Payments in the Industrial Market

Many firms spend a significant amount of money to attract clients to their websites in order to sell their goods and services. They carefully scrutinize the return on this investment to ensure they receive good value for their marketing dollar.

However, when it comes time to get paid for their sale, many firms' hard-won business profit can be needlessly drained because a customer's credit card transaction isn't being processed as cost-effectively as it should be.

This article is a brief introduction to facets of credit card processing that often are not well understood, but where knowledge can create savings and operational improvement.

Q: Aren't all credit card transactions basically the same?

A : No. Over the years credit card processing has become a lot more diverse and complex.

Many perceptions about how credit card processing works are shaped by our experiences as consumers using our own cards. "Buy an item, get the statement. It's all the same."

But this is not the case. Behind the scenes, there is variety and complexity in the seemingly simple task of processing a credit card transaction. Many firms don't know that, but their lack of knowledge costs them money.

Q: What are some of the important differences I should know?

A: The biggest difference to be aware of is that, in the industrial market, there are generally two types of transactions:

1. Business-to-consumer, in which the buyer has a traditional consumer-oriented credit card and is purchasing for their own personal use; and,
2. Business-to-business and business-to-government, in which the buyer may be an employee of a corporation, large business or government agency and uses a purchasing card, also known as a p-card.

Q: Who uses purchase cards and what are their advantages?

A: Often when firms sell to larger businesses, corporations, government agencies, universities and the like, a p-card is the preferred payment method to make the purchase or pay an invoice. Most Fortune 1000 corporations have purchase card programs implemented and mid-market usage is growing rapidly. In addition, most government agencies - federal , state and local - as well as organizations such as university systems and utility groups also use p-cards.

Annual U.S. purchase card spending has grown to $120 billion, and studies suggest that this volume is increasing significantly.

Q: But what exactly is a "purchasing card?"

A: A purchasing card is a specialized MasterCard, Visa or American Express card system that focuses on the purchasing, accounting and reconciliation requirements of larger buying organizations. The cards have many more capabilities than standard consumer cards.

For example, they:

• Can be controlled to manage the dollar limit per transaction, monthly spend limit, number of transactions per day / month, type of supplier (by SIC/MCC code) used
• Allow organization cardholders to place orders directly with merchants
• Often replace purchase order payment systems
• Process enhanced, line-item payment transaction detail known as "Level-3 data"

Q: What is Level-3 line-item detail?

A: In the simplest terms, it's the same information found on an itemized invoice or receipt. The data sent with the p-card transaction includes purchase details such as item description, unit of measure, unit cost, extended cost, invoice, PO number and more.

Q: How do I benefit by sending in this additional detailed information?

A: Two reasons: Reduced cost and customer need.

Reduced cost: With p-card transactions, a range of card processing fees could conceivably apply, depending on a number of factors. Believe it or not, these fees can range from more than 3% to less than 1.5%! Done correctly, a p-card transaction may result in a better transaction fee. But if important payment details are not included, that transaction might be downgraded and have surcharges added, resulting in a fee ranging between 3% and 4%.

Approximately 80% of the card fees that merchants pay consist of pre-determined fees set by Visa or MasterCard known as "interchange." The best way for a merchant to reduce their processing fees is to qualify for the optimal interchange rate. 3Delta Systems has the systems and know-how to help reduce these types of card processing fees.

Customer need: Corporate or industrial buyers are increasingly requesting that Level-3 line-detail information be submitted with their transactions. The ability to supply this data not only will save you money, but will meet an important customer requirement.

Q: Are there other factors that can impact my choice of card processing solutions?

A: As noted earlier, the landscape for payment processing has changed a lot since the days when you just received a basic little terminal. The following list summarizes some of the business characteristics that can influence a firm's choice of payment technology and provider and the resulting rates that they will pay:

• Business size: Large, small, or midsize
• Industry requirements: Retail consumer transaction or B2B corporate p-card with Level-3
• Typical customers (doing business with the merchant): Consumers / Corporations / Government (Federal, state, local)
• Type of sales: Goods, services or both
• Sales channels: Mail-order / Telephone-order / Website / E-commerce / Card present
• Timing of sale: Real-time vs. non real-time
• Monthly dollar and transaction volumes: 1 to 1,000,000 (or more)
• Number of locations: Single or multiple
• Transaction/business processes: Integrated or Stand-alone
• IT infrastructure/systems in use: Application software: SAP / Oracle / Quickbooks / etc.
• E-commerce applications: Online sales website or catalog system
• Operating systems: Windows, Unix/Linux/Solaris
• Communication options: Dial / Frame / Internet connectivity
• Security requirements: Visa and MasterCard data security requirements (Payment Card Industry Data Security Standard)

One final item: increasingly, card data security is being emphasized by the industry - and with good reason. A data breach involving card data can bring unwanted publicity, customer loss and fines and penalties. That's why it's critical to ensure that your solution provider is compliant with the Payment Card Industry (PCI) Data Security Standard.

ThomasNet has partnered with payment system expert 3Delta Systems to provide a powerful and flexible suite of payment solutions designed to meet our customers' varied business processes and requirements. 3Delta payment products accommodate consumer cards, business cards, and purchase cards, and are designed for face-to-face, mail-order / telephone-order, and Internet shopping environments. If you would like more information on these services, please contact a ThomasNet Sales Engineer at 212.290.7390 or your ThomasNet sales representative.

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