For Commercial Cards, Mixing Rails A Promising Path To Adoption

Commercial card acceptance remains one of the largest barriers to the adoption of cards in accounts payable, largely thanks to suppliers’ reluctance to absorb interchange fees and the associated costs of upgrading infrastructure to accept and process card payments.

Increasingly, accounts payable solution providers are turning their attention to the B2B vendor when designing solutions, allowing these tools to not only address the B2B payment needs of corporate buyers, but the accounts receivable demands of the suppliers accepting those transactions. The commercial card industry hasn’t avoided this trend, either, with service providers exploring ways to promote B2B supplier card acceptance, and tackle friction on the accounts receivable side of a deal.

Recently, Visa announced an accounts payable initiative in Australia as part of collaboration with B2B payments company Payment Logic. The firm had focused exclusively on enabling American Express commercial card payments in accounts payable, but is now, with Visa, broadening its ability to enable Visa and Mastercard payments for corporate customers.

While the partnership certainly expands payment options for business buyers, Visa and Payment Logic highlighted in their announcement that the collaboration will also focus on easing card acceptance friction for their clients’ vendors. According to Payment Logic CEO Sam Plowman, card acceptance is certainly one of the largest headaches in accounts payable today, though it’s not the only one.

“B2B payments using digital payments require each invoice to be paid and processed individually,” he told PYMNTS. “This is inefficient, time-consuming and administratively costly.”

Another major challenge in this space is the fact that small businesses (SMBs) can often “struggle with negotiating favorable payment terms with some of their larger suppliers,” he said.

Commercial cards can address both of these challenges, with accounts payable platforms supporting batch payment functionality and payment processing automation. They can also offer firms, including SMBs, the ability to more effectively manage cash flow, and pay invoices on time while still being able to stretch out working capital. These benefits aren’t possible, however, unless their suppliers support card payments.

Mixing Rails

According to Plowman, Payment Logic — which is working with Visa to launch Yak Pay in support of Visa card payments in accounts payable — is able to ensure that companies can actually use their commercial cards to pay invoices by acting as an intermediary between buyer and supplier. Its card acceptance strategy involves a mixing of payment rails: Yak Pay charges a client’s commercial credit card, then initiates an electronic funds transfer (EFT) to pay the supplier the next day, he explained.

This mixing of payment rails is an increasingly attractive option for commercial card players looking to find new ways to address acceptance friction.

Last year, U.K. bank Lloyds deployed a similar initiative, announcing a partnership with Optal to connect corporate clients with Optal’s commercial card payment solution. That tool also allows businesses to make payments with commercial cards, which Optal then turns into an EFT transaction for vendors that don’t support card payments.

Visa is similarly exploring this trend: Though known for its card services, the company recently rolled out Visa B2B Connect, a B2B payments solution operating on an entirely new rail to boost speed, transparency and efficiency of global commercial transactions.

Speaking at the recent PYMNTS B2B Payments Executive Forum, Visa Head of Global Business Solutions Kevin Phalen highlighted the future of a “convergence of payment rails” in the B2B payments space, as more solution providers decide to build new tools on top of existing rails, develop their own new rails or do a bit of both.

Tackling Fraud

Mixing rails isn’t the only way to support commercial card acceptance, but Plowman noted that this technique addresses another major point of friction for commercial cards: security. Traditionally, virtual and physical card information is presented in insecure ways when buyers and suppliers transact without the support of a third-party intermediary. This may include emailing and faxing card numbers, for example.

“Debit and credit card details are often shared, and not securely held, by the authorizing accounts team, accountants and bookkeepers, or by the merchant,” he said. “This exposes many businesses to various forms of card or digital fraud.”

By sitting in the middle, said Plowman, Payment Logic is able to securely obtain card details, charge that card and tokenize it without providing suppliers access to that information. The company also deploys multi-level authentication security measures when payments are authorized.

There are, of course, other ways to promote security of commercial card details without relying on a different payment rail to facilitate payments to a supplier. Furthermore, EFTs come with their own challenges for vendors: A survey published last year by Harvard Business Review Analytic Services and Capital One, for instance, found that while the majority of companies use EFTs to pay suppliers, less than half can actually accept EFTs themselves.

Yet, in the shift toward electronic B2B payments adoption, both cards and EFT payments are an important part of this evolution. Moving forward, Plowman said Payment Logic will increasingly be looking at integrations with third-party platforms like Xero, as well as the acceleration of payments toward same-day settlement, as important trends in the B2B payments market. The adoption of commercial cards, and the shift toward ePayments overall, supports healthier SMB cash flows, he noted.