Blockchain technology has made inroads into most key sectors, and while it’s not exactly a cure-all, it has definitely proved instrumental in improving certain problem areas and simplifying business processes. Medical research, diamond supply chain, automobile production, legal services, and online gaming are some of the sectors DLT has significantly revolutionized. It has found immense utility in B2B, especially since its resulting cost-reduction could increase the profits of the industry by a wide margin. To fully comprehend the paradigm shift blockchain can bring to corporate payments, one must take a look at the current state of things.

An increase in global commerce increases the complexity

The ecosystem that interchange revolves around is anything but linear. There are several key players involved in credit card transactions, starting with cards issuers. They are the financial institutions that extend the credit in case of a credit card or issue the actual cards to the cardholder. Card brands such as Mastercard and American express; suppliers and vendors who are the recipients of the payments; and acquirers and processors or the entities that facilitate the transactions on behalf of the suppliers are crucial parts of this ecosystem. If you think of the card issuers as the financial institutions that create a bridge between cardholders and the financial community, the acquirers and processors are the entities that create the bridge between the suppliers and vendors and the financial community.

The list goes on to include sponsor banks, and the buyers or the cardholders. Since we are concerned with Business-to-Business payments, we will discuss corporate purchasers. Finally, there is the Federal Reserve which is the facilitator of the payments — once the transactions are authorized and settled, it is the Federal Reserve that ultimately moves the dollars around and among the various institutions.

What is interchange?

It’s essentially the yield to the issuer of the card for extending the credit to the cardholder. It can also be understood as the interest paid by the recipient of the payment, in this case, the supplier. This principle applies to both consumer and business. It is important to note that interchange is just really one component of the supplier’s cost of card acceptance, which is in conjunction with assessments which is paid to the card brand as well the acquirer fees.

What impacts interchange?

Elements that determine an interchange include the type of card being used for the transaction. Whether it is a debit card or credit card, a consumer card or business card, if it’s issued by a foreign entity, if it has a special mileage program involved — the type of card directly impacts the nature of the interchange.

The time frame from when the transaction is authorized to when it is ultimately settled also has a direct impact on the interchange. In B2B, the transaction size is often paramount as many of the interchange rates are based on it.

Benefits of Blockchain to B2B process

B2B companies deal with unnecessary complications and high costs, and antiquated technologies only worsen them. The industry has steadily turned to blockchain for corporate payments, attracted by its promise of lowered costs and improved efficiency. These can be achieved by:

1. Economizing time

A blockchain network facilitates direct interaction between the payer and the payee by complete circumvention of intermediaries. Generally, going through intermediaries such as lawyers, red tape, logistics agents, and banks, slow the process and cause unnecessary transaction delay which may extend to weeks. Payments made using products such as HC Corporate Payment by blockchain company HashCash Consultants and cryptocurrency are done in a fraction of this time.

2. Lower costs by eliminating expensive third parties

Third parties not only lengthen the payment process, but they also come with added transaction fees at each stage. Smart contracts replace the need for relying on an external agent to validate transactions by automating business processes. Smart contracts are computer protocols that are triggered by meeting certain predefined circumstances.

3. Automate data processing

Data processing becomes efficient and error-free with blockchain. This has made distributed ledger technology one of the leading process improvement strategies for B2B companies. Blockchain enables real-time data processing and stores records of each process in an immutable ledger. The ledger is decentralized and distributed and can be accessed by every participant of the blockchain network for audit.

Conclusion

An ACI Worldwide report shows a high demand for real-time payment processor which is convenient, quick and available across channels. Blockchain covers all these areas and adds cost-efficiency to the equation. The B2B industry has caught on fast, and cryptocurrency payment processors are proliferating with this category of companies makes up one of its largest customer bases. Digital banking is undergoing a blockchain makeover which will soon see traditional systems for settling transactions pushed to the sidelines.