Commercial cards have become so much more than a piece of plastic and 16-digit number that completes a transaction. Not only are they an important payment tool in a treasurer’s kit, but also the cornerstone of a working capital management programme.

Rolling out a commercial cards programme can bring multiple benefits to a corporate, particularly at a time when improving working capital, visibility and control over cash remain at the forefront of treasurers' minds.

Today, corporate cards are used for payment types outside the traditional travel and entertainment and purchasing card (p-card) space, expanding into business-to-business (B2B) spending to include meetings and events, procurement, fleet and fuel payments. They are also being used for larger transaction sizes than previously, which in turn has a greater impact on working capital cycles.

The main advantage of a commercial card programme is that it can help release cash by reducing days payable outstanding (DPO). Corporates are able to manage their payment cycle terms with the card issuer while paying their suppliers or vendors more quickly at the same time.

Mary Mazzochi, senior vice-president, global product manager at Wells Fargo, says: “With commercial cards, corporates can work to a monthly billing cycle and take a number of days to pay, depending on their overall DPO targets. Importantly they aren’t squeezing their vendors or suppliers, who can receive the payment faster via commercial cards than other payment types.”

In the current economic environment, where small companies are experiencing some difficulty in accessing funding, Nancy Atkinson, senior analyst at Aite Group, believes that suppliers have become more accepting of the card as a payment mechanism, particularly strategic suppliers of large corporate buyers. Many view the interchange fee as the cost of being paid faster.

Added benefits

But improved working capital management is just one of many benefits that can be gained by implementing a cards programme. Commercial cards also provide richer information about the payment, such as merchant code, the date and time of payment and who used the card to make the purchase. This provides additional opportunities for vendor negotiations and strategic sourcing, according to Ms Mazzochi. In addition, corporates are able to use the data to benchmark themselves against industry peers in terms of global spend.

Detailed information also lessens the pain of reconciliation, which can be a headache for both sides in the transaction. “We hear many complaints from suppliers about reconciliation nightmares,” says Bank of America Merrill Lynch’s (BAML's) head of commercial cards for global transaction services, Europe, the Middle East and Africa, Mel Gargagliano. “Some corporates pay bundles of invoices via cheque or another payment method, such as an automated clearing house [ACH], direct debit or wire, without including the data needed to establish which invoices the payment covers.” She adds that much of the increased card popularity in the US and Canada is connected to the desire to eliminate cheques.

While corporates want to streamline and ‘electronify’ the manual invoicing process, thereby easing the pressure on the back office through greater efficiency and cost reduction, they are also interested in greater control and visibility over cash flows. “Companies can use commercial cards to control and centralise spend to a person – for example, they can set amount limits and only authorise purchases that are linked to specific types of categories,” says Philip McHugh, CEO of Barclaycard Business Solutions.

Another benefit comes from an area that many would not necessarily associate with corporate cards: foreign exchange [FX] risk. While cards are not considered to be an FX risk management tool, according to Manish Kohli, global head of commercial cards at Citi, corporates can use these programmes to negotiate a spread for low-value payments on a global basis.

“This removes unpredictability around FX in a remote country at a rate not agreed or negotiated, and brings financial efficiency and other benefits. It also gives clients the ability to settle in currencies of their choice, such as those that they hold cash positions in,” he explains. “Citi has clients with sophisticated processes in place to look at FX flows in light of commercial card programmes and use it specifically for managing FX risk.”

A virtual shake-up

While commercial cards have not yet experienced the same level of disruption as in the retail payments space, there are three innovations that are gaining traction: virtual cards or accounts, tokenisation and self-service functionality.

With virtual cards, companies no longer need a plastic card for every individual employee or business unit; instead a number is generated and assigned to a particular supplier or department. “The benefit of virtual cards is that a company doesn’t have to issue cards, nor worry about card fraud or keep tabs on the card to ensure it hasn’t been stolen,” says Ms Atkinson. “We are also seeing higher spend put on virtual cards than plastic ones, as the latter are used mostly at the point of sale.”

Richard Crum, global head of travel and entertainment at MasterCard, believes that the biggest accelerator of growth in the B2B space has been due to the introduction of virtual cards for all types of payments, with the ability to link back to the invoice. “Being able to efficiently generate virtual account numbers from an ERP [enterprise resource planning] system is even replacing the classic p-card within the department or division,” he says. “Virtual cards have given us the ability to deliver on many things that customers, corporates and small businesses have asked for – for example, better data that they can action and greater ease in matching invoices to payments in reconciliation.”

Mr McHugh agrees. He uses the example of a Barclaycard client, an insurance company, which has a number of large suppliers that it pays frequently as well as a long tail of small service providers, such as tow truck drivers, carpenters, painters, etc. Previously, these small firms or independent contractors had to write out and mail in a paper invoice and then wait for reconciliation to happen before being paid. Today the tow truck driver creates an online invoice. The insurance company returns the approved invoice with a one-off virtual credit card number, which the driver inputs into the system, and the invoice is then easily paid and reconciled.

In the travel and entertainment space, Wells Fargo is rolling out virtual accounts in partnership with Visa. “If a company employee without a card books an airfare or hotel through a participating travel agency, the vendor can obtain a virtual account number that is good for the total value of that purchase. It is locked down and secure, and the data is then sent back to company as part of a total reconciliation file,” says Ms Mazzochi.

