The benefits of card payment fees aren’t limited to one side of the transaction. In this video, Jon Edelstein, Finexio’s head of product, tackles the benefits for both buyer and supplier in B2B payments.
There are a number of different ways in which the savvy user of business cards can manipulate the fees paid by the supplier, in order to ensure that the price being charged to settle that payment is the right one and one that drives benefit for both the buyer and the seller. Firstly is the amount of data you include with the transaction, as the card networks want to drive activity over their networks. Again, there are a lot of reasons that [we] recommend card payments to B2B: not having to get the banking information, faster fund settlement, and better data. There are a couple of things that a business can do to drive the fees that they are charged even lower. And this is something that is only available for those that have taken interchange plus pricing. These are typically not available to you when using bucket-based pricing or flat-based pricing.
The first is the amount of data that is submitted with the transaction. A typical card transaction has a minimum amount of information, typically the credit card number, some of the security elements on the card, expiration date, along with the amount of the transaction that you’re processing. But if you go further and provide some information around the customer and some of their information, you’ll qualify for a reduction in rate, due to something called Level 2. And that reduction in the rate can be further improved by also typically sending line item type information to the card networks, creating what is called Level 3 transaction. And the difference between a Level 2 and Level 3 to the original transaction can be an improvement of 80, 90, and even 100 basis points in some cases. So, there are a lot of reasons that we recommend that companies that are serious about making payments via the card networks, utilize methods to include with the transmission of those payments enhanced data to qualify for the best rates available to them.
The second is by manipulating the amount of the payment. What do I mean by payment manipulation? How do you manipulate the amount of the payment? If you think about it, it is often the case that when a company pays another company, they pay a number of different invoices at once. Now when they do that via check, and let’s say for example, that they’re paying eight invoices, they’re typically not in the habit of printing out and signing eight individual checks, rather, they will print one check for the sum of those eight invoices and include a voucher or remittance advice, that says, “this is payment for the eight invoices specified”. That’s something that we do on the card networks as well. And when you bundle all those payments into one amount, you qualify for additional cuts in the interchange rate. There are up to five discounts that can be achieved, large ticket one through large ticket five, when paying by cards and using the correct process and format to submit those payments, that can drive the interchange down to rates under one percent. The ability to aggregate your transactions and submit them in a bundled form is another method by which the interchange rate can be manipulated to the right size for B2B payments.
Third and finally, something that we are very passionate about here at Finexio, is what we call the method of transmission. Far too many companies are sending payment cards through manual means, such as a fax or even instead of printing a check, printing a card number on a piece of paper and mailing it to someone. When you do that, not only does it create a lot of additional manual effort for the recipient, but also typically requires manually keying that card information into a terminal, first to consume it and then once having consumed it, being able to then go and do the cash application, often resulting in higher rates. The reason for that, is the card networks associate a high level of risk with transactions that are manually keyed in. So, it’s often the case that they assess a penalty rate or penalty fee on top of the interchange charges that we’ve mentioned because that transaction was manually keyed in. Those kinds of transactions are called mail order/telephone order and they’re associated with high levels of fraud.
So, even though that transaction is a commercial transaction and is very safe, you end up getting bundled with transactions that are often very questionable and cause real concern for the card networks. That is one of the ways in which we work to positively influence the acceptance and adoption of payment by card, by looking wherever possible to submit a transaction electronically. When you have a manual method of transaction, you don’t have any ability to provide that additional data and so there’s no way to manipulate the rates through enhanced data. You don’t have the ability to necessarily aggregate payments, unless that particular provider, whoever sent that card to you, has done so. And finally, that submission of the payment through electronic means eliminates the manual effort associated with the redemption of that card.
So, what does this mean? If I’m going to send a card to a particular business and I know that particular business uses, for example, Acme Bank. Instead of sending that payment to them for them to manually key into their terminal from Acme bank, if I have a connection to Acme Bank, simply take that card payment, along with my enhanced data, aggregating into a larger payment where ever possible directly to Acme Bank. And when I do that, I eliminate the penalties associated with that manually keyed in transaction. In fact, depending on the kind of ERP that the recipient of my payment has, they might have the ability to take some of the data that they’re getting from Acme bank and use that to automate portions of the cash application. So not only am I improving my internal processes by sending a payment via card, the supplier is also reaping the benefits of that card payment because they’re not having to deal with a manually keyed payment and the payments are already being sent to them, having been deposited to their account, with no need to image that check for example, the funds are available to them faster, and if I am providing in such a way that can be consumed by an accounting system on their end, assuming they’ve implemented that kind of system, we’re actually looking at a situation where they can reduce the effort on their end on the AR side. So properly implemented, card payments result in benefits to both the buyer and supplier, elimination of efforts in sending the payments and elimination of efforts in receiving the payments, and adding value to both sides of the buyer/seller equation.
It’s this concern to the experience of both the buyer and supplier side, which drives the success of Finexio in achieving better adoption of card payments with the suppliers, driving improved economics for our customers. The ability to provide enhanced data along with the transaction, the ability to bundle transactions into one, and our straight through processing is what enables our ability to submit all that information electronically.
Missed the first two videos in this series? Catch them here: