Biting Into B2B Market

Innovation in business-to-business (B2B) payments is lagging behind, with an estimated 51 percent of B2B payments still made via checks, according to a Morgan Stanley report. Analyst James Faucette says payment processors started encroaching on this huge untapped market this year.

Mastercard, in collaboration with Microsoft Corp., launched Mastercard Track in September, a platform meant to simplify and enhance how companies do business with one another. Visa, which remains Morgan Stanley’s top pick in payments stocks, introduced Visa B2B Connect to enable businesses exchange payments. Wex Inc. in October announced plans to buy electronic payments network Noventis.

‘‘We estimate that an aggregate $3 trillion in transactions will be converted to card payments over the next three years,’’ Faucette wrote in a note. ‘‘We expect continued organic and inorganic investments in B2B next year as payments companies work to enhance/expand their B2B offerings.’’

Currently, most businesses still prefer banks because of their proven security for both money and data. But technology is bringing down the barriers to entry and the existing banks could face challenges from emerging players, according to Keefe, Bruyette & Woods analysts led by Sanjay Sakhrani.

‘‘The networks have been trying to break into B2B payments for a long time and are starting to make inroads,’’ Sakhrani wrote. ‘‘Mastercard has recently been able to deepen penetration in Europe and according to industry insiders, this may be due to normalized interchange levels and a change in debit branding from Maestro to Mastercard.’’

Retailer Threat

Major U.S. retailers are also starting to push into consumer finance, wanting a piece of the $90 billion-a-year swipe fees that go to lenders such as JPMorgan Chase & Co., payment networks like PayPal and payment processors like First Data Corp. and Stripe Inc. Bloomberg News reported in May that Amazon.com Inc. was said to be offering to pass along the discounts it gets on credit-card fees to other retailers if they use its online payments service.

Evercore ISI analyst David Togut, who has an outperform rating on PayPal and a price target of $112, wrote in a note that the company occupies a superior market position with strong mobile wallet and is better positioned than Amazon Pay. Many merchants compete directly with Amazon and may be unwilling to accept Amazon Pay, the analyst said.

“While Amazon has a proven track record of disrupting industries, we believe Amazon Pay represents a manageable threat to PayPal,” Togut said.