Commercial cards are gaining traction in B2B payments, especially in areas like employee expense management, but there are still assumptions that commercial card adoption lags because suppliers don’t want to accept cards, and they assume suppliers don’t want to accept cards because of the cost.
But Dean Leavitt, chairman & CEO, of Boost Payment Solutions, tells Karen Webster that this reasoning assumes suppliers hold all of the leverage in a B2B transaction. It’s an over-simplified explanation for a complex issue involving the differing needs of buyers and suppliers, the multitude of reasons why vendors shun cards, and even the history of the credit card itself.
According to Leavitt, suppliers certainly don’t hold all the leverage, but both buyer and supplier need some say in the conversation about commercial card use. Companies like Boost, he noted, are able to balance the scales in favor of both buyer and supplier needs. “There are a lot of pieces to this story,” Leavitt said of the challenge of commercial card adoption. “You have to look at it from both the buyer’s and the supplier’s perspective.”
Leavitt said that a supplier’s need for remittance data, and the perceived challenges to accessing that information when their customers pay with card, is a factor that is weighed just as heavily as the cost of commercial card acceptance. When a single supplier payment is linked to dozens of invoices, matching invoices to the total amount paid becomes a friction-heavy process — one that he said card payment solutions must address if their goal is to have more transactions on commercial cards.
“Moving money from buyer to supplier is the easy part,” Leavitt said, adding that it’s the movement of data that complicates being paid via a card.
Security issues, too, weigh heavily on suppliers’ minds. Not only does accepting a card mean a vendor must manage sensitive customer card data, it introduces the risk of non-compliance with Payment Card Industry (PCI) Data Security Standard rules. Most suppliers would rather not accept cards than to accept that risk, said Leavitt.
Why The Friction?
Suppliers have to deal with the frictions associated with the cost, data management and compliance requirements of card acceptance, but it’s a situation that isn’t entirely of their making. Leavitt said that part of the industry’s challenge is that the credit card market wasn’t designed to handle a B2B transaction — giving rise to the many frictions that suppliers struggle to overcome.
“While commercial cards have begun to trickle into accounts payable, payment card infrastructure has not changed to address the particular needs of B2B transactions,” noted Leavitt. “Consumer card infrastructure was never built for commercial transactions — it was never envisioned.”
Some of these frictions, Leavitt said, are easier to overcome than others.
Straight-through processing, he said, eliminates the need for suppliers to ever touch or store credit card data, while streaming transaction information automatically into vendors’ reconciliation and accounting systems.
Issues around fees can be addressed by educating vendors that card acceptance fees are typically less than the cost associated with early payment discounts, while cards still enable vendors to get paid earlier than they might have otherwise been. Commercial cards are a B2B payment technology with the rare capability to meet the seemingly contradictory needs of extending a buyers’ Days Payable Outstanding (DPO) and reducing vendors’ Days Sales Outstanding (DSO).
Corporates should not necessarily assume that their suppliers hold all the leverage when deciding to consider implementing a commercial card program. It’s true, he added, that sometimes, a supplier will simply say “no” to a card payment.
However, buyers may hold sway if the conditions for keeping that relationship with a valuable buyer is to accept payment that way. In that case, buyers and suppliers often explore a middle-ground, one where corporate customers are still paid a rebate and can hang onto their cash longer at the same time that they pay their suppliers faster.
Getting To A Healthy Middle Ground
Leavitt said that, today, card issuers have a growing reason to step into the complex, friction-heavy world of commercial payments: new revenue streams. But that will take work on the part of the networks to adapt their rails to a new type of transaction. Moving the needle in commercial card adoption, said Leavitt, might mean having card associations create proprietary rates to fit the size of the B2B transaction for both buyer and supplier.
“The only way to accomplish that is to throw out the published rate rulebook and introduce new pricing constructs that fit that relationship,” he said. “But the issuing community has finally woken up to the fact that this is a way to capture additional fees, generate revenue and create stickiness with customers.”