B2B ePayments provider Traxpay announced today the close of a $15 million Series B funding round. The reportedly oversubscribed round included Software AG and banking powerhouse Commerzbank; early investors also participated in the new round. Beyond the round of funding, Traxpay also revealed today a partnership with MasterCard (NYSE: MA) to establish a scalable, global payments solution to connect buyers and suppliers. The new partnership with MasterCard will allow Traxpay to access the credit-card company’s 22,000 banking partners, and has the opportunity to vault Traxpay into a globally competitive role in the cutthroat world of B2B ePayments.
Traxpay provides what appears to be a key link in the payments workflow: a software solution that’s cloud-based, secure, and addresses many of the challenges inherent in modern B2B ePayments protocols.
The Challenge of B2B ePayments
Recent Ardent Partners research (“ePayments Rising: The 2014 Market Report”) revealed that nearly 60% of all B2B payments are made electronically. Although the percentage of ePayments is on the rise, this doesn’t mean the processes are any easier than in years past. The top challenge for AP departments in the same Ardent study, for example, is that the invoice- and payment-approval process is far too long.
Despite the rise in ePayments, many of the top ePayment platforms today are unable to provide suitable remittance information. For example, ACH allows only 80 characters of information, while wire transfers allow only about 140 characters of remittance information. In fact, 24% of companies surveyed in Ardent’s ePayments report noted that a lack of standard formatting in remittance information is one of the top barriers to ePayments adoption today.
David Desharnais, Traxpay chief marketing officer and SVP of product management, notes that once invoices are approved, 70% of payments are automatically approved and scheduled where the payment just moves all the way through the process without any real handling.
According to Desharnais’s estimates this leaves 20% to 30% of all payments where something changes before the payment is processed. This could be combined/split invoices, the wrong person approved the invoice, or even a wrong amount on the invoice. Regardless, it’s this combination of data-poor remittance information, the possibility of damaging exceptions, and high processing cost (average of $7.91 per payment according to Ardent Partners research) that presents significant challenges to broader ePayment usage.
How Traxpay Addresses the ePayment Challenges
Traxpay, founded in 2009, provides a real-time, dynamic payments architecture that, in the words of Desharnais, “looks and feels and operates like a bank.” This isn’t surprising, since company founders have extensive experience in the banking and corporate payments sectors.
Desharnais draws a sharp distinction between static payments—which are traditional banking, commercial cards, and ePayables—and the dynamic payments that Traxpay crafts. Desharnais notes that traditional ePayments are an inflexible and fragile technology that is disconnected from corporate workflows or data streams, which results in taking up to five days to process from approval to settlement. This doesn’t even consider what happens if and when something goes wrong with the payment.
Desharnais is careful to note that Traxpay is not a bank, nor do they want to be one. What Traxpay does do is allow for changes to payments on the fly. Desharnais used the example of an oil tanker that has three stops between its origin and its destination. If there is something wrong with the oil in the tanker at any stop, such as the oil being the wrong grade, then Traxpay allows for the payment terms to change right then and there without any complicated back-end reworking.
The cloud-based Traxpay solution integrates into most corporate ERP systems, according to Desharnais, who also noted the solution can provide detail on par with what’s possible with a paper check. This ability to have extensive remittance information is arguably what’s allowed manual paper-based payments to retain more than 40% of the marketplace thus far.
“Because we’re integrated with the systems that are in the corporates, we update the ERP files, the ISO 20022 files, the MT 940s and 942s—that all comes out of our system as well,” Desharnais said, “Any sort of account statements, all that stuff. So we’re able to keep things in sync and there’s [also] full track and trace capability in our system.”
The other thing that makes Traxpay distinct from a bank is that client funds are not in the Traxpay system when clients are not using them to pay invoices. Desharnais emphasized that the company does not lend out any client money. “The money is locked,” he said, “It’s in escrow, it’s your money. No one plays with it.”
What the MasterCard Partnership Means for Traxpay
The Germany-based Traxpay has operated in Europe since its inception in 2009, but the deal with MasterCard now allows the team to scale globally. Desharnais said Traxpay will gain access to MasterCard’s 22,000 banking partners worldwide, and in return MasterCard gains a strong foothold into the B2B payments realm with a non-card-based solution.
Speaking of a non-card-based solution, Desharnais noted that the fees associated with a Traxpay transaction are 1% or less of the amount, all the way down to as low as 25 basis points.
With this new deal, Traxpay becomes a truly global solution sitting at the intersection of banking, data, and corporate workflow systems worldwide. The Traxpay solution itself has, according to Desharnais, bank-grade security and transaction capability offering full visibility and control to all its customers.
Final Thoughts
We’ve said before that the ePayments market is hot and Traxpay’s solution addresses many of the key challenges inherent in the B2B ePayment process with a cloud-based solution that offers bank-grade software security and an electronic payment solution that can provide robust and extensive remittance advice. While Traxpay’s primary customers to date have been the B2B commerce networks providers who already connect many (buyers) to many (suppliers), this round of funding will allow it to invest more in building out its sales and marketing capabilities and potentially pursue the enterprise market. And, as more details on the new MasterCard partnership emerge, Traxpay is a company to watch.
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