or "unstructured data" such as product photos, contracts or bills of lading that often accompany a corporate transaction, Desharnais adds. "When we deal with data, we deal with everything and we do it in real-time, which is very different from how things are handled today."
Banks do "a phenomenal job" in completing B2B transactions, but 30% of the time a problem can unfold with a transaction for any number of reasons, Desharnais says.
By plugging into the corporate payment networks through application interfaces, Traxpay tries to build on the improvements those networks have made in the past year in entering agreements with major card brands.
SAP Financial Services Network entered an agreement with Visa in January to introduce more automated corporate payments with a focus on eliminating much of company's paper-based payment systems. And a year ago, Discover Financial Services began to private-label its processing network to create the AribaPay system for handling a company's procurement, invoicing and payments.
In September of 2013, MasterCard began working with e-invoicing provider Basware to establish an electronic payment system for suppliers and buyers. The system was designed to allow suppliers to extend different payment terms to buyers.
Those types of agreements allowed the corporate networks to "get the last mile of the transaction in place" by having the credit card companies and banks handle some services, Desharnais says.
"These guys do a magnificent job, but they are still static payments," he adds. "They are still on the outside."
Depending on its contract with a corporate payment provider, Traxpay charges about a 1% transaction fee, which the company says is about a third of what the credit card companies charge, Desharnais says.
Banks cannot be as quick to adapt to new technology because of older infrastructure and tight regulations, Desharnais says. A significant European bank is supporting Traxpay through a recent funding round, he says, though he would not name the bank.
"Banks recognize there is a gap and customers are defecting and they need a way to approach this," he says.
Banks actually should be worried about the growing competition in the B2B field, especially when a company like Traxpay plugs into the corporate providers like SAP and Ariba, says Nancy Atkinson, wholesale banking expert and senior analyst with Aite Group.
While real-time payment is not currently a major concern for corporations, "transparency is so important to the businesses on the B2B side," Atkinson says.
Banks in the U.S. could use the current ACH system to attach "fairly detailed remittance information with the payment in corporate transactions," but few banks choose to do so, Atkinson says.
Banks are working on improving corporate payment processes, but have a long way to go to address various issues, Atkinson says.
As such, what Traxpay offers "is a very positive kind of thing," she adds.
San Francisco-based Tradeshift seeks similar improvements in corporate payments, providing a network for companies to complete transactions through e-invoicing and real-time payment options.