Interchange and Innovation in Commercial Cards

In an earlier post from Andrew Auden, Ixaris Business Development Director he discussed some of the challenges observed in commercial card payments truly addressing B2B payments and a passing comment was made relating to high interchange revenues supressing innovation within card issuers.  Following hearing a similar point made by Jeffery Shinder from Constantine Cannon at the recent PayExpo Europe event in London Ixaris thought it was time to revisit this (throwaway) comment to see if we could really stand behind it…

From Andrews point of view his contention, having spent approaching 20 years working for commercial card issuers, is that the fat revenues delivered through commercial interchange have fostered an environment that is to varying degrees, complacent, dare he say lazy and too ready to take the path of least resistance when selling solutions…namely fat rebates for the largest users.

Value Added

Certainly there have been value add solutions added to the commercial card proposition mix over the years (online reporting, data feeds and single use technologies to name a few) that you could argue have been funded by those high interchange rates (and ultimately the suppliers we’ve spent fruitless years trying to increase spend with).  However, the value to these solutions has been undermined by the underlying commercial model, where savvy buyers know they can put the squeeze on for more basis points and sales-people have fallen back to that path of least resistance rather than make the hard yards selling the wider value story.

The outcome of this?  

A highly commoditised marketplace where issuers offer facsimile solutions (often rebadged from generic scheme offerings) rather than innovating to deliver differentiated solutions providing new value to clients.

But what does the future hold?

In Europe commercial card issuers have broadly dodged a regulatory bullet following the recent European interchange regulation (a highly illogical distinction on individual bill corporate cards not withstanding), but how long can the industry avoid the regulators steely gaze?  Indeed, in Australia commercial cards are squarely in the scope of recently announced interchange caps.

How long before antiquated cheque / check payments are replaced by electronic alternatives at a lower cost than commercial cards?  The emergence of easily accessible near real time electronic payment platforms, now live 18 markets at my last count with the US seriously reviewing, will disrupt the commercial payments market using a non-interchange based model.

Any issuer building long term strategies based on current commercial interchange levels is, we would contend, charting a very dangerous course delivering compressed margins in the short term and an unsustainable business model in the longer term.

Forward looking issuers are building strategies based around solutions that are extensible beyond the existing commercial card model.  Solutions that can provide a consistent user experience, operating on card rails across high and low cost card options, across multiple card schemes and also extending to other existing and emerging payment types.  All whilst delivering the rich data buyers are demanding and facilitating strong remittance data to help suppliers manage their Accounts Receivable processes.

Solutions like these can demonstrate far greater value to the buying community, breaking the rebate race to the bottom and a more equitable solution for the supplier community opening up spend segments that are currently not addressable by existing card solutions.

Players in the fintech space, like Ixaris, have the agility, unencumbered by legacy, to deliver these type of solutions.  Banks and issuers need to look beyond the scheme provider, commoditised solutions, and beyond fat interchange rates, to platforms that can truly support innovation, adapt to the emerging future landscape and deliver #perfectfitpayments.