Annual Credit Card Benchmarking Survey: Credit Cards Increasingly Integral to B2B Collections as Online Acceptance Grows
January 5, 2009
While growth has stagnated in terms of the number of trade credit grantors accepting credit card payments, the use of credit cards within those companies appears to be growing at a modest rate. Moreover, a significant portion of this growth is attributed to the increasing use of online payment mechanisms. Presumably, this trend goes hand in hand with the increasing use of EIPP (electronic invoice presentment and payment) and other Internet-based customer self-service solutions being deployed by trade credit grantors.
The economy may also be a factor. Dan Sproat, Corporate Credit Manger, Wholesale Fuels, Inc., Bakersfield, California, reports "We are seeing a dramatic increase in the number of customers that are choosing to use a credit card to settle their balances. These range from small consumer accounts to large commercial accounts. "Most are telling us they are strapped for cash so they will pay with a credit card-an obvious sign of the current economic times and an obvious sign to revisit the credit file on these customers." We had 157 participants in this year's survey compared to 111 in the 2007 survey. As a consequence of this growing sample, we are able to provide more in-depth analysis of the results compared with our initial survey. As we conduct subsequent surveys, we should be able to discern even more trends in terms of credit card usage for settling commercial transactions. Question: Do you accept payment by credit card? (See graph above)
The percentage of firms accepting credit cards for commercial transactions has remained relatively stable. The slight decline from 2007 to 2008 is within the statistical tolerance range and may be attributable to the significantly larger sample size of the 2008 survey. In addition, only 9 percent of those not currently accepting credit cards (2 percent of the entire sample) plan on doing so in the future. Of these, only 2 out of 3 plan on implementing credit card acceptance in the next 12 months, the remainder indicating it will be over a year before they begin accepting credit cards. Question: What are the methods your customers may use to pay by credit card?
Since acceptance rates remained relatively stable, one might assume how the transactions were processed would also remain relatively the same. Interestingly, this was not the case. The use of websites to accept online payments rose significantly, from 16 percent in 2007 to 28 percent in 2008.
However, this trend toward online payments was indicated in anecdotal comments made by respondents in 2007, so it was not a complete surprise. It may also explain the modest drops in the number of credit card payments accepted in person or via mail. Meanwhile, the most popular means of acquiring credit card payments remains over the phone-that figure rising one tick to 94 percent. Question: Is there a maximum amount customers may charge to a credit card?
Last year, 94 percent of the respondents reported that there was no limit to the amount they would let customers pay via credit card, compared to 88 percent this year. This pullback is significant and may be attributable to the fact that more companies are trying to control the transaction costs associated with credit card use. The range of limits that are put on credit card transactions is quite broad. In 2007 the limits only ranged from $10,000 to $25,000. In 2008, by contrast, 7 percent indicated a limit of $5000 or less. Question: Approximately what percentage of your customers pay by credit card?
While there were some shifts in regard to the distribution of customers taking advantage of credit card payments, the overwhelming majority of companies (85 percent in 2008 versus 87 percent in 2007) continue to report only 10 percent or fewer of their customers paying via credit card.
The median percentage of customers paying by credit card was 5 percent for both years, though the average did jump from 7 percent to 10 percent. As we noted in discussing last year's survey, "we need to keep in mind that credit cards will probably never become the primary settlement medium for B2B transactions. Instead, credit card payments serve the needs of specific segments of a receivables portfolio." Question: What percentage of your customers do you expect to be paying via credit cards 12 months from now?
The data show that there have been some shifts toward a higher percentage of customers using credit cards for payments. Comparing the actual 2008 data to the projections for 2009, the survey indicates increased penetration in the ranges between 6 percent and 40 percent. At the same time there is a projected drop for the percentage usage ranges up to and including 5 percent. This continues the trend projected in the 2007 survey.
