By Roger McNamara
Supertankers are among the largest ships in the world. They can exceed 1,500 feet in length, which is longer than the height of the Empire State Building in New York City. One other amazing fact: It takes almost 20 minutes for a fully loaded supertanker to stop when traveling at normal speed. The good news is that it can manage this stop in 14 minutes under emergency conditions. Whew! I'm sure glad about that. Recently, I attended the WSAA conference in Fort Worth, Texas. It was a terrific event and very well attended. However, it struck me during this event, that our industry is a supertanker struggling to stop.
As I entered the exhibit hall, I couldn't help but notice that the majority of exhibitors, vendors, ISOs, processors, etc. were B2C focused. Countless vendors appeared to be selling terminals and POS technology. Legions of ISOs were focused on agent recruitment for the B2C space, and still other vendors were engaged in the usual B2C banter.
The event organizers breakout sessions were further focused on B2C, discussing dated items like buy now, pay later. To be sure, the B2C industry has been very good to many people in our industry for a long time. Consumer payments on cards in the United States in 2018 exceeded $5 trillion. That's a lot of basis points no matter how you add it up.
But the supertanker is becoming a little worn. Margins are down due to increased competition. We also sell a product that doesn't take merchants out of the market but puts them into it for our competitors to sell them the same product at a lower cost. In many cases, the new seller even ends up making less. Long term, this can’t be sustained.
As I walked the event hall, the supertanker image kept coming to mind. The industry is struggling to find the next big step, as B2C payments have essentially capped out. There are scant untapped industry segments within B2C. Therefore, if the pie is not growing in B2C, why is there so much focus on it? For the most part, it’s been easy to sell. When cash is the only serious competitor for about 95 percent of the market, credit becomes king. If you are a B2C business, you must be able to accept cards, and many agents can gladly sell it to you.
For the independent sellers on this supertanker ride, stormy seas are ahead. If the “race to zero” wasn't enough to make you a little seasick, a new race toward the bottom of cash discounting is now beginning.
Couple this with rising inflation that consumers are now experiencing, and we can see the seeds being sown for payment discontent. What was once the merchants' issue with discount rate is now the cardmembers' issue with additional cost. Indeed, the pendulum has clearly swung to the opposite side.
On the opposite side of B2C sits B2B. It's a close cousin to B2C but only in a sense that the plastic or metal they are printed on are alike. B2B, by recent accounts, is a $33 trillion opportunity—over six times larger than B2C—and only 8 percent of B2B transactions are placed on plastic. In short, that means a boatload of opportunity awaits merchant sellers. So why aren’t more independents selling into this space?
Part of the issue is comfort. The supertanker is warm and dry, and despite the obvious warning signs such as losing customers to attrition and aggregators actively pursuing our clients, we stay in our bunk. The other part of the issue is we have never been shown a path forward in B2B. We have fallen into the groupthink notion that selling B2B is too hard and the sales cycle in B2B is too long.
For sure, we cannot sell B2B like we sold B2C. The same rules do not apply. But selling interchange plus is like putting a Band-Aid on a gunshot wound. To command this new breed of supertanker, one that is seaworthy under today's market conditions, we have to understand how it works and speak the language of the crew. We must exit the comfort of B2C for a little while to embrace the difference of B2B and see how credit can act as a collection tool for a business, rather than only a payment method.
The good news is the supertanker shuts its engines off 15 miles before it arrives into a port to slow down the vessels and allow it to dock. The bad news is as a merchant seller, you only have so much time left to get the ship under control. The dock is coming up fast. Will B2B be your soft landing, or will you crash into the dock and sink?
Roger McNamara, president of Guide2Interchange LLC, is a 25+-year veteran of the payments industry, most recently as director of business development with American Express in the United States. He has sold more than $200 billion worth of card processing and now leads a B2B merchant sales training organization. Contact him at Guide2Interchange@gmail.com or 561-379-3151.
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