The fastest-growing segment in the world of commercial card payments instruments is ePayables, especially in the realm of cross-border payments. This virtual card payment offers operational efficiency and flexibility for both buyers and their suppliers. It also presents a lucrative opportunity for banks that support such programs. Having a bank consultant who can assist enterprises in recruiting suppliers who accept this payment method has become essential.
In his new report Understanding Commercial Card ePayables: An Abridged Guide for Commercial Buyers, Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, looks at how ePayables programs are implemented, the potential benefits they bring, and the self-assessment enterprises need to do before settling on a course of action and choosing a partner.
Defining Terms
EPayables are akin to virtual credit cards that act as electronic payment alternatives to checks. “In the case of ePayables, you don’t present a card,” Bodine said, “It’s transacted from computer to computer, very similar to what used to be called electronic funds transfer. It doesn’t appear to either the buyer or the seller as anything like a traditional card transaction. The only common piece is that it is based on a card credit line.”
Although ePayables could be used for purchases of any size, the sweet spot for most enterprises lies in larger purchases, as well as recurring purchases like maintenance services. Bodine says that cross-border payments remains the strongest single use case for ePayables. “That’s where I see most of the growth for ePayables,” he said. “The card networks are already global, and they’re connected to every single financial institution. These payments can be very competitive on costs with methods like wire transfers.”
The biggest acceptance hurdle for ePayables to overcome is that suppliers traditionally wanted nothing to do with them. When the products were first introduced, issuing banks sweetened this payment option for their corporate buyers by offering them a rebate on each transaction. It was left to the buyers to inform their suppliers that they were using a new payment method—one that required the supplier to cover all acquisition fees. Bodine says it took “hand-to-hand combat” to get suppliers on board with this method.
There were compensations, of course. A fundamental principle of ePayables is that any supplier, in exchange for covering those fees, would be paid much faster than if it chose to be paid by a method like ACH, usually in 10 or 15 days rather than 30. A pillar of that principle is that the supplier, not the buyer, has control of the release of funds.
Two Types to Choose From
There are two variations of ePayables: supplier-initiated payment (SIP) and buyer-initiated payment (BIP), which are used in roughly equal measure. For SIP, the supplier controls the timing of funds once invoice verification and approval are received from the buyer. For BIP, the buyer still issues the verification and approves the funds but retains the timing of when the funds are delivered.
“The SIP makes a more level playing field between buyer and supplier,” Bodine said. “The whole value proposition that the buyer gives the supplier is that if you let me use a card to pay for goods and services, you are going to get paid faster. You can initiate the payment in, say, five to seven days. If I’m the buyer, and I’m going to the supplier to say ‘I’m going to use a card, and you have to pay all the fees, and on top of that I’m going to decide when you get paid’—there is no value to that proposition for the supplier.”
With ePayables, suppliers are responsible for the interchange fees imposed by card networks such as Visa, American Express, Mastercard, Discover, Capital One, or Discover to facilitate transactions. These fees, commonly structured as a percentage of the transaction value plus a fixed fee, impact the merchant’s operational costs. Moreover, suppliers may face assessment fees directly from card networks for the privilege of accepting their cards, with charges varying based on such factors as transaction volume and industry sector.
Suppliers are also subject to merchant fees, which compensate the merchant bank for “acquiring” the transaction. With these headwinds, it’s vital to present a strong value proposition for suppliers.
Learn more about the state of ePayables. Bodine is currently preparing a Scorecard Report on third-party vendors in the ePayables space. That report will be available in the coming months to Javelin Strategy & Research clients.
