By Derek Handova | January 29, 2016
The best B2B firms are flat and nimble. They do business at 21st century speeds. So why do they hamstring themselves by accepting payments through 20th-century legacy networks such as Visa and MasterCard that overcharge for their services? These networks and their associated processing partners require transaction charges of up to 3.5 percent, startup assessments, minimum monthly fees and numerous other expenses.
For example, Intuit Merchant Services—and pretty much all other processors—have a flat per-month fee no matter the size of the B2B organization, according to Kevin Adkins, CEO, Kenmore Law Group, which handles B2B cases and others.
“Even if you do not run any cards during the month, the fee applies,” Adkins says. “The last time we used it, there was also a yearly ‘compliance’ fee of $100. Many other processors also charge such fees.”
Undoubtedly, B2B companies must find a better deal than what the legacy providers can offer. What large B2B enterprises and agile startups need are next-generation alternative payments systems that offer cash with lower overhead.
Some financial technology (fintech) players see value in moving away from legacy systems such as Visa, MasterCard and other traditional payments networks into easier, more intuitive processes. New innovations such as mobile and peer-to-peer (P2P) payments remain prime examples of this trend, especially for their capabilities to pressure legacy systems on identification, authentication and compliance mechanisms.
“Services like ApplePay are forcing the payments industry to finally reexamine the processes of identification and authentication as biometrics combine the two to remove friction from payments processes,” says Mike Laven, CEO, Currency Cloud, a fintech provider, in a reference consistent with the Touch ID fingerprint recognition technology on iPhone and iPad.
For intangible B2B businesses, other alternative systems like Amazon offer payments integration. For example, Spreadshirt, an intellectual property exchange, uses Amazon for buying, selling and creating ideas that users can share and carry across borders in 20 markets.
“In each of our countries, Spreadshirt offers customers millions of ideas on products from our community,” says Philip Rooke, CEO, Spreadshirt. “We marry our offering with the checkout tools from a retailer they love, making it easy for customers.”
In addition to mobile payments, Laven feels that the future of digital transactions lies with P2P payments systems, especially if they can improve their compliance methodologies by accurately identifying users, which will enable them to enter the foreign exchange (FX) space.
Unlike rigid legacy payments networks, if B2B companies work with payments aggregators, they receive maximum and transparent flexibility at a lower total cost of doing business, according to Daniel DiGriz, digital ecologist at MadPipe, a digital marketing agency, and author of All Marketing is Dead, a book about limiting obsolete marketing techniques in digital strategies.
Payments aggregators such as Braintree and Stripe offer a less expensive alternative than a traditional merchant account or a gateway, with base transaction fees as low as 1.82 percent quoted for cards that aren’t rewards cards, DiGriz states.
“But who’s not using a rewards card?” DiGriz asks “And actual fees vary based on rewards and type of card. Then there are transaction fees for batching out to get the money to your bank.”
Overall, aggregators approve transactions faster with less paperwork, pay faster and have a predictable percentage expense for each transaction with no “gotcha” costs, according to DiGriz.
“With aggregators there’s a layer between my brand and the back-end process, and they’ll switch partners, tools and processes that don’t work,” DiGriz says. “I’d have no trouble setting up a merchant account, but my brand does a lot of recurring income subscriptions. For no headaches, I prefer Braintree and Stripe.”
Indeed, other nimble B2B organizations also rely on payments aggregators for their ability to access their money—not only for the speed and low cost but also the ease and utility.
“Right now, UsersThink uses Stripe,” says John Turner, CEO and founder of UsersThink, an on-demand landing page feedback application provider. “They make it incredibly simple to sign up, with no upfront fees to get started.”
With Stripe, Turner states it offers a standardized fee rate of 2.9 percent plus a 30-cent per successful transaction charge.
“Because they’ve put so much effort into building a usable API, it integrates with a lot of other services,” he says. “You get your money in three days, and the exciting thing with Stripe is that because of the API and mindset of looking toward the future ensures that it will be able to handle payments beyond credit cards—you can already accept Bitcoin through it.”
Indeed, when technologists build the alternative fintech infrastructure, B2B firms will express interest. In fact, some cannot wait and have already begun to use it, especially for international payments, where alternative systems can still fall short. Although, an old monetary transfer stalwart, PayPal, still seems to have its place.
“As a digital strategy and marketing firm, our clients are located around the world—part of doing business is accepting payments online,” says Lisa Cheng, director, Vanbex Group, a strategic consulting firm. “PayPal is great because we can send invoices and request payments directly from our account and have it sent to our bank in a few days. That it takes a few days when we need cash instantly is the only drawback. When we accept payments in Bitcoin, it’s instant and funds are in our account right away. Our landlord and cellphone company don’t accept Bitcoin, but our employees do for payroll.”
According to a recent white paper by fintech company Firm58, Bitcoin took the world by storm and left an interesting new technology in its wake—blockchain—that functions as a decentralized public ledger and verification system most notable for its foundational role behind Bitcoin and other cryptocurrencies.
“It is the worldwide ledger system for a digitized asset—initially limited to Bitcoin,” the authors write. “The technology’s success has translated into use cases as varied as artistic design and contract verification, and applications in the financial markets are close behind.”
Despite Bitcoin and blockchain as obvious alternatives to payments systems Visa and MasterCard, some experts feel that no real new solutions have come online within the last decade. And there exists only minimal development of the extant technologies.
“With one exception, a possible new payment system by the name of Bitcoin, the simple fact is that everything ‘new’ in payments has been the result of innovation—not invention,” says Joseph Bizzarro, CEO of B2B payments advisory firm Vizant. “Many think mobile payment applications and mobile payment devices constitute invention. That is not the case. Mobile payments are neither a new technology nor a new payment system.”
According to Bizzarro, only five payment technologies currently exist: the ACH system, checking system, debit card system, credit card system, wire transfer system.
Actually, some B2B companies prefer existing payments systems such as ACH. They find it provides a flat fee structure as opposed to alternative systems.
“In exploring options, our preferred method is an ACH transfer—eCheck—as it costs a flat 55 cents per transaction via PaySimple,” says Adam Broetje, CEO, Odd Dog Media, a digital marketing agency for local businesses. “The downsides are that some companies are uncomfortable providing their bank and routing number, consumers only get 90 days of protection—vs. 365 days for most credit cards—and ACH is difficult to use internationally as not all banks have adopted the new International ACH Transaction protocol.”
In addition to PaySimple, other ACH providers such as Dwolla, a B2B platform and alternative payments network for ACH transfers, remain choices for B2B professionals. Some have described such platforms as having the most flexible yet simple APIs for businesses.
At the end of the day, while many areas of B2B have been subjected to intense and unremitting technological advances, payments remain an underdeveloped territory. Much work needs to be done.
“We are left with payments systems that are not real time, not fraud free, not efficient and not very innovative—it is the definition of stagnation,” Bizzarro says. “Simply ‘bolting’ on new payment applications and methods to existing and aging legacy payment systems is neither very inventive nor innovative.”
However, with all the creativity in B2B technology circles, a real opportunity exists for invention and innovation.