The latest blog From Business Development Director Andrew Auden:
I’ve talked in previous blogs about some of the challenges with first generation virtual card solutions and how emerging solutions, driven by regulatory pressure and Fintech innovation are driving some exciting new developments in the commercial payments space.
Today, I wanted to spend some more time looking at that most neglected of value chain participants in B2B commercial card processes‚ the supplier.
It seems counter-intuitive that such a critical part of the value chain as the recipient of a payment is often the least considered and accommodated when commercial card solutions are implemented, but in my experience this is very often the unfortunate case. I’ve worked on and observed many B2B card programmes that promise huge spend, huge savings and huge efficiency, but then ultimately flounder on the familiar rocks of supplier enablement and acceptance.
But why is this the case? Well there are a couple of very clear and well-understood reasons that make suppliers reluctant to take card payments:
1. Financial Cost
Firstly, and most obviously, there is a cost to take a card payment vs. an alternative bank transfer mechanism, and depending on the value of the transaction this can become a significant overhead for the supplier. This cost is becoming increasingly apparent in the EU marketplace now acquirers are obliged to unbundle their fees for each card type accepted.
There have been attempts by the major card schemes to address these costs through High Ticket Interchange programmes, but implementation has been patchy and often access to these rates come with additional process impacts for the supplier (i.e. provision of Level 3 data). We also see programmes where buyers are sharing portions of the bank paid rebate back to the supplier to mitigate costs, which again is additional overhead for all involved (you pay X for me to pay you and I’ll give you Y back at some point in future!).
2. Process Impacts
The mechanics of accepting a card payment were not really designed for remote B2B use, and not much has changed to try and address this. Buyers are required to somehow provide several pieces of data to the supplier in a secure(ish) fashion, and the buyer needs to somehow get these into payment acceptance software or a terminal of some kind, this is a less than optimum experience for a supplier. It adds steps to their payment receipt process, creates points of failure and security overheads (particularly given PCI-DSS requirements).
Again, there have been creative attempts to solve for this. There are a number of strong Straight Through Processing (STP) solutions in the market, that mean the supplier simply receives payment into their nominated bank account; however, they still need to find an acquirer and enrol in the programme. There are also providers who will offer ‘master merchant’ type solutions where they will stand-in as the acquired merchant and process the card transaction, ultimately delivering a bank payment to the supplier. Both of these approaches have their niches (and geographies where they are more effective), but both can layer complexity or cost into the transactional process.
So how can this be resolved? How can you deliver the buyer the capabilities they are looking for from a commercial card programme, namely, working capital, control and data whilst offering suppliers a solution that works for a wider range of transaction values, delivers the process efficiency they need and perhaps adds some additional value on top?
Ixaris has created a second generation virtual payments solution that looks to address this need. Using an extensible and open technology solution Ixaris looks to deliver the buyer benefits of a virtual card solution, but crucially with the ability to de-couple payment initiation from payment execution. Think of it as an operating system for payments, managing payment initiation, orchestration to select the right payment option, execution via that selected option and a full suite of reconciliation and reporting data for buyers and suppliers.
This approach allows us to leverage a single credit line for buyer transactions, allow the buyer the benefits they enjoy from virtual card (100% reconciliation, custom data, comprehensive transaction level controls), but where appropriate allow the payment to be executed via an alternative channel to card rails.
On the supply side, this model means payment could be made via a bank transfer at much lower cost, there is no need to become card accepting and (as the cherry on top) Ixaris can provide them access to the custom data payload defined by the buyer on payment initiation helping them manage their Accounts Receivables processes (one of the downsides of bank transfer payments).
As a commercial payments provider this also allows you to break free from traditional commercial card transaction economics and define a model that better meets the dynamics of the transaction, whether that is supplier funded (at a lower cost than card), buyer funded or a blend of the two.
None of the above is to suggest that card payments don’t have their place, or don’t deliver value to buyer and supplier‚ whilst I now work in Fintech I’m still a card guy at heart! However, what now exists is the capability to shift from a product centred approach where transactions are crow-barred into payment solutions to a transaction-centred approach where the right payment rails are utilised to suit the payment dynamics‚ delivering a better outcome for buyer and supplier.
As payment systems continue to become more open and as technology allows a more agile approach to solving customer problems the opportunity exists to revisit and help out that most neglected of parties; the supplier, and a happy supplier means a more engaged supplier and more secure supply chain.