An oil and gas company in the UK was paying its Saudi and other suppliers $3 billion to $4 billion a year, using a letter of credit from its bank, said David Desharnais, chief marketing officer at Traxpay. The bank required the importer to keep $250 million of its working capital in the bank and charged it 2.25 percent interest on that amount for the service.
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“Adding insult to injury, the importer was also required to pay another nearly one percent transaction fee to draw down on this account to buy oil,” Desharnais added. “Placing orders for three to four tankers of oil at $15 million to $20 million per tanker added up to a big payday for the bank.”
After signing up with Traxpay, a cloud-based network that combines real-time business to business payments tied to relevant documents, this importer can now transfer the purchase amount to its Traxpay account.
“The funds are held securely by the German Bundesbank and all documentation is stored in Traxpay’s bank-grade IBM-based datacenter,” added Desharnais. “The money, along with all the pertinent documents, moves upon agreement. The UK firm pays much less than one percent for the entire transaction and no longer has to lock up $250 million.”
Traditional B2B payment and transaction systems are too expensive, too slow, and too unpredictable, the company says.
“Today, businesses spend more than $250 billion in fees to intermediaries and it can be five days before the payee has access to the funds, longer for international transactions.”
A letter of credit is expensive to set up and use; banks generally don’t want to use them for less than $1 million, Desharnais said, “while typical transactions in the SME marketplace are more likely to be in the €50,000 range. Companies that have no existing relationship can use Traxpay to do business knowing that payments will be made.”
Traxpay offers business to business payments that happen in real-time, 24 hours a day, seven days a week, anywhere in the world. Payments travel with any sort of documentation that buyers or sellers consider useful. They also link to ERP systems, provide two-way communication so if a buyer receives damaged goods he can send back a photograph and negotiate a reduction, real-time. Funds flow through a Traxpay account at Net-m Privatbank which ensures 100 percent collateralization at the Bundesbank.
Good funds are paid out when the buyer agrees to the invoice and has received the goods. Unlike credit cards, the payments are non-revocable.
Banks have been talking about some of these features for years, but they haven’t managed to actually do it. A Federal Reserve study in 2010 said that 64 percent of U.S. corporations were still using checks as their primary payment vehicle.
Companies in the digital age need a better method of payment that is predictable, secure, flexible, and capable of operating in real-time, 24/7, said Desharnais. Traxpay, which is based in Mountain View, California and in Frankfurt, Germany, offers that.
Markus Rupprecht, the company’s chairman, worked in payments at Deutsche Bank. His corporate customers were asking for enhancements the bank never got around to delivering because it wasn’t a high priority. He kept track of their requests, and that formed the basis of Traxpay. In a Traxpay video he said that innovation in payment services have had to come from outside banking.
One of the enhancements corporates wanted was data to go with a payment, said Desharnais.
“We can send structured ISO 20022, contract data, photos, discount data or insurance claims attached to the payment. It makes reconciliation very simple.”
Traxpay supports wholesale networks such as GKS Handelssysteme GmbH which has over 30.000 members in 93 countries worldwide. GKS credits Traxpay with accelerated sourcing, risk reduction, and safer, faster, and smarter trade.
A new feature makes it possible for companies that don’t know each other to undertake business.
Called Traxpay Conditional Payments, in this SAP-certified platform application, Traxpay acts as a trusted third-party and collects, holds, and disburses funds according to buyer and seller instructions. Traxpay said this enables buyers to receive and inspect the goods they’ve ordered before releasing payment, making sourcing more secure. For sellers, it means higher conversion rates, and improved customer satisfaction.
“B2B trade is in the midst of a massive shift to e-commerce, and the vast majority of today’s $300 trillion in commercial transactions will be conducted online in the next three to five years,” said Traxpay’s CEO John Bruggeman. “As companies make this transition, we are positioned to offer them a superior method of payment that was built specifically for their needs, and with Conditional Payments, their ability to do business online, faster, safer, and smarter is ensured.”
Enrico Camerinelli, senior analyst the Aité Group’s wholesale banking practice, said Traxpay complements Basware (see story below). The ability to attach information to the payment is an important added value.
SWIFT and participants at its annual Sibos conference have talked about attaching information to payments but it’s limited in its vision because it is an interbank organization. He echoed Rupprecht’s point on the value of an approach from beyond banking.
“SWIFT has always been looking at bank-to-bank connectivity,” said Camerinelli, “assuming that as long as you provide a connection from corporates to banks the problem is solved.
Traxpay provides, together with the payment instruction, the amount, currency, date and other information that buyers and sellers want.
“SWIFT is only recently looking into the corporate world in a serious way,” explained Camerinelli, “but since they are really speaking the voice of banks, it is difficult for SWIFT to understand the needs of corporates. It is easier for Basware and Traxpay who are coming from that [the corporate] side of the equation because they are more flexible.”
Traxpay also offers workflow automation, to SAP (an early partner) and other large scale enterprise ERP systems and also to to Intuit for small and medium enterprises (SME). A purchase order, invoice and payment can all travel together to the buyer, and the buyer can in turn send back photos and other information to document any damage or missing items.
In 2011 it partnered with Net-m Privatbank, now owned by NTT DOCOMO Group. The bank does the payments through the Bundesbank and makes it possible for Traxpay to work with any bank on TARGET RTGS in Europe or the ACH network in the US. The company has licensed a core banking platform from ABK, so to banks it looks like another bank.
Camerinelli said a key to the value that Basware and Traxpay bring to business is they can operate globally.
“If you want to operate an inter-company network, you need to be global and be able to play on economies of scale. You must not just look at the physical transaction, not just the physical movement of goods, but integrate with payments networks.” Ariba, now owned by SAP, and Bottomline are two other companies in this line of business, he added.
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