Taking the mystery out of B2B commerce
Accepting credit cards is pretty much a given for most business to consumer (B2C) businesses today. But high interchange fees have typically prevented many business to business (B2B) merchants from embracing the use of commercial credit cards.
Interchange has traditionally been higher for these cards, in part because they didn’t support the collection of level 2 and 3 data which helps enhance card data security. However, new technology makes it easier for B2B businesses in the U.S. to capture Level 2 and Level 3 data is reducing the interchange fees. And, on the purchasing side, reward programs are boosting the use of commercial card usage.
The recent combination of these factors is changing the way B2B commerce is conducted in the U.S. The January 2015 FIS report states that B2B credit card transactions had doubled in the previous two years and suggests that companies that switch to commercial cards have the opportunity to cut the cost of invoicing and processing payments by 50 percent, marking a significant departure from commercial card use in the past. In this article, we’ll take a closer look into the current world of B2B payments.
Level 2/Level 3 data
Let’s begin by explaining what is meant by Level 2 and Level 3 data. Both require additional information for processing credit card transactions, to help further verify the legitimacy of the card and reduce fraud risk, thereby lowering the cost of the transaction. Level 2 data includes the merchant name, transaction amount, tax amount, transaction date, customer code or PO number, and merchant zip code. By providing this information, merchants can enjoy lower interchange fees for B2B commerce– Visa and Mastercard typically offer a .50 percent lower rate than average with Level 2 data.
Level 3 data takes it one step further– both in the amount of data required to process the transaction, and the amount saved in reduced interchange fees. In addition to the Level 2 data required, Level 3 data required fields include shipping zip code, destination zip code, invoice number, order number, item product code, item commodity code, item description, item quantity, item unit of measure, item extended amount, freight amount, and duty amount. Providing Level 3 data can save a merchant up to 1 percent over standard interchange fees.
While Level 2 card acceptance can be fairly easily achieved by smaller B2B merchants, because of the depth of required information, Level 3 card acceptance is typically best suited for heavy industry B2B merchants, or governmental processing.
How B2B card payments work
Due to the very nature of how the transactions are conducted, B2B payments are typically tied into eCommerce solutions based on a card-not-present (eCommerce) platform. Let’s take a lumberyard serving building contractors, for example. A contractor would want the ability to have an “open” account with the lumberyard to purchase materials as needed. The contractor would initiate a payment process with the lumberyard to accommodate ongoing and perhaps intermittent purchasing. Purchases would be tallied by the lumberyard’s inventory system, and billed to the contractor in a card not present manner. Payments are made based on a one-time card number acquisition with recurring payments to follow, based on inventory purchased.
Credit card payments eliminate the hassles of paper billing and accepting cash and check payments, while lowering operating costs for B2B businesses on both sides of the transaction. While selling businesses benefit from faster receipt of payments and the additional convenience of streamlining payments reconciliation and accounting, purchasing businesses can enjoy the cash back and rewards that come with most major credit card offerings these days.
Challenges of B2B card acceptance
When it comes to recurring billing and payments, B2B businesses face some of the same challenges as B2C businesses. According to Mark Perkins, Principal Brand Manager at Vantiv, declined cards due to non-updated information is one of the biggest challenges facing all businesses using recurring card payments.
From card expirations to lost or stolen cards, card upgrades and portfolio conversions, card account information changes for many reasons and causes payment breakage, meaning, the card is no longer able to be used for the recurring transactions. Perkins notes that one of the most effective tools to counter payment breakage due to declined cards is a recurring billing solution equipped with an account updater feature. Vantiv’s Account Updater helps B2B businesses drive revenue lift by updating account information before the transaction is processed.
5 questions to ask a provider
When seeking a payments provider to facilitate B2B commerce for your business, you should take your time and do your research. Here are a few questions you should ask a potential provider:
- Is your payments solution compatible with the other business software systems I use?
- What kind of recurring payments tools do you offer?
- Does your solution include account updater functionality?
- What payment security features are included in your solution?
- How does your solution accommodate Level 2/Level 3 data input?
Accepting card payments can be a game changer for most any type of B2B business, in terms of both cost savings and revenue generation. To learn more about your options, contact your trusted payments provider.