E-commerce is fundamentally changing B2B commerce. Businesses are continuing to shift resources from brick-and-mortar and other traditional sales channels to an e-commerce environment. What began primarily for business-to-consumer shopping is being emulated by merchants in the business-to-business sector, and has thus far been successful.
A recent study conducted by Forrester Research shows that 89 percent of B2B providers said adding e-commerce to their business increased annual revenue by 55 percent. Meanwhile, 81 percent said selling online drove up their average order value by 31 percent. And in its 2013 State of B2B Procurement Study, Acquity Group found 57 percent of business buyers had purchased goods for their companies online, with 37 percent expecting to spend more of their annual procurement budgets online in 2014.
This trend is clear, as more B2B companies are making the move to online sales and with B2B e-commerce now already more than double that of B2C e-commerce.
Rise in B2B e-commerce leads to a greater use of purchasing cards
The growth in B2B e-commerce has, in turn, ignited an increased use of purchasing and commercial card payments. Paper checks may still dominate small business invoice payments while ACH acceptance has increased for electronic invoices, but card payment is the preferred method when shopping online to complete an e-commerce purchase.
Data continues to support this trend. The RPMG Research Corporation says annual purchasing card spending will increase to $290 billion by 2016. And unlike in B2C e-commerce where consumer reward-cards are common, B2B e-commerce payments are most likely to come from commercial card products like business, corporate, purchasing (p-cards) and GSA purchasing cards. In fact, purchasing card usage in North America is growing by double-digit figures every year. Purchasing cards are currently the fastest growing form of payment in the digital space, with an 84 percent adoption rate among businesses.
According to the National Association of Purchasing Card Professionals (NAPCP), payments made with purchasing cards can yield savings for the buyer in the form of operational efficiency by reducing transaction costs from 55 to 80 percent. Another factor driving p-card usage are the cash back rebates to cardholders by card issuers based on spending, turning AP departments from cost to profit centers.
With the migration to purchasing cards expected to increase, merchants will need to compete for customers and sales against this backdrop of accommodating card payments while managing the increased Interchange expenses associated with processing these payments.
Purchasing card usage leads to Level 3 processing trend
The cost to accept a card payment (from approval code to funds transfer) is known as a merchant discount rate. And Interchange rates and fees as set by card companies like Visa and MasterCard are the largest component of this discount rate. Interchange varies depending on the seller’s industry category, the method by which they accept the card, the type of card accepted, the transaction size and the level of data provided with the transaction. The result is that each card sale can have a different Interchange expense, dependent on how the transaction is submitted for funding.
Because the same card transaction can be priced at different levels of Interchange, managing interchange qualifications can provide significant ROI. Level 3 processing of commercial card payment transactions is becoming an increasingly important component of B2B e-commerce. Level 3 processing involves more than submitting a card number and expiration date, zip code and card verification value at checkout. For example, additional data elements like the item product code, item description, quantity and tax rate must also be presented in order to achieve the lowest interchange rate and fee levels.
Level 3 Interchange incentives are trending favorably for those with the proper B2B processing solutions in place. For example, MasterCard recently combined the rate structure for Corporate, Purchasing and Fleet into one Large Market rate structure. The impact of this change increases the value of submitting Level 3 line item detail with commercial card sales. Under this new structure, payments processed with Level 3 data versus Level 2 data can save $7 in processing fees per $1,000 in sales, generating significant savings.
Awareness from B2B merchants searching for Level 3 processing expertise grows
With the rising gap in pricing between the best and next best Interchange rates, merchants are becoming more aware that there is a right way and a more expensive way to accept purchasing and other commercial card payments.
A B2C payment gateway is designed to process consumer payments, which don’t require Level 3 data. Therefore, using this type of gateway to process purchasing and commercial card payments won’t allow you to submit line item detail and qualify for the lowest possible interchange rate. As trends in the payment industry continue to enhance the value of Level 3 processing, using the wrong payment gateway will become increasingly problematic.
Do you have the right card acceptance strategy or are you operating on outdated assumptions, old ideas about payment rules and regulations and the wrong consumer oriented payment technology?
Selecting an experienced B2B payment processing partner is an important part of your overall e-commerce success. Look for a provider that offers the technology necessary to integrate Level 3 processing capabilities into your e-commerce solution while consulting with you on best practices for authorization and settlement procedures and actively managing your Interchange qualifications using payment analytics.
You may have e-commerce, but falling behind your peers by not staying on top of the trends in Level 3 p-card acceptance will make you less profitable and less competitive.
Ty Hardison is the vice president of strategy and development at Vantage Card Services, Inc. The company specializes in offering B2B companies — from suppliers, distributors and manufacturers — business-to-business (B2B) and business-to-government (B2G) payment solutions. These programs include Level 3 purchasing card and GSA payment processing, API integrations to e-commerce, ERP and CRM platforms and tokenization data security solutions. To learn more, visit www.vantageb2b.com.