This tool is useful to an oil services company, for example, that may have to rapidly deploy employees to service oil rigs. “Previously, a manager would put all the charges on their card or use a central account, but it was difficult to identify who the passenger was. Virtual accounts display all this information and companies see a huge value in that data,” she says.

A token game-changer

Many view tokenisation, which is the process of substituting a separate unique identifier for the actual credit card number, as a game-changer in the card space. “At MasterCard we talk about value of tokenisation – or taking the card credentials and making them more secure – to minimise the risk of breaches, particularly when associated with specific devices or merchants,” says Mr Crum. “But the tokenisation capability goes far beyond making payments from my mobile device. That may be the first time a consumer will experience it in their lives, but the ability of tokens to create an incredibly secure payment environment, one that disappears into the background, is phenomenal.”

In October, MasterCard announced that it would provide tokenisation services to commercial credit card issuers, so that they and their customer cardholders can take advantage of the security and digitisation of card credentials within participating mobile and digital wallet services.

As the industry evolves, Wells Fargo will also look at tokenisation from a mobile payments perspective, according to Ms Mazzochi. “There is a lot of hype around Apple Pay and Samsung Pay, and we have our own flavours on the consumer side. As the commercial card industry changes and begins to adopt this new payment mechanism, we plan to take advantage of it as well as to support our customers in a mobile environment.”

Self-service demand

The demand for more self-service capabilities is the third trend that is driving innovation in the commercial card space. For example, BAML rolled out its online PIN check globally 18 months ago, pre-dating the mandated move to the Europay, MasterCard, and Visa (EMV) standard in the US. “This was aimed at employees who didn’t need a PIN in the US and Canada but travelled to the UK and other jurisdictions where PINs were required,” says Ms Gargagliano. “With this tool, a customer can log on to the portal, authenticate with security information and obtain their PIN. In the case of a card being stolen while travelling, they don’t have to wait for a PIN to be sent out in order to use a replacement card.” The bank developed this functionality based on client feedback.

EMV implementation prompted Wells Fargo to let commercial cardholders self-select their PINs so that they can better remember them. Additionally, the bank launched the ability to add extra online authentication through 3D Secure, supporting both MasterCard SecureCode and Verified by Visa.

“An extra security level has taken off in other markets, but is not yet a requirement of commercial card issuers in the US. Based on other markets’ experience when rolling out EMV, we knew that while counterfeit fraud at the point of sale went down, online fraud went up,” says Ms Mazzochi. “We decided to add additional online authentication capabilities in advance of the market adopting EMV in order to protect that channel as well.”

Wells Fargo also launched a payment optimisation analysis tool that provides insight into the right payment type for the right supplier at the right time. “It takes into account discounts, frequency of payment and contract terms, and then gives our customers a view of the optimal payment mix,” says Ms Mazzochi. “It’s not only about commercial cards, but about the best payment method for the particular transaction.”

Potential disruptors

Ms Gargagliano identifies mobile as a potential disruptor in commercial cards and is excited by the prospect. “We knew that the whole landscape would shift when Apple launched a mobile payment product,” she says. “On the consumer side, we are working with Apple and others on Apple Pay. But as yet we aren’t seeing demand from commercial card clients – but if it makes sense for our clients, then we will investigate rolling it out.”

Mobile should be viewed more as an enabler than a disruptor, according to Ms Mazzochi. “It is just a different way to look at cards on a mobile device versus actual plastic,” she explains. In terms of disruptors, she points to some movement from card to ACH, particularly with the introduction of real-time ACH. She believes that blockchain technology is interesting, but is not sure how this will play out from a commercial card perspective. Ms Atkinson agrees, both on the role mobile will play as enabler well as blockchain’s potential as a market disruptor.

“As blockchain capabilities are embraced by banks and payments infrastructure providers, some of the advantages the card networks have held to date will be diminished,” she says. “Blockchain can provide non-card-based payments with near-real-time clearing and settlement, which is superior to cards’ two-day settlement.

“Furthermore, blockchain may evolve to provide worldwide reach easier than the current correspondent banking model to provide payment ubiquity, whereas cards rely on merchant acquirers to expand card acceptance.”

Mr Kohli is pragmatic when it comes to new technologies and new entrants in the commercial card space. “We have lots of technology players that are both disruptors and enablers of efficiency in the market," he says. "We are particularly excited about those companies working on consumer mobile solutions, tokenisation and supporting ancillary flows to travel and entertainment. We welcome their work because it is aligned to our own mission agenda and helps create more holistic solutions for our client base.”

Future trends

Mr Crum believes that there are two major trends coming to the fore. The first is around the idea of integration. “How do we move from payments in the commercial space being card-like to a world where payments are completely integrated into ecosystems and technology platforms, so much so they almost disappear from view?” he asks. “The integration of payment rails and products in the commercial space into the ecosystem is a trend today and will continue across all the different elements of commercial.”

Personalisation or customisation down to the individual cardholder user level is the second major trend developing, according to Mr Crum. “We can think about it in terms of generations, where the first generation was the old physical, knucklebuster, pieces of plastic, raised numbers and carbon copies, and the second generation moved the commercial card into the electronic age," he says.

“As we move into the third generation – digital – it opens up enormous opportunities for us to create products and solutions for customers that are highly personable and adaptable for individual users in all spheres that corporates operate in.”

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter