Why Card Monopolies Are Failing B2B Businesses

Feb 19, 2021 by Daniella Bourguetts

If the last couple of years have taught us anything is that change is inevitable. On most occasions, it's impossible to predict global pandemics or the financial implications of profound political changes in the worldwide landscape.

This is particularly relevant when we take a look at the stratospheric rise of Mastercard's interchange fees for EU firms selling to UK customers by at least 400%, in a move that might seem arbitrary to some businesses. However, Mastercard made this decision due to the UK leaving the EEA, and adapting interchange rates on UK cards to the commitments made by the European commission in 2019 for non-EEA transactions.

Mastercard's current interchange fees are 0.3% on credit card payments and 0.2% on debit payments but will increase respectively to 1.5% and 1.15%

While some argue that these changes will only add up to a few cents on every transaction, this quickly adds up for companies processing a high volume of transactions.

Ultimately, the question remaining is: Who will cover the fee? And there is no easy way to answer this.

If the companies choose to pass on the fee, the consumer will face higher costs. If businesses decide to absorb it, their profit margin will be seriously diminished. If there's no simple solution for merchants or clients, who's to win for these increases? Banks and card monopolies.

The lack of regulations on the matter leaves B2B businesses in a vulnerable position since their transaction volumes turn them into one of the most affected by interchange fees. In retail alone, companies pay more than $100 billion to these card networks just to accept electronic payments.

We have some tips on how businesses can reduce credit card processing fees. Still, we believe the problem lies deeper in the banking infrastructure and credit card companies' outdated processes.

As we know them, credit cards have been around for over 50 years, and they were initially created for extending the payment terms for department store customers, bank loans, and other customer-oriented purposes. When corporate cards came into play, they offered businesses an opportunity to transact quickly and across different banking systems, meaning that they quickly became one of the preferred payment methods by B2B.

However, while credit cards may offer some convenience for paying, it comes at a steep price with cash flow and revenue implications. Imagine paying the 2.5% to 4% fees on a $50,000 invoice. For this reason, credit cards can be a costly option for B2B companies, especially in industries where the margins are thin and 2.5% to 4% matters.

It's high time for a better way.

Businesses shouldn't have to spend money to get their money. The model that counts on gatekeepers who profit from charging fees to move money is not only outdated, but it's also harming B2B businesses fighting to survive in the covid-19 economic landscape.

It's time for a fair and secure way to conduct B2B payments, where merchants can predict how their money is being processed without fees, paper, and openness.

Our digital-first approach to commercial payments solution is becoming a sustainable alternative to legacy payments because it understands the real needs of digital business: security, resource optimization, and practicality.

We're on a mission to reboot commercial finances with a family of digital banking products for creating a new financial ecosystem in the B2B realm that finally leaves fees and paper behind. We call it the Journey to Zero.

Join us in #rebooting commercial finance

Over 200,000 businesses in the US are now transacting using the Paystand Bank Network and saving millions on dollars in transaction fees and process optimization. If you want to know how our products can help you streamline resources and create a better revenue strategy, contact one of our payment experts.

Schedule a demo today!