The latest global trend for businesses to issue commercial payments cards is great news for issuers. Wendy Atkins reports.
Look inside the average citizen’s wallet and you will probably find at least half a dozen cards: a loyalty card for the supermarket, a bank debit card, a couple of credit cards, an identity card, a library card and so on. But wallets are beginning to bulge even more, as increasing numbers of enterprises deploy commercial payments cards to their staff. This is welcome news for card issuers competing in an increasingly saturated consumer market.
Banks worldwide are targeting a raft of card initiatives at a wide range of businesses – from small firms to big corporates. And, although credit and debit cards remain the most popular, prepaid cards are gaining ground commercially.
These enable an enterprise to load and reload value using cash, a bank account or a card account (such as MasterCard or Visa). Employees can use the pre-funded card to buy goods and services, make purchases online, pay bills or get instant access to funds. Commercial prepaid cards are usually flexible, allowing enterprises to choose their own programme options – such as one-time load (similar to a gift card) or reloadable cards – to meet their needs.
New markets
For issuers, they are an interesting prospect, enabling them to penetrate new markets as replacement products. As Andrew Crowe, senior vice-president, global prepaid product at MasterCard, explains: “They can replace cheques, vouchers and cash disbursements, while helping reduce costs, improve processes, enhance security and provide new revenue opportunities.”
He adds: “Prepaid cards for corporate travel and entertainment enable companies to load value for travel expenses, restrict spending through merchant category codes (MCC), and have better control of administration and reporting. Furthermore, it means that employees don’t have to spend out of pocket.”
Although the prepaid market is fairly new, recent figures from Boston Consulting reveal the impact this type of payment card could have on the business market. According to its forecasts, corporate prepaid spending could reach at least $14bn by 2010 in Europe alone. “This is a category that has readily gained traction around the world and has significant upside potential as companies have started to use prepaid cards to monitor staff expenditure more rigorously than previously possible when using cash,” it said.
Beyond the enterprise prepaid market, demand for business debit and credit cards is also growing strongly. A survey of small business payment cards in the US by banking consultancy TowerGroup reveals that they offer card issuers the opportunity to offset the market saturation, revenue pressures and economic uncertainty associated with consumer cards.
American Express pioneered small business payment cards in the US and, according to the survey, now controls 40% of the market. TowerGroup estimates that the value of transactions in the US in 2006 was $168bn for small business bank cards. It expects that figure to rise to $320bn by 2009.
Corporate and P-cards
Also gaining in popularity are credit and debit-based corporate and purchasing cards (P-cards). “The difference between corporate and P-cards is in the level of controls and reporting,” says Rajiv Ramanathan, vice-president at Visa Commercial. “Corporate cards can be set up as either centralised or individual billing, while P-cards must be set up as centralised.” In addition, corporate cards give ATM access, while P-cards do not.
“Corporate cards are useful for travel and entertainment expenses because employees need flexibility when making such payments while they’re on the road,” he says. “As a result, they generally do not have single transaction limits or merchant category limits. P-cards, on the other hand, require much greater controls. Accounts can be set with both transaction limits and monthly limits and purchases are often limited to certain merchant categories or, in some instances, to specific vendors.”
Recent research from consultancy firm Aberdeen Group reveals the potential of this market, with the amount of spend being processed via P-cards increasing, driven by savings in reporting and processing costs. “The average cost saving per transaction via P-cards was about $20 – 70% to 75% lower than manual processing costs,” said Aberdeen in its report, Global Commercial Payment Cards – Cutting Costs and Boosting Control on a Global Stage.
Different drives
The research found the main aim of North American, Latin American and European enterprises in implementing P-card programmes is to cut transaction processing costs. In the Asia-Pacific region, however, enterprises are attracted to P-cards because of their ability to provide reporting and analysis data.
The report also reveals that annual spending by respondents worldwide on corporate cards for travel and entertainment expenses has increased by more than 20% between 2005 and 2006. The authors said that 70% of companies worldwide primarily implement corporate card programmes for enhanced visibility of spending.
Whatever drives businesses to use commercial payments cards is good news for card issuers in an increasingly competitive market. As TowerGroup’s research reveals, the bank card industry assumes that only 10% of potential transactions will come through the business payment card sector. The consultancy, however, estimates the potential small business payments market to be nearly as large as the entire consumer payments market.
