Mastercard’s James Anderson: “You have to accept the complexity of B2B payments, lean in to it, and solve for it in a way that’s compatible with suppliers and buyers”

Commercial payments are a huge opportunity. They’re antiquated (checks are still very popular in the U.S.), they’re complicated, and they’re huge, worth hundreds of trillions of dollars.

Mastercard’s James Anderson, evp of global commercial products, joins us on the podcast to talk about his team’s major launch of Track Business Payment Service. Mastercard’s Track BPS addresses the different ways buyers and suppliers want to transact with a B2B digital payments solution in the U.S.. It uses card payment rails combined with distribution partners across the B2B ecosystem.

James walks us through the challenges of B2B payments and how his team began building Track BPS 20 months ago. He describes the architecture and how it relies on partners (agents) that have direct inroads into buyers and sellers. It’s a big launch for James and Mastercard, designed to go global from the start.

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The following excerpts were edited for clarity.

The state of commercial payments

Today, people use a variety of ways to make and receive payments. There's the analog methods: cash and check. Check, at least in the U.S., is surprisingly resistant and persistent, so we see opportunities to displace check in B2B payments. There are also a number of companies that push transactions on the account to account rails, or push ACH.

We're also seeing good, solid growth of card -- both traditional usage and increasingly, virtual cards. If you go around the world, the predominant use of commercial payments is over the push ACH rails. I have my supplier's bank account information and I instruct my bank to pay that supplier with a specific amount of money.

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The need for something better in commercial payments

We've taken a number of lessons we've learned over the past 50 years running our consumer card network and looked at the needs of commercial entities when they need to make and receive payments. From the card world, we looked at how you create scale in a payment system.

One of the biggest opportunities around commercial payments is that it's massive: $125 trillion annually. For comparison, consumer payments is a $50 trillion opportunity. Business payments are also complex and I think that's why people have shied away from it or tried things that didn't succeed. We decided that you have to accept the complexity of B2B, you have to lean in to it, and you have to solve for it in a way that's compatible with suppliers and buyers.

Introducing Track Business Payments

We feel strongly that we can solve a number of persistent problems in B2B payments by using a two-sided market approach. We've created a new franchise built around a group of companies we call Supplier Payment Agents and Buyer Payment Agents. These entities represent the interests of the suppliers and buyers vis-à-vis the service. We sit in the middle with the Track Business Payment Service.

We enable companies through their agents to exchange data and discover the best ways to pay each other -- with a minimal level of standardization that we provide but respecting the complexity of B2B payments.

Track BPS' value propositions

One of the degrees of complexity is that every company has some kind of system that needs to be tracked to and tied out to. Money needs to be booked against invoices so companies can close invoices and balance their books. Receipt of money is important, as is data for suppliers. They need to be able to recognize the revenue.

One of the fundamental value propositions of Track BPS is usable reconciliation data on every transaction that comes through the service. Suppliers never need to worry about what they get paid for -- the reconciliation data comes with the payment data.

Another value proposition is for suppliers to control how they get paid on different invoices from different buyers. The willingness to use different payment rails varies across different counterparties and segments of the business. We created a layer where suppliers can publish their payment rules into the service and buyers can discover them at the level of an individual invoice and they can optimize which rails they use according to their strategies.

Building a digital commercial payment platform

The vision crystallized in the Fall of 2018. I pitched it to my boss and he was interested and enthused by it. We took a bit of a different approach to product development with this. One of the things we recognized is that Mastercard didn't have a natural right to play in commercial payments. We needed to earn it and therefore, we needed to understand the pain points and the capabilities our distribution partners were looking for. We needed to understand it in a crunchy, really tangible, way.

We ran a series of quick, iterative pilots. We took a product development team out of our Commercial team and a set of technologists out of our Labs group and stuck them in a WeWork in Midtown Manhattan. I gave them 90 days to launch a first pilot. The pilot needed to move real money, it had to be a real transaction, and abide by the rules of card rails. We told them that they didn't need to make it as scalable and reliable as the Mastercard Network because it was intended just to support the initial pilot.

We recruited a buyer agent and supplier agent and built this system. We came up with an expression -- power up -- that represented how we would go quickly from an idea to a working system through a series of pilots. We ran them pretty much every 90 days over 2019. We took the pilot and code and made it fit for commercial production. We recruited more agents (13) in 2020. That's all now commercially available.

International rollout

We're convinced that this is a global proposition and we want to leverage Mastercard's global footprint. We did a pilot in Latin America along the way. It's a big priority for us this year to roll out international pilots. We are planning that in Europe, the Middle East and Africa, and Asia Pacific.

Growing out the marketplace

All our distribution to suppliers and buyers around the world goes through our agents. It's up to them to sell the value proposition. We want them to be successful, so we're doing communication and online marketing activity. We're training them up and making sure they know how to sell it. Our agents have a lot of flexibility of how they go to market.