Adoption of commercial cards in B2B payments has emerged as one of the hottest industry topics of the year thanks to new FinTech innovations and industry leaders like Visa and Mastercard making a push further into the market. The perpetual hurdle in corporate credit cards, though, is vendor acceptance, which inadvertently became one of the key points of friction addressed by Plastiq.
The company enables consumers and businesses to pay their bills to Plastiq using their card products; Plastiq then pays the biller in whichever rail they prefer, thereby making both ends of the transaction happy. While the solution started as a consumer-facing tool, small business adoption opened the door for the company to position itself in the B2B payments world and, specifically, in the market for commercial card adoption.
In a recent conversation, Plastiq Co-Founder and CEO Eliot Buchanan said the uptick in small business use of the solution is in itself a surprise, but since the company’s launch, other patterns in the way that small business owners are using cards have emerged that may not have been predictable only a few years ago.
One is the breadth of expense categories.
“Other than obvious payments, like corporate taxes, corporate rent, we’re seeing them use the solution to pay all of their key vendors and suppliers,” Buchanan said. “Anything that’s part of their financial supply chain. We have people paying Kaiser for health premiums, people paying Google for Adwords.”
In addition to the diversity of payment categories, he added that transaction sizes for small business payers emerged with another unexpected trend in electronic payments. B2B payments are often higher-value than typical consumer transactions, and while a few thousand dollars on a commercial card is noteworthy, Buchanan said small businesses are making payments in the tens or hundreds of thousands of dollars — even a few million-dollar transactions, too.
“It’s something that, three years ago, I wouldn’t have expected,” he said.
These are optimistic observations for an industry where commercial cards have struggled to get off the ground. Experts debate the causes of a lack of commercial card adoption in B2B payments, with vendor lack of acceptance a key factor, as well as a reluctance to change behavior and limitations of existing infrastructure on both sides of a transaction.
Accounts receivable executives surveyed by the National Automated Clearing House Association (NACHA) last year do indeed expect an increase in payments received via commercial cards, but the payment rail will still hold only an estimated 12.5 percent of incoming payments volume for B2B vendors by 2020 — up just 1.5 percent from 2017 volume.
Solutions like Plastiq may introduce interesting conundrums for calculating payment rail adoption in B2B payments — if a business pays via commercial card, but a vendor receives that payment via a different rail, which payment rail gets counted in these calculations?
While FinTechs like Plastiq can examine many trends in the commercial card space in particular, the company is also positioned to explore broader trends in B2B payments. For example, Buchanan noted that as small business adoption of the tool increases, service providers like Plastiq have had to adapt to heightened demands that differ from customer payments — the need for more robust data and reconciliation support, for example.
Interestingly, Buchanan said he has also noticed that small businesses value speed even more than consumers do — at least, when using a bill payment solution.
With consumers, he explained, “there is not as much urgency, because their livelihood of their life as a consumer is not put on hold, or blocked, by this transaction.”
Small businesses, on the other hand, need their payments to be made on time in order for their suppliers to fill orders or unblock a contract. In essence, Buchanan said, the speed of the payment is tied to the ability for a small business to grow and thrive.
Because it works with the vendors accepting payment as well, Plastiq is also able to explore some of the accounts-receivable trends impacting the B2B payments space, too. Since it is a company designed to allow vendors to accept payments in whichever rail they want, one might think that the solution negates the need for vendors to make the internal shift necessary to accept cards and other digital payments.
But according to Buchanan, contrary to what some may believe, checks are not the preferred payment rail of choice for vendors, and while they may not want to accept cards, ePayments are of increasing importance for B2B suppliers.
“Just because they’re reluctant to take a card doesn’t mean they’re not interested and motivated to take faster ways of getting funded,” he said. “We’re seeing interest and excitement from the supply chain to accept faster forms of payment. We’re seeing a different type of conversion — less about card, but motivated to move payments electronically.”