The Green Sheet Online Edition
August 8, 2007 • 07:08:01
P-cards: The payoff is palpable
Purchase cards, also known as p-cards and corporate credit cards, are used by buying organizations to streamline purchasing and payment procedures for low-value transactions. They often entail guidelines and spending limits for employees who use them.
The p-card market has seen tremendous growth in recent years. According to a study by Aberdeen Group, a key reason is that p-cards lower corporate costs by about $20 per transaction. This amounts to a 75% reduction compared to the traditional procurement process, which typically involves purchase orders and multiple levels of bureaucratic approvals.
However, for p-cards to be used by more businesses, they must be accepted and processed by more merchant suppliers. That's where you come in, as ISOs and merchant level salespeople. This article answers basic questions about the use of p-cards to help you better understand the p-card context, as well as provide strategies for building a base of business-to-business (B2B) merchants who accept p-cards.
Who is using p-cards?
P-card use is widespread, even if it is not highly visible. Most midsize and larger corporations have p-card programs in place. Universities and utility groups also use them. P-card systems are offered by many commercial banks and other financial institutions.
Annual U.S. p-card spending grew from $80 billion to $110 billion between 2003 and 2005. Recent studies suggest this volume would increase eightfold if all B2B transactions below $2,500 were paid with p-cards. This is a vibrant, growing arena, and p-card users need a strong, capable merchant base.
How do p-cards work?
P-cards may be used in a variety of ways. But for routine purchases, they are issued to authorized cardholders, enabling them to place orders and make payments directly and efficiently on behalf of a buying organization. In other cases, p-cards are used in conjunction with purchase orders and e-procurement systems to make large payments. As transaction values increase, so does the need to have accurate and detailed information about purchases.
Because of this and the need for financial accountability, p-card users often require that merchants provide them with level 3 data, the highest level of transaction detail. Per the National Association of Purchasing Card Professionals (www.napcp.org) the levels include:
- Level 1 data: Presents basic credit card information similar to the information you would find on your personal credit card statement. This information includes date, supplier and dollar amount.
- Level 2 data: Includes the first level of data plus sales tax information and a variable data field. Merchants at this level can pass through the p-card system sales tax information, as well as a unique, customer-identified transaction data field. Some issuers include such information in cardholder statements.
- Level 3 data: Provides line-item detail. It includes the information provided in levels 1 and 2 plus the item product code, description, quantity, unit of measure, price and other applicable taxes.
What about p-cards and interchange?
P-card transactions have tiered interchange rates and are priced differently than standard consumer and business card transactions. MasterCard Worldwide and Visa U.S.A. have created special interchange rates to encourage supplier participation in p-card programs. This reduces merchant transaction costs if level 3 line-item detail information accompanies financial settlements.
This is the key to obtaining the best interchange rates. You can bring substantial value to merchants by helping them qualify for lower-cost level 3 rates. This is even more important if the transaction sizes are large. Why should merchants care about p-cards? Merchants who accept p-cards benefit in the following ways:
- Faster payment cycle: Merchants receive payment in two to three days, as opposed to the 30-, 60-, or 90-day wait commonplace with many corporate purchasing processes.
- Lower interchange rates: Interchange savings of 30 basis points or more are possible for providing level 3 data. Greater savings are also possible, depending on transaction size.
- Better documentation: Level 3 data can help a merchant with transaction documentation, which is especially handy for responding to chargeback requests (all the transaction detail is in one place).
- Preferred status with customers: Some buying organizations have mandated use of level 3 data with some or all of their transactions; they tend to stick with merchants who provide it.
- Lower processing costs: Ensuring proper interchange qualification is the best way to lower transaction processing costs.
- Ease of use and deployment: P-card systems are intuitive and flexible. For example, in addition to processing transactions from a back-office, merchants are able to process manually at a field sales office or electronically from an e-commerce Web site.
- Better data integration: P-card systems can integrate data into a company's internal systems or offer management reports and inquiry capability.
- Future expansion: P-card systems offer a migration path for future development.
Proposing the right processing solution begins with determining what a given merchant's requirements are. Merchant processing parameters may be influenced by:
- Business size: Is the prospect's organization large, small or midsize?
- Typical customers: Are the merchant's clients consumers, corporations or government agencies? Are customers repeat or random?
- Product type: What is being sold: goods, services or both?
- Sales channels: Are sales MO/TO, Web site, e-commerce or card present?
- Timing of sales: Are sales made with or without real-time requirements?
- Monthly transaction volumes: How many transactions are made? What is the dollar volume?
- Number of locations: Single or multiple? Understanding merchant needs and recommending solid solutions are the hallmark of the solution-oriented sales executive. Using a consultative approach when discussing p-cards with B2B merchant prospects will differentiate you from the pack.
Aaron Bills is Chief Operating Officer and co-founder of 3Delta Systems Inc. E-mail him at abills@3dsi.com or visit ,www.3dsi.com for more information on secure data storage solutions.
Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.
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