Why Credit Cards are finding it difficult to gain universal and open acceptance in B2B.
It is pretty much unheard of for a consumer not to be able to use a credit card to pay for all sorts of goods and services in the business to consumer (B2C) world. Likewise, the E-Commerce space for consumers quickly adapted credit acceptance making it easy to buy whatever you like on-line. So why hasn’t the B2B Industry followed suit? By some accounts, B2B represents a $10 Trillion opportunity for the Card Networks who have spent millions of dollars on credit card products only to have B2B Merchants look for every reason not to accept their plastic. There are several very good reasons why the B2B Merchants have not adapted in the numbers their B2C brethren did.
First, unlike B2C transactions, B2B merchants generally do not collect payment when their goods or services are provided. Think about a consumer going to a store to buy a pair of pants. You walk in, find the pair you want and pay the cashier. The transaction is complete. Imagine as a consumer you went to the cashier and you said, “What are your Terms?” Huh?
In most cases B2B Cardholders purchase items and take term from the supplier of 30/60 maybe even 90 days. In that process suppliers finance the transaction and act like a bank for their customers. In giving term they incur varying costs associated with this term. They must credit risk the buyer, that costs, they must invoice the buyer, that costs, they must call the buyer when payment is a no show…… you get the picture. Giving term can be an expensive business. Now imagine after all that cost has been applied to the Term, the buyer calls the supplier on day 45 and tells them they want to pay with a credit card. That is when all the S’s start, Surcharging, Suppression and Switching.
Secondly, for the longest time check was the most popular payment method for many businesses. Buyers sent checks via the mail and suppliers posted checks in their Accounts Receivable (AR) System against the buyer’s accounts. Electronics have indeed eliminated lots of checks and opened up suppliers to accept ACH & Wire payments (lower cost alternatives) but Accounts receivable systems either proprietary or off the shelf are not universally credit capable and even the ones that are encounter the issue of term and payment.
When the B2C Industry was rolling out plastic, the Networks themselves were intertwined in either providing directly or via their agents the devices to process a transaction. In the B2B world they are not. Curiously, the Networks have decided to sit on the sidelines and watch as Fin Techs clamor and jockey for position and where the credit card portion of total AR struggles to scale. Fin Techs are attempting to become the old terminal providers of the past. Really expensive ones at that.
What is a simple process for a B2C business owner to offer Credit Cards to their customers has become a very expensive non-essential perk for buyers in B2B. Will you not buy from a supplier because they do not take your card? Will you buy less? These questions that held true in B2C, simply do not in B2B. Most business Cardmembers understand when their cards are not accepted, because they too face the very same issue in their businesses and with their customers.
Thirdly and finally, the Networks do not seem to have much of an appetite for this sector despite their efforts and certainly when it comes to Interchange and Discount rates. Sure, Networks have coverage with B2B Suppliers, but it is far from open and willing. Think about going into a Retailer where only some of the customers could use their credit cards. The Networks would never allow this to happen.
Typically, when a Network wanted to enter a B2C Industry they did so with some sort of special pricing such as in Supermarkets, Recurring Billing, and Insurance. Once the Network felt it had a sufficient foothold and consumer insistence was high, Interchange and Discount rates slowly crept to more profitable levels for Issuers. Instead with B2B the Networks have come in high and continue to go even higher. Published Interchange would suggest that these costs are now between 2.5% - 4%. Considering the competitive landscape these costs are neither attractive nor sustainable for growth in this sector.
To be sure there is a much greater value play for Credit Card acceptance in B2B. It requires a revised simpler cost-effective AR integration at a price point that is competitive with ACH & Wire and where it adds value to the payment process for a business. Accepting Credit Cards in B2B needs to be as easy as buying a pair of pants. Unless there is some new thinking the bulk of the $10 Trillion will be left on the table no matter how many Cards are issued, rebates offered, or programs developed that do not address the core issues of B2B acceptance.
Roger McNamara Bio: