November 2, 2022
Rising Interest Rates Spark Supplier Interest in Commercial Card Acceptance
PYMNTS | NEW YORK — The payments pull and tug between buyers and suppliers has long favored those doing the buying, but that’s changing as technology takes friction and cost out of B2B transactions.
Speaking with PYMNTS Karen Webster for the “Executive Insight Series — The Next Three Years,” Boost Payment Solutions Founder and CEO Dean Leavitt said he sees this buyer-supplier payment dynamic as fundamentally changed in the wake of the pandemic.
Pointing to an “equalization” now afoot in lopsided buyer-supplier financing that’s being further accelerated by the increasing use of B2B commercial cards, he said: “Historically there’s been somewhat of a lack of balance in that universe where the big benefits often are attributed to the buyer — working capital, in many cases rebates, other operational efficiencies.”
Today, “the rules, the rigidity of yesteryear’s commercial card processing arena are kind of getting blown up,” he said. “And because enterprise level B2B is a completely different animal than the retail environment, where it’s really coming into focus is on how that equality of trading partners is being manifested in technology.”
This is being seen more now among enterprise-level suppliers that are flexing their new leverage in some cases by refusing to accept costlier payment methods — or at least to pick up the tab for using them — which he said “then gets into how do we reduce that cost? How does it get shared with the stakeholders? It’s mostly that segment I would say that we’re seeing the biggest kind of metamorphosis in how this is playing out.”
Asked about the durability of this shift, Leavitt said, “I think it’s sustainable.” Technology has caught up with buyers on one side trying to expand days payables outstanding (DPO) and suppliers trying to shrink days sales outstanding (DSO).
“There are technologies and payment products, including commercial card products, where you can, in fact, expand DPO and reduce DSO by kind of sandwiching in a credit product and the grace period associated with it,” he said. “So, it’s definitely on both sides, and I think that also is going to come more and more into play as we go deeper into this potential recession, maybe we’re in it, who knows technically, and also that tightening up of liquidity.”
Solving for Working Capital
With access to working capital very much on the minds of buyers and suppliers in the current climate, solutions like Boost commercial cards offer a viable option serving both sides.
“As interest rates continue to rise, this product, a credit card product, is a very attractive alternative,” Leavitt said. “In certain respects, it has some attributes that are more attractive to some larger corporations than traditional debt instruments from a balance sheet perspective. Different organizations treat it differently.”
It also fits into a broader shift he said he’s observed with “some of the largest companies on planet Earth” migrating to new payment methods, reflecting the sea change.
“As it relates to pricing and the sharing of the pricing, that’s where it gets into that equality,” he said. “Where is the leverage? What is that particular buyer-supplier relationship all about from a margin perspective, from all the different perspectives of any two trading partners?”
Commercial cards help clear this fog, assisting in enforcing rules between trading partners and evening out traditional inequities. However, it takes “awareness, education, getting rid of misperceptions about what commercial cards are, what they cost, what implementation requirements are, etc.,” he said. “It’s about educating the marketplace and also celebrating this equalization among the stakeholders in ways where both sides welcome the use and acceptance of these commercial card products.”
This revolves partly around things commercial cards can do that those incumbent payment modalities like corporate cards can’t and the deeper data they bring to the equation.
“It’s kind of that whole package and making sure that the stakeholders truly understand what the benefits are across the board.,” he said. “Ultimately whatever decision they choose to make, at least they’re making that decision based on accurate, real and current information, as opposed to basing those decisions on what might be misperceptions about the product itself.”
A $121T Opportunity
As to whether this largely North American trend goes global on a three-year timeline, Leavitt noted that Boost operates in 47 regions and each one has “their own idiosyncrasies.”
“We’re seeing tremendous activity in a host of the different regions that we operate in, both domestically, within those regions, cross border internationally, as well as cross border to and from the United States,” he said. “In fact, in certain regions, it’s even happening quicker, this equalization where suppliers have more leverage now and more say in the payment mode that’s going to be used. It’s clearly an international issue.”
With a total addressable market he pegged at $121 trillion globally, Leavitt told Webster that many companies spectating from the sidelines now see more reasons to make this move.
“Because of the perceived costs of those transactions, what we’re seeing now is the cost of an [automated clearing house (ACH)] transaction — where the data is included in that transaction — has risen significantly,” he said. “Similarly, the cost of a commercial card transaction has fallen to be right-sized. What you’re seeing is that delta now is in many cases microscopic.”
In short, he said he sees commercial cards becoming far more common over the next three years, especially given their advantages over ACH transactions and other pricier rails.
“Many of the financial institutions that we work with understand that by taking a closer look at the pricing, you can now save at-risk spend that’s currently on the card rails,” Leavitt said. “But more importantly, you can dramatically grow the program and bring more spend onto those rails that may not have been appropriate for the rails in a different pricing construct.”
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