Cards are gaining ground with B2B buyers, especially as the coronavirus outbreak squeezes business owners’ cash reserves. But this leaves suppliers paying more in interchange fees as they accept more cards.
Paystand says it has hit on a hybrid solution to the problem with Zero Card, which leverages its proprietary blockchain-based bank-to-bank payments network in combination with a virtual Mastercard.
“We saw a gap in the solutions available for suppliers who are often faced with the choice of receiving payments by paper checks — which they want to avoid — or cards, which cost them money,” said CEO Jeremy Almond.
Over the past four years Paystand has amassed a roster of 140,000 North American buyers and suppliers that use its proprietary blockchain technology to send and accept payments in real time at no cost, but he hopes adding cards will help scale the concept.
“A lot of buyers are still focused on cards, so adding a card network option is a way to bring them on board and eventually migrate their payments to our blockchain rails,” Almond said.
The incentive for buyers signing up for Zero Card is the business and expense management service Paystand includes, which enables businesses to plan, control and track payments in real time using familiar card rails, he said.
Once they’re on board, buyers may receive incentives and discounts from suppliers to route payments over Paystand’s proprietary rails versus using the virtual Mastercard, cutting their own costs.
“We see a snowball effect happening, because businesses that sign up for Paystand to pay a supplier realize they can cut their own transaction fees when they accept payments from other business customers through our network,” Almond said.
Paystand stands to earn some interchange revenue from commercial card transactions via Zero Card, but the bulk of the company’s revenues will come from charging users a software license fee.
Paystand has seen steady, organic growth as users have recruited other participants, with growth coming mainly from companies that have relied on checks to pay their bills.
“Even after all these years of digital technology, slightly less than half of all B2B payments still go by check, which underscores the fact that suppliers don’t have a lot of good alternatives,” Almond said.
Paystand uses a couple of banks to issue the Zero Card and works with a few different processors, targeting midsize to large companies on the receiving side and companies of all sizes on the sending side.
The Scotts Valley, Calif.-based company has raised about $30 million in funding in recent years to develop B2B payments solution in a niche that’s seen surging growth in recent years.
One potential rival is New York-based Teampay, which offers a holistic digital payments solution that also leverages virtual cards.
“Times are changing as payment rails expand and companies finally gain control over whether they pay instantly or get terms or float, and increasingly they also expect options for guarantees, payment revocability and rich data streams,” said Andrew Hoag, Teampay’s CEO.