In a B2B climate of delayed payments and heightened pressure for cash flow optimization, the commercial card has emerged as what many card companies and issuing banks would consider to be a middle ground between buyer and supplier. Cards enable suppliers to get paid right away, without forcing corporate buyers to let go of their cash until weeks down the road.
It's an enticing proposal, and one that promotes continued growth in the commercial card space. Data late last year from Accenture found that U.S. businesses spent $523 billion on cards last year, a figure expected to rise to $763 billion by 2022 as B2B payments go digital.
While acceptance of paper checks and other manual payment tools comes with their own financial and operational burdens, the B2B industry's shift to electronic payments hasn't occurred as quickly as some would have liked. When it comes to commercial cards, the biggest wall standing in the way of adoption is on the acquiring side of the transaction: B2B vendors are reluctant to take on the costs of card acceptance, an argument that inevitably raises the issue of interchange fees.
In only the last year, the B2B payments space and, more specifically, the commercial card industry, has seen a surge in players addressing the challenges of vendor acceptance. One of them is PayTrace, offering an "interchange optimization" tool to promote commercial card adoption.
PayTrace Co-Founder and Chief Executive Officer Scott Judkins told PYMNTS in a recent interview why B2B companies continue to struggle with the cost of card acceptance.
"As companies move toward credit card processing, the costs they focus on, and ... new to them as they make the shift, is the interchange," he said, adding that often B2B transactions are upwards of $10,000 — meaning that fraction of a percentage of interchange fee often adds up to a significant cost.
But vendors can lower those interchange costs, often by providing Level II and Level III data — in essence, more detailed information about the transaction, which may include information about the customer, the products they're buying and so on. Even if a B2B supplier is aware of the opportunity, Judkins noted that the supplier is often reluctant to take on the added task of manual data entry to collect and enter Level II and III data to a system; PayTrace addresses that friction via API integrations with third party software platforms and working with processing networks to facilitate that flow of data from a merchant's back-end systems and to the card brands in the correct format.
While card issuers have not definitively explained why providing this data lowers the cost of card acceptance, Judkins, who has been in the industry for 16 years, says his educated guess includes a range of factors that center around reducing the risks of a card payment, whether that be fraud or chargebacks.
"I would suggest that the card brands and issuing banks see transactions as being less risky if the merchant has taken the time to get the data needed in order to provide value for each of the Level III data fields," he explained. This is particularly true in the case of corporate cards that a company issues to multiple employees. In this case, "the level of accountability between the issuer and the actual cardholder is less direct," Judkins said, making Level II and Level III Data a valuable way to ensure that transactions are legitimate.
It's also possible that issuing banks and card brands are seeking additional detail on how exactly their commercial card products are being used, which can then be analyzed to adapt product offerings and boost value of their commercial card products — which can also drive adoption, Judkins said.
The issue of interchange fees is becoming a more prominent concern for merchants of both corporate and consumer buyers, particularly as regulators in Europe introduce caps, and lawsuits in the U.S. challenge their validity. So far, these efforts have passed over the commercial card, but Judkins said PayTrace and the rest of the industry are keeping an eye on how that develops (especially as U.K. and EU retailers begin to call for interchange fee caps on commercial card transactions).
But these swipe fees aren't the only barrier to commercial card adoption, and as PayTrace grows, it will look to introduce additional features that further ease friction on the acquiring side of B2B transactions.
The company is developing an eInvoicing solution to expand its presence on the accounts receivable side of its merchant customers, while Judkins also noted that another pressing topic in the B2B card payments space is the issue of cybersecurity and data protection.
"In the B2B space, companies are often working with repeat customers, and often those payments are accepted on terms," he said, adding that this creates the need to store card data to reduce repeat data entry and limit the need for corporate buyers to provide their payment information multiple times as transactions occur. As such, PayTrace is also working on a platform that integrates into merchants' bank offices and stores card data securely and compliantly for that merchant customer.
And while the introduction of new technology products can address some of the various challenges vendors face in accepting commercial card, Judkins said the company will more broadly continue to focus on enhancing trust and efficiency for clients, and promoting education on the risks and opportunities of cards in the B2B space.