MasterCard International Inc.'s deal to provide its detailed transaction data to the e-commerce vendor Ariba Inc. has the potential to broaden the field for banks that want to sell purchasing cards to their business customers.
The agreement, coming a week after American Express Co. said it was buying the business-to-business payments vendor Harbor Payments Inc., also underscores the opportunity that card companies see to offer electronic payment processing to corporate clients, a field still dominated by paper checks.
MasterCard and Ariba announced the agreement Thursday. They said they expect to be able to start offering the service in the second quarter, starting with a pilot test involving a joint MasterCard-Ariba corporate customer.
Marcie Verdin, MasterCard's group head of commercial products, said the Ariba agreement is her company's first combination of a corporate procurement card with travel and entertainment.
"It is our most robust integration," Ms. Verdin said.
She said the integration could help the Purchase, N.Y., card network sell purchasing card products to smaller banks that may not have offered them in the past to their business customers.
Though a bank could offer a T&E card, which does not use detailed remittance data, "you can't do it with P-card," because customers often use budget management software to manage department-level compliance with preferred vendor policies, negotiated contract discounts, and the like, Ms. Verdin said.
Because the Ariba system operates as a hosted service, delivering enhanced transaction data from the MasterCard global data repository to Ariba's supplier network, midsize banks could offer P-cards to middle-market companies "without having to make that investment in technology themselves," she said.
Ariba, of Sunnyvale, Calif., has 550 corporate customers that use its software to manage supplier contracts and ensure that managers comply with company spending policies, said Bob Solomon, an Ariba senior vice president. The company also operates a global network that its clients use to connect with 140,000 suppliers to place orders and make payments electronically.
The MasterCard-Ariba agreement is not exclusive on either side.
MasterCard, for instance, is a part-owner of Xign Corp., which is primarily a procurement system but also offers integration with corporate accounting systems, such as those of Oracle Corp., Ms. Verdin said. "We want to make it easy for you to use MasterCard in your pay environment."
Mr. Solomon said Ariba plans to pursue additional deals.
"MasterCard is the first, but it is not an exclusive," he said. "We hope to work with Visa and American Express to do the same sort of thing."
Lawrence Forman, the associate director of the national cash management practice at the accounting firm Ernst & Young, said that as corporations gradually move toward electronic payments and away from paper checks, partnerships such as this one demonstrate growing competition between credit products, including P-cards, and automated clearing house transactions.
"Is it going to be P-card or ACH?" Mr. Forman asked. "It's up for grabs still what's going to take the place of all those controlled-disbursement checks."
Only about 20 large cash management banks have been active in the purchasing card business, Mr. Forman said. "A number of banks sat on the sideline on P-cards for a while, and some of them have regretted that," he said. This could offer more banks a way to enter the market.
Alenka Grealish, the manager of the banking group at the research and consulting firm Celent LLC in Boston, said the agreement could also signal an opportunity for regional banks that are strong in wholesale banking.
"They're finding growth with midsize companies," Ms. Grealish said. But she said complex procurement management approaches might be less attractive to companies than "ghost cards," zero-credit line credit card accounts that do not rely on physical cards.
A company could use its regular purchase order approval process to authorize a payment, and then notify the bank to raise the credit line to the approved amount. When the supplier submits a transaction for that card, the credit line is reset to zero, providing the buyer with greater control and fraud protection, she said.
"That probably would have a bigger impact, because it's ubiquitous," Ms. Grealish said.
