Purchase Cards have been used by government agencies and corporations to streamline their buying processes for 20 years now. The last ten years has seen tremendous growth beyond the initial “early-adopter”
and “getting it figured out” phases, and has grown into an established and growing market segment for enterprise payments. In fact, survey data reports that the annual U.S. Purchase Card spending grew from $80 billion to $110 billion between 2003 and 2005.
However, in order for purchase cards to be used by business and
government buyers, they must be accepted and processed by merchants.
Herein lies a tremendous opportunity for acquiring organizations.
This article answers some basic questions regarding the use and characteristics of Purchase Cards to help sales executives better understand the market context and also provide some strategies to build a base of business-to-business (B2B) and business-to-government
(B2G) merchants.
Understanding Purchasing Cards and Their Use: What is a Purchase Card?
On the surface, a Purchase Card may look like your average business or consumer credit card, but a closer examination reveals that Purchase Cards possess more features, capabilities and controls. A typical Purchase Card can be setup to control:
- Number of monthly transactions
- Number of daily transactions
- Total monthly spend
- Daily spend
- Amount per transaction
- Where the card may be used based on merchant MCC code (MCC restriction)
These extra control features help buying organizations manage their purchasing policies and processes.
One of the most differentiating characteristics of Purchase Cards is that their transactions can be processed with the same level of information normally found on an itemized invoice. This is called “Level-3” line item detail transaction data. Level-3 information contains information about the items purchased such as Item Part
Number, Description, Quantity, Unit of Measure, Price and more.
Level-3 data must come from the merchant and be submitted with the card transaction.
The following chart compares the levels of some of the information that is delivered with Level-1, Level-2 and Level-3 transactions:
ISO Opportunity:
Merchants are being asked to supply Level-3 transactions and need help selecting payment solutions capable of meeting their needs.
Why are Purchase Cards Used?
Purchase Cards are used by buying organizations to streamline their purchasing and payment processes. Cards may be used a variety of ways, but for routine purchases they are issued to authorized cardholders so they can place orders and make payments directly and efficiently on behalf of the buying organization.
In other cases, Purchase Cards are used to make large purchases and
payments and are used with Purchase Order and e-procurement systems.
As the value of the transactions increase, so does the need to have accurate and detailed information about the purchase or payment.
Because of the increasing transaction value and need for financial accountability, Purchase Card use is often accompanied by the need for the merchant to provide Level-3 line-item detail, which defines exactly what is being purchased, with the payment transaction.
The Level-3 payment detail is delivered electronically to the buying organization’s Purchase Card reporting system where it can be reviewed on a daily basis and automatically entered into their accounting and finance systems.
Purchase Card transactions have tiered interchange rates and are priced differently compared to standard consumer or business card transactions. MasterCardTM and VisaTM have created special interchange rates to encourage supplier participation and support of Purchase Card programs by reducing the supplier’s transaction costs if Level-3 line item detail information is transmitted with the financial settlement.
ISO Opportunity:
The key to obtaining the best rates for these transactions is to include line-item detail, also known as “Level-3.” Sales executives can bring substantial value to the merchant by helping them qualify for the lower-cost Level-3 rates. This is even more important if the transaction sizes are large – check with your processor for the “Large ticket” rates.
Who is Using Purchase Cards and How Much?
Purchase Card use is widespread, even if it is not highly visible.
Most midsize and larger corporations have Purchase Card programs in place. Federal, state and local government agencies have multi-year contracts with their purchase card-issuing banks. Universities and utility groups have systems deployed. Purchase Card systems are offered by many commercial banks and other financial institutions.
As noted, the annual U.S. Purchase Card spending grew from $80 billion to $110 billion between 2003 and 2005 – of greater importance is that recent studies suggest that this volume could increase eightfold if all transactions below $2500 were paid with Purchase Cards.
Federal procurement guidelines already mandate Purchase Card use for all spending under the $2500 level. Since 1998 (when a new 10-year contract was issued), the program has increased more than 100% in dollars expended and 60% in transactions. In fiscal year 2005,
301,216 Federal Purchase Card cardholders spent $17.4 Billion dollars via about 26 million transactions for goods and services. See www.gsa-smartpay.com for more information.
ISO Opportunity:
There is a vibrant and growing business going on all around us. Purchase Card users need a strong and capable merchant base to use. Terrific sales opportunities exist for sales executives that take the time to learn about it and can provide a solutions-oriented approach to merchants and their Purchase Card customers.
Building a B2B Merchant Portfolio: Why Merchants Care About Purchase Cards
As more businesses and government users migrate to using purchase cards, merchants who accept purchase cards also benefit. Merchant benefits include:
Faster payment cycle – receive payment in two-to-three days, as opposed to the 30-, 60-, or 90-day wait commonplace with many corporate purchases and traditional payments.
Lower interchange rates. Interchange qualification savings of 30 Basis Points or more are possible for providing Level-3. Greater savings are also possible depending on transaction size.
Level-3 data can help a merchant with transaction documentation or responding to chargeback requests (all the transaction detail is in one place).
Preferred status with their customers. Some buying organizations have mandated use of Level-3 with some or all of their transactions.
Finding Balance for the Merchant
Merchants want to obtain these benefits, but they are also have issues that they need to balance. These include:
- They need their solutions to be within their capability to use and to support reduced total cost.
- They would like to lower credit card transaction processing costs. Again the best way to do this is by ensuring proper interchange qualification.
- Ease of use and deployment. The system should be intuitive and capable of supporting their business processes – as an example, a merchant might need to process transactions manually by a field sales office, electronically from an e-commerce website, and from a back- office accounting system.