So, while most of the companies inclined to using credit cards are already using them, those that are continue to look for ways to process additional customer payments by credit card. For 2009, the highest concentration-in terms of customer penetration-of customer credit card usage is expected to fall in the ranges between 6 percent and 15 percent. Note: there isn't enough data to make conclusions about trends involving firms that have or project over 40 percent of their customers paying with credit cards. Question: What benefits have you realized from implementing a credit card payment system?
There were significant jumps in two categories related to the benefits that accrue from offering to accept credit card payments. Increased Customer Satisfaction/Convenience rose from 57 percent in 2007 to 73 percent in 2008. Similarly, those viewing DSO reduction as a prime benefit of offering credit cards increased from 45 percent in 2007 to 53 percent in 2008.
A third category, Increased Sales, showed a tremendous increase, but we believe that in part was due to having a check box for that category on the 2008 survey, whereas on the 2007 survey respondents had to enter it in the 'Other' category. Still, there is anecdotal evidence that companies are increasingly using credit cards as a tool for landing sales with customers that do not have an account or that would not qualify for an account on open terms. It will be interesting to follow that trend in future surveys. The most noted benefit remained Earlier Payments/Improved Collections and showed just a one percent decline from 2007 to 2008, which is not statistically significant. All the other categories, none of which is a primary benefit, also showed minor changes with no discernable trends. It is also worth noting the miscellaneous benefits which were identified in the 'Other' category in 2008. They included:
- Faster order processing
- Alternatives to cash sales - e.g., CIA and COD
- Reductions in bad-debt expenses
- Faster turn around on sales to cash customers
- Keeping up with what competitors offer for payment
- Reduction in overall cost of collection efforts
Question: Who is your Credit Card Merchant?
Chase Paymentech again was the most used provider of credit card merchant services. Nor were there any changes in the merchant services vendors who came in two through seven in terms of usage by our sample. Another 30 vendors were also used by the participants in the 2008 survey.
American Express
American Trust
Authorize.net
Avalon (NOVA)
BancTec
Comerica Bank
Cybersource
E C Zone
Eliot Management Group
FDMS
Global Payments
Harris NA / Bank of Montreal
Huntington
Key Bank
Moneris
National City Bank
Novis
Omega Processing Solutions
Optimal Payments
PayPal
PNC
POS
Quickbooks Merchant
RBS
SMBC
Sun Trust Bank
Trans First
VirtualMerchant
Wachovia
Wind River
Question: What is the percentage rate charged by your Merchant for your transaction fees?
There was virtually no change in the transaction rates being charged from 2007 to 2008. In 2008, 73 percent reported being charged under 3 percent, compared to 72 percent in 2007. The average rate charged for 2008 was 2.46 percent, which is just slightly more than the typical prompt pay discount. As usage and dollar volumes increase, we expect that companies should be able to negotiate lower transaction fees from their merchants, but we do not see any evidence of that in this survey.
Question: How much did it cost to implement your credit card payment system? Other than the transaction fee, there is usually no cost if you process credit card payments manually. As the above chart shows, 75 percent of the survey
sample reported no set up costs. Another 16 percent report the cost of implementing a credit card payment system to be $500 or less. The assumption with the remaining 9 percent who paid between $2,500 to $100,000 to set up their process, was that it involved online payments.Fee structures are not always straightforward. Diana Tapelt, credit manager, Minvalco, Inc., Minneapolis, Minnesota, writes, "Shop regularly for better rates. As your business volume increases credit card processors are more willing to give you better rates. Ask about added costs not tied into the percentage they quote you. Some processors give you a good rate but then charge you other types of fees in addition to that rate. "Examples of these fees are monthly statements fees. One processor charged $6.00 per statement every month for each branch location. We also were charged a per item fee of 1 cent. That doesn't sound like a lot but adds up when you have multiple locations and thousands of transactions. Some credit card companies refund fees for returns, others do not. We have a customer who charges everything on their American Express Card. We will only process their returns if we have new charges to offset them. This helps to reduce our fees by reducing the final amount charged to their card for that day's business."
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