Supertankers are amongst the largest ships in the world. They can exceed 1500 feet in length which is longer than the height of the Empire State building in New York City. One other amazing fact about a Supertanker is that it takes almost 20 minutes for a fully loaded vessel to stop when travelling at normal speed. The good news is that it can manage this stop in 14 minutes under emergency conditions. Whew! I am sure glad about that. A few weeks ago, I attended the SEAA conference in Hollywood, Florida. It was a terrific event and very well attended. However, it struck me during this event that our industry is a Supertanker struggling to stop.
As I entered the exhibition hall, I could not help but notice that the vast majority of exhibitors, vendors, ISO’s, Processors etc. were B2C focused. There appeared to be countless vendors selling terminals and POS technology for the industry. Legions of ISO’s were focused on Agent recruitment for the B2C space and still other vendors were engaged in the usual B2C banter. The event organizers’ breakout sessions were further focused on B2C, discussing dated items like POS, and selling to the same old tired accounts we have been focused on for years. To be sure, the B2C industry has been very good to many people in our industry for a really long time. Consumer Payments on Card in the US in 2022 exceeded $8 trillion. That is a lot of basis points no matter what way you add it up. But the Supertanker is becoming a little worn. Margins are down due to increased competition. We also sell a product to merchants that does not take them out of the market but puts them into it for our competitors to sell them the same product at a lower cost. In many cases the new seller even ends up making less. Long term as we have seen this just can’t be sustained.
While walking around the event hall I could not get the image of the supertanker out of my head. The industry is struggling to find the next big step as B2C Payments have essentially capped themselves out. There are few untapped industry segments within B2C that are not plastic accessible. Therefore, if the pie is not getting any bigger in B2C, why is there so much focus on it? For the most part it’s been easier to sell. When you have about 95% of the market for payments, with cash being the only serious and fading competitor, credit/debit becomes king. As a B2C business you have to have it and there are many who can gladly sell it to you.
For the independent sellers on this Supertanker ride, there are stormy seas ahead. If the “Race to Zero” was not enough to make you a little seasick, a new race is now beginning with the 3% CAP now imposed by some of the Networks and where cash discounting is now considered non-compliant. Couple this with inflation that consumers are now experiencing, and we can see the seeds that are being sown for payment discontent. What was once the merchant’s issue with discount rate, is now the Cardmembers issue with additional cost if it is added, and where discretionary dollars are harder to come by. Indeed, the pendulum has clearly swung to the opposite side.
On the opposite side of B2C, sits B2B. It is a close relative to its cousin B2C. B2B by accounts is a $25 trillion opportunity, over 3 times larger than B2C where only 8% of B2B transactions are placed on plastic. In short, that means there is a boatload of opportunity for Merchant sellers. So why aren’t more independents selling into this space? Part of the issue is comfort. The supertanker is warm and dry and despite the obvious warning signs that we see such as aggregators actively pursuing our clients or losing customers to attrition we stay in our bunk. The other part of the issue is we have never been shown a path forward in B2B. We have fallen into the group think that selling B2B is too hard. That the sales cycle in B2B is too long. For sure we cannot sell B2B like we sold B2C. The same rules do not apply. Selling Interchange plus is like putting a band-aid on a gunshot wound. To command this new breed of supertanker we have to understand how it works and speak the language of the crew. We have got to exit the comfort of B2C for a little to embrace the difference of B2B and how credit can act as a collection tool for a business, rather than just being a payment method.
The good news is the supertanker shuts its engines off 15 miles before it arrives into a port, to slow down the vessels and allow it to dock. The bad news is as a merchant seller, you only have so much time left to get your ship under control. The dock is coming up fast. Will B2B be your soft landing, or will you crash into the dock and sink?
Roger McNamara Bio:
Roger is a 25+-year veteran of the Payments Industry, most recently as the Director of Business Development with American Express in the US. He has worked on the largest Acquisition targets for acceptance across multiple industries and across the globe that include: Airlines, Communications, Technology, Cruise Lines, Entertainment, Fractional Jet, Freight, Government, Healthcare, Insurance, Oil & Gas, Residential Rent, Restaurants, QSR’s, Retail, Services, Supermarkets, Travel, Vehicle Sales, B2B and Wholesale. Over that time, he has sold more than $300 Billion worth of Card processing and became an expert in Bankcard Interchange and Discount Rates, how they are calculated and what merchants pay to accept Credit, and how this is dramatically different from what they believe they pay. He is an expert in Merchant Statement analysis and payment processing and the rules and regulations associated with payments and the associations. Roger has also developed the insight for Merchant Services Salesforces and salesforces, in general, to be able to better position their products and gain share, particularly in B2B. Let him show you how you can too. He can be reached at roger@guide2interchange.com.