Dynamic Interchange Changes $213 Trillion of B2B Dynamics

The B2B payments landscape presents a massive opportunity for digital transformation.

The global B2B payments market is projected to grow to $213.28 trillion by 2032, according to market studies provider Fortune Business Insights.

The move to modernization hinges on flexibility, where payments are streamlined, and where suppliers, especially, have some optionality in fund flows. Speed matters in an environment marked by sticky inflation, changing supply chains and the ever-shifting tariff narrative.

Virtual cards hold the promise of delivering speed and flexibility. There’s a growing recognition of those attributes, as Visa and PYMNTS Intelligence found through surveys of growth corporates across a variety of sectors that virtual card use has grown, with 14% of middle-market firms using them compared to 10% in 2023.

For North American firms, virtual cards can reduce cash conversion cycles by about 48% as a result of real-time money movement (and settlements are faster than ACH and checks).

Yet the use of virtual cards is coming off a small base, as the data showed that, for example, 14.3% of retail and marketplaces and 14.7% of commercial travel outfits planned to use virtual cards through the next year, outpaced by roughly 25.8% of fleet and mobility firms.

Greater acceptance may come in tandem with dynamic interchange, which ties the interchange fees to several rules-based factors, including the speed of the payments between buyers and suppliers. Moving beyond fixed, contractually determined rates has the impact of allowing suppliers to choose the economic margins on those payments that work for them.

The model continues to gain traction, with a bit of tailwind from an announcement this week that global issuer processor Thredd rolled out a new real-time payments offering for its travel agency customers through the Mastercard Wholesale Program. The program includes dynamic interchange as a feature.

Separately, Boost’s Dynamic Boost features dynamic interchange, which the company said “offers buyers and suppliers pricing flexibility based on business rules that fit their mutual needs” through the rules-based pricing platform “when published rates are not adequate for mutually agreed upon acceptance” between those parties.

When the dynamic interchange feature was launched in 2018, Boost CEO Dean M. Leavitt told PYMNTS that the proprietary rates set between B2B counterparties should boost acceptance. In discussing the economics of the interaction, he said that if a supplier gets paid in a hypothetical 15-day window, they would pay the full interchange fee on a transaction. If they get paid within 15 to 45 days, that rate would drop. If beyond the 45-day scope, the interchange rate paid would drop again.

“As time marches on, the total cost of acceptance for that supplier would drop dramatically,” Leavitt said.

Similarly, payments become timelier. As the interchange revenue drops, it gets to the point where the cardholder is not getting any rebate.

“So, the payer is incentivized to pay sooner or disincentivized to pay late,” Leavitt said. “The supplier does not get penalized if the customer continues to pay late with a credit card.”

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