U.S. corporations continue to reduce their usage of paper checks, but to date, their electronic payment substitutes have been primarily ACH and wire transfer. This report examines the factors encouraging card-enabled payments of conventional accounts payable and those causing suppliers to resist card-enabled payments. In many instances, payments via card networks offer more efficient solutions than either ACH payments, which lack the ability to capture detailed remittance information, or comparatively high-priced wire transfers. The question is, when purchasing card solutions, whether physical or virtual, will gain a substantial share of the business-to-business (B2B) payment market.
Mercator's latest report, Growing P-Card Programs: Engaging with Suppliers, examines issues of supplier acceptance, the major constraint on potentially explosive growth of B2B card payment volume. The report describes recent developments with respect to transaction pricing, as well as technology-based enablement, which may lead to faster adoption in the next five years.
Highlights of the report include:
- A revised estimate of growth in the P-card segment of commercial cards, assuming that current progress in supplier recruitment and enablement continues
- A wholesale view of the value chain for merchant acquiring services and how it differs from the value chain for retail merchant acquiring
- Identification of the several innovative technology solutions that meet the needs of different buyer segments or supplier segments, whether by size, frequency, or industry
- Profiles of several firms staking a claim to a portion of the wholesale merchant acquiring value chain
Patricia McGinnis, author of the report and Director of the Commercial and Enterprise Payments Service, comments, "It is already frequently possible to make card-enabled trade the most desirable alternative for both counterparties. If the infrastructure players modify transaction pricing to recognize the different economics of higher value transactions, the win-win can apply to more buyer-supplier relationships." SHOW LESS READ MORE >
The Growth Opportunity
U.S. Commercial Card Market
Trends in U.S. B2B Payments
Checks Have Dominated the U.S. B2B Market
Electronic Payment Methods Are Gaining Ground in the U.S
Card-Enabled E-Payables—Everyone Can Win
Card-Enabled B2B Payment Methods
B2B Payment Methods and Supply Chains
Considerations Underlying B2B Payment Methods
P-Card Projections Revisited
Figures and Tables:
Figure 1: Global Card Volumes Are Expected to Double Within Five Years
Figure 2: Global Commercial Consumption Expenditure, 2
Figure 3: P-Card Volume Expected to Double by 2015, Reaching $383 Billion
Figure 4: B2B Check Use Has Declined Steadily in the U.S
Figure 5: Major Suppliers Receive More Electronic Payments Than Do Secondary Suppliers
Figure 6: Characteristics of Commercial Payment Types
Table 1: Department Goals May Differ, So Enterprise View Is Essential
Figure 7: Expensive Wire Transfers Settle Most International Obligations
Figure 8: Retail Merchant Acquiring Framework Provides Context
Figure 9: Selected Value Chain Participants
Figure 10: MasterCard Interchange Makes Larger Transactions Highly Affordable
Figure 11: P-Card Growth Could Exceed 35% CAGR in Coming Five Years
Commercial cards are uniformly recognized as one of the highest growth segments of the card markets worldwide over the past 5–10 years. Expectations for future growth are similarly high, based on predictions that more companies in more countries will adopt the use of cards and that more transactions can be executed on existing card infrastructures.
The commercial card market is far from homogeneous since it aggregates multiple products serving a variety of purposes. The market may be initially segmented into debit and credit functions. The much larger credit card operations are further divided by their distinct purposes, including fleet cards, corporate travel and entertainment (T&E) cards, and purchasing or procurement cards (P-cards).
Most of the growth anticipated in the coming years depends on a set of assumptions about increasing volumes on P-cards. Both fleet cards and T&E cards have been in common use for 30 years or more, and thus have achieved rather high penetration in the U.S. market. More to the point, these cards are widely accepted because of the nearly total overlap of the commercial card user with the spending habits of the consumer.
The P-card is a more recent introduction, however. Early users followed the same pattern; the transactions envisioned for early P-cards were for low-value purchases of material and supplies, bought largely from retailers such as office supply or hardware stores that already accepted cards to accommodate their retail customers. The projections of strong growth in P-card use are not based on more purchases of office supplies, but rather on the very different proposition of using card technologies for supply chain purchases, for inventory and raw materials, as well as for specific capital asset purchases.
What is so different about transacting on P-card accounts for these types of purchases? At least initially, it appears that most of the motivation and benefit of such purchases fall to the buyer. There is no existing infrastructure for card acceptance among most wholesale suppliers. In general, wholesale suppliers have had no need for merchant acquiring services and have not made the necessary arrangements with either merchant processors or merchant acquiring financial institutions. What will it take to convince them to accept card-based payments? What arrangements may buyers make to increase their card account usage in the face of suppliers' reluctance?
This Mercator Advisory Group research report examines the questions of what is required for cardable supplier payments from a technical perspective and how the economics of the card business changes for all the participants (card networks, card issuers, transaction processors, buyers and sellers) when the value of individual transactions is substantially higher than the typical charge for office supplies.
- American Express
- AOC Solutions
- Boost Payment Solutions
- Bora Payment Systems
- Direct Insite, Inc.
- Invapay Payment Solutions
- MasterCard Inc.
- Solvit Software
- Vendorin, Inc.
- 3 Delta SystemsFedac Processing