New payment channels fail to undermine bank enthusiasm for corporate cards
Banks remain as committed as ever to their corporate-card franchises, despite the emergence of new payment channels, including mobile-payment technologies that some argue could ultimately make cards redundant.
“New payment channels are raising the awareness of, and the acceptance of, a changing payment landscape, in both the supply and demand sides,” says Alejandro Stein, managing director of global commercial payments at Barclaycard.
Though the aim of new payment channels is often the elimination of cash – not cards – from transactions, cards have had to innovate to keep pace. “The corporate cards’ value proposition has been enhanced, especially as commercial cards move from plastic to virtual and buyer-initiated payments,” says Peggy Yankovich, global head of corporate cards at HSBC.
Corporate cards remain a fiercely contested space for banks. There is everything to play for as corporates look to simplify processes with a single card provider. “In some cases we are seeing a consolidation on to traditional corporate cards with expenditure responsibility targeted at the individual and the process audited accordingly,” says Stein.
“In other cases we are seeing a shift to e-payments and forms of central travel booking and business-to-business payments in order to take process and responsibility away from the individual.”
He adds: “The fact is that different customers respond to these challenges differently and they need a mix of solutions that provide them with control, convenience and good reconciliation capability.”
The consolidation of corporate-card arrangements has particularly important consequences, given their ever-broader geographical scope. In many cases, corporates are replacing a patchwork of separate deals across multiple locations with a single global solution as they respond to a shifting cost and risk landscape.
Companies are looking further afield for business opportunities, making global coverage of paramount importance. Five years ago, around 20% of corporate-card clients required global coverage, rising to 85% today, according to Kevin Phalen, head of global card and comprehensive payables at Bank of America Merrill Lynch (BAML).
It is therefore important to choose a card provider with a global footprint, ensuring cards will be accepted wherever they go, and that they meet the diverse technological and regulatory requirements specific to those local jurisdictions. Most obviously, US-based employees travelling in Europe need a card with chip-and-pin functionality as well as a metallic strip.
“We are constantly examining our fraud-detection capabilities and the way in which we service our customers,” says Stein. “The global nature of business travel means that we always need to consider servicing hours and the manner in which that service is provided, be that via telephone or self-service via mobile or web.
“As business expands globally, we are striving to deliver our service more locally.”
Rolls-Royce recently mandated BAML as corporate-card provider in a global deal, replacing a patchwork of separate deals in the many locations it operates in, having originally considered nine providers.
Rolls-Royce was unhappy with its former card provider and attributes this in part to an inadequate due-diligence process. In its original RFP, it only asked 10 questions, says George Castlehow, global process owner for employee reimbursement at Rolls-Royce, speaking at the recent Business Travel Show in London.
This time around it asked bidders 137 questions on issues ranging from the stability of the provider and coverage, to IT security and options for varying spending limits. “Cost was not the main driver,” he says.
By ensuring all employees that incur business expenses have corporate cards, corporates reduce the demand for cash advances and improve the quality of data they hold on expenses, allowing them to better manage costs and identify where money is being spent, says Rod Richardson, travel manager at The Wellcome Trust.
Having recently signed a new corporate-card deal with AirPlus, ensuring all the Trust’s business travellers have a corporate card, it has reduced cost leakage from around 8% to under 3%, says Richardson.
Where employees use personal cards to make purchases and later claim it back on expenses, management lose important data that can help them better understand where money is being spent, he says.
For many firms, management information (MI) data provided by the card issuers and credit card companies are becoming a deciding factor in provider selection. Even when they are not, having quality MI feedback is proving to add considerable value and increase client satisfaction.
“We weren’t even aware we wanted MI data, but have found it really useful since we had it,” says Richardson.
In many cases, simplicity reduces cost in the longer term, encouraging corporate-card users to stay on top of expenses, which reduces late-payment fees and increases rebates, says Ike Ihenacho, manager for global travel expense and meetings at Mondelez International.
A system that allows expenses to be filed as they are incurred means employees will be reimbursed quicker for any cash expenses they make, and reduces the time spent in the office filling in expense forms, he adds.
From a bank’s perspective, a global deal can present considerable challenges with regard to complying with local regulations, particularly in terms of data storage and privacy, says BAML’s Phalen. However, the goal is for these challenges to be tackled by the bank, ensuring the client does not have to think about local compliance or compatibility issues, he says.
Yet corporates that have been through the process of mandating a new card deal stress it is a time-consuming and difficult process. Rolls-Royce’s final selection of BAML was the culmination of a process that took 14 months, says Castlehow.
Creating a single, global, standardized deal is likely to make life easier from an administrative perspective, but might mean some jurisdictions end up with worse terms than they had before, which might create some pushback in some locations, warns Mondelez’s Ihenacho.
And while the ultimate goal is often a single, global deal to standardize card arrangements across jurisdictions, larger companies are likely to find a phased rollout the most practical approach.
“One key demand from clients is the acceptance of the cards by their suppliers, especially in remote locations,” says HSBC’s Yankovich. “It is very important to be able to comply with both technical and regulatory requirements across geographies.”
Rolls-Royce is in the latter stages of a three-phase rollout, with the UK and the Americas, excluding Brazil, given the new card first in November last year, Norway and Germany added on January 1, and Asia and the rest of the world scheduled for inclusion in April. Europe had originally been intended to move to the new arrangement in phase two, but had to be delayed.
Mondelez also phased in its new cards, with the UK and US getting them first, and Europe and parts of Asia coming in later.
The Wellcome Trust has aborted plans to fully automate its expense management system once, due to the cost and hassle of implementing these arrangements, though it aims to revisit those plans later this year. “It is not for the faint-hearted,” says Richardson.