- Their system should afford the ability to integrate data back into their internal systems or offer management reports and inquiry capability to manage business volumes.
- Migration path for future development
Understanding the Merchant Business: A Solutions-oriented Approach
Proposing the right processing solution for a merchant begins with understanding their requirements. Merchant processing requirements and solution selection may be influenced by their…
- Business size: Is the prospect’s organization large, small, or midsize?
- Typical customers (doing business with the merchant): Are they consumers / corporations / government (Federal, state, local). Are the customers repeat or random?
- Type of sales: What is being sold - goods, services or both?
- Sales channels: How are the sales made - MO/TO / Website / E- commerce / Card present?
- Timing of sale: Are sales made with real-time or non-real-time requirements?
- Monthly dollar and transaction volumes: How many transactions will be made across the sales channels - 1 or 100,000?
- Number of locations: Single or multiple?
Transaction/business processes: Is a standalone solution appropriate or one that can integrate into the merchant’s ordering or finance system needed?
IT infrastructure/systems in use: What systems does the merchant
currently have and are they planning for change in the near future?
What application software is used - SAP / Oracle / Quickbooks / etc.
Communication options: What communications does the merchant have – Dial, Frame Relay or broadband Internet options?
Security requirements: What information security capacities does the merchant have and are they aware of the Payment Card Industry data security (PCI) requirements? What type of system would be best to reduce their exposure?
ISO Opportunity:
Understanding merchant needs and recommending a solid solution is the hallmark of the solution-oriented sales executive. Solution-oriented sales which emphasize a consultative approach can differentiate sales-executives from the pack.
Types of merchant prospects
The market for B2B and B2G card acceptance is big and growing larger. There are many types of merchants providing goods and services to corporate purchase card users and sometimes they are not obvious. Many either do not process cards currently, or if they do, are not doing it as well as they could. Here are some merchant categories to help find and contact these types of merchants:
- Professional Services
- Management consultants
- Law firms
- Accounting firms
- Marketing communications
- Independent Contractors
- Graphic artists
- Photographers
- Technical writers
- Building Trades
- Locksmiths
- Painters
- Electrical/Plumbing
- Job Shops/Manufactured Goods
- Sheet metal
- Machining
- Tool & Die makers
- Industrial Equipment and Supplies Providers
- Telecom hardware
- Warehouse/material handling
- Fleet/Specialty vehicle
As an example: In a “Yellow Page” listing for “Photographers”. Look to the ones that provide commercial photography or aerial work. The family portrait folks (that have the visible stores) do not have a B2B focus. The commercial photographers do corporate shoots (headshots of execs, pictures of the company building, items for catalogs, etc.) In these cases they may be a good candidate to accept purchase cards.
There are vast numbers of these types of merchants that sell only to other businesses and government agencies. Just think of all the types of commodities and services it takes to run a corporation or government – lots more than it takes to run a consumer household.
Finding Merchant Prospects
There are some great resources for locating merchant prospects.
- Existing Clients
The first place to look is within your current portfolio. Be sure to review existing clients and review their interchange qualification statistics to see who is downgrading. Start here, as these companies have already been sold a merchant account and this opportunity represents a chance to revisit their needs and potentially save them some money. This supports the concepts of account retention and increased services.
- The Federal Government
The Federal government sponsors a wide range of activities designed to support business development. These include procurement fairs at government agencies, tradeshows for government suppliers, and online listings of government contract holders. For example, explore http:// www.gsa.gov/.
- State and Local Government Procurement Websites
A state will often post online its requests for proposal, as well as previously awarded contracts. These can help identify suppliers doing business with government clients. Several examples are listed below - look for similar examples in your own area:
- www.pd.dgs.ca.gov/masters/default.htm
- www.dfa.state.ms.us/Purchasing/epl_query.htm
- www.tbpc.state.tx.us/stpurch/index.html
- Association Websites
The card associations have resources for locating suppliers with different data levels.
http://visaatm.infonow.net/bin/findNow?CLIENT_ID=VISA_MERCHANT
- Corporations Using Purchasing Cards:
Check with a corporation’s purchasing executive to see if you can assist in achieving their objectives by working to enable their suppliers. Or, find suppliers that are geared to corporate services.
ISO Opportunity:
Knowing where to look for B2B and B2G merchants is a big part of the sales opportunity. If you are going to fish, then fish where the fish are - not just where others are already fishing.
The Hidden Opportunity
Tapping the merchants that take purchasing cards is a great way to build a durable and profitable business. Benefits include:
- Larger transaction sizes
- Ability to offer Level-3 commercial processing rates
- Greater margin opportunity
- Less fraud and chargebacks
- Less churn
B2B merchants that are already achieving lowest possible interchange qualification and are using systems that help improve their business are less susceptible to competitive offers.
However purchase card merchants don’t fit the retail model and often have longer sales cycles. These types of businesses are usually not in the retail strip malls – they are in commercial offices and industrial spaces – out of the view from most sales executives. Most
of the volume is “card not present” and terminals won’t cut it.
Virtual Point-of-Sale or hosted payment solutions are best because of their flexibility, security and ease of deployment.
Select the Right Payment Service to Process Purchase Cards
Accepting purchasing cards allows merchants to stay competitive and become a strategic supplier to corporate or government purchasing card users. These customers often require enhanced purchasing information beyond the standard financial information provided by most other card processing solutions.
As many ISOs have discovered, however, one size does not fit all when it comes to selecting the best way to process Purchase Cards. It’s important to select a savvy partner who has developed a payment network geared specifically to the purchasing card industry.
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