why credit cards are winning in B2B
Today around 2% of B2B payments are made on card. This number is growing rapidly and Visa believes that around 20% of the B2B payments market is ‘cardable’.
This seems surprising, particularly for suppliers who are paying the high card payment fees. They’d rather use bank transfers or maybe switch newer payment options like open banking or cryptocurrencies.
In this article I will explain why we agree with Visa that cards have a bright future in B2B payments. We suspect some of the new payment methods may struggle if they seem to mistake cards’ strengths for weaknesses.
Let’s look at a few of these alleged weaknesses.
Cards: when lack of security is a strength
Diners was the first ever credit card. It was launched in New York in the 1950s to allow diners to pay on credit. At that time, hackers did not exist and security was provided by security guards. While some security measures have been added since, they are still insecure: one tap or 16 digits is all it takes to pay.
However, as any security expert will know, perfect security does not exist. Good Chief Security Officers will spend most of their budget not on keeping hackers out but on limiting the damage hackers can do once they are in.
The same applies to cards. Credit card companies are forced to accept that fraud is inevitable. They therefore designed a system to limit the damage of fraud. This system includes financial institutions being liable for their clients’ actions and a mechanism to get back your money when fraud has happened (chargebacks). Compare that to APP fraud and crypto currencies where billions become irrecoverable every year despite the technology being more secure.
An additional benefit of the lack of security is the ease of use cards provide. It turns out that buyers like paying with just one tap or by just entering 16 digits. Ease of use is a big part of the success of cards.
Cards: when being expensive is a strength
I used to work at a large payments business where I regularly had customer councils with some of the country’s largest retailers. Invariably, the first 30 minutes of these meetings were taken up by those retailers asking us what we were doing to lower the card payment fees ('interchange').
Unfortunately, retailers don’t decide which payment method is used. Buyers do. Most of the card fees end up in buyers’ pockets either directly as cash back or points or indirectly as protection against fraud (the chargebacks I mentioned before). The remainder ends up in the pockets of card processors who use it to innovate and stay ahead of the new payment methods.
Cards are here to stay
Cards aren’t all bad for sellers. Payments are approved in seconds and once approved, the money is guaranteed. This is particularly useful for B2B sellers. 43% of B2B invoices are paid late and businesses need to employ entire teams to chase payments.
At Yordex we help platforms, marketplaces and large buyers automate and save costs on managing large volumes of payouts. We are payment method agnostic, but like Visa we see cards getting stronger, not weaker. That is why we are extending our global network of card issuers.