Disruptive Pcard model could drastically increase supplier acceptance

Sellers that accept Pcards can spend millions on interchange costs (ie, the percentage charged by Mastercard/Visa to accept cards). Interchange costs are high to compensate issuing banks, merchant banks, loyalty programs, and of course Mastercard/Visa for use of their network. Ballpark standard interchange rates are in the 250 bps range (or 2.5% for those of you not familiar with basis points). For larger ticket items or merchants with big volumes, interchange would be in the 140 to 150 bps area. Again this is ballpark.

But take a large telecom provider that takes cards for both business to business and business to consumer payments. Putting $100 billion through cards (not a stretch) could incur $140 million in interchange costs. Ouch.

What would happen if a p-card accepting supplier approached its’ customer base to move to a less costly ACH alternative while still providing the customer base with some level of rebate. After all, corporate treasurers have become addicted to the rebate revenue from pcard use by procurement and others in the organization (and on the flip side, feel the pain on being a merchant and paying interchange).

There would need to be a platform involved that could keep track of the payments and discounts in order to calculate the periodic rebate payment back to the customer (just like p-card).  And the provider of this platform could charge perhaps a 10-15 basis point fee for the service.

If the interchange is the standard 250 bps, then there would be potential to cut the interchange in half for the supplier (big win) and still keep the buyer whole from a rebate perspective or even increase the rebate level (a win).  Invoice terms could be extended as part of the deal to replicate or enhance the delayed settlement of the p-card (another win).  Hence, no credit would be required.

If the interchange is large ticket around 140-150 bps, then the interchange could be cut in half for the supplier, the customer would take a rebate haircut perhaps to 50 bps, but be content with half a loaf on the rebate side and a supplier who no longer is threatening to raise prices.

Hap-X saw this opportunity to service the healthcare sector – see Hap-X Healthcare exchange – a working capital solution for Healthcare

I suspect having an equivalent P-card model without going through the card networks is a very viable option, and one private equity may be interested in funding.

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