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Have Cards Become an Anachronism?
by Helen Sanders, Editor
Apart from, perhaps, James Bond-style briefcases full of crisp banknotes and pockets full of loose change, few payment methods are as ubiquitous as cards. No longer are cards simply something to keep in our wallets or handbags, they are now used across a vast array of corporate activities; for example, travel and entertainment (T&E) and purchasing cards (p-cards) have now been extended to cards for meetings and events, and virtual cards. Furthermore, corporate card programmes are no longer simply for the benefit of employees and their employers. With the growth of prepaid cards, companies are increasingly able to use cards as the basis of customer and distributor incentives, and the public sector for making benefits or social security payments.
However, despite the prevalence of cards, and their projected growth in the future, the pieces of plastic that clutter up our wallets (which are otherwise empty except for a long-lost car park ticket, a few foreign coins and low denomination coins that won’t go into a machine) are becoming virtually redundant in many cases. Furthermore, the diversity in the way that card programmes are used suggests that the concept of ‘cards’ is becoming an anachronism, and instead, we should simply refer more broadly to payment programmes. In this article, we talk to senior banking executives in North America, Europe and Asia, who are responsible for innovation in card programmes in their respective regions and globally.
Growth of commercial cards
Commercial cards, both T&E and purchasing cards, and new types of cards such as meetings and event cards, continue to grow in popularity amongst corporates of all sizes. Kevin Phalen, Commercial Card and Comprehensive Payables Executive, Bank of America Merrill Lynch explains,
“We have been seeing an acceleration of demand for card-based solutions over the past 12-18 months, both in traditional markets for cards, such as US and UK, and more widely across Europe and Asia. In particular, these companies are seeking to extend the automation, sophistication and convenience of their electronic payment capabilities.”
Jason Tiede, Asia Pacific Head of Wholesale Cards, Citi concurs,
“The growing use of commercial cards is part of a general migration to electronic payments, not least for supplier payments and travel/entertainment expenses. In particular, we see companies seeking to mitigate operational and compliance risk, reduce costs, enhance processes and create operating efficiencies.”
Wouter Versonnen, Head of Sales, Corporate Card Solutions, ING describes some of the key trends in corporate demand for cards,
“We listen to the markets, and based on the RFPs we have been receiving over the last few years, there are some clear trends in corporations’ requirements for corporate card programmes:
“Firstly, companies are seeking a single provider, either regionally or globally. In Europe, while incorporating CEE countries into a pan-European programme was a priority a few years ago, the focus has now extended further into the former Russian states and Middle East;
“Secondly, the traditional drivers of payment innovation: control, compliance and efficiency remain essential priorities. In particular, integration with ERP applications is critical, to facilitate straight-through processing and the exchange of the full set of information, to minimise the amount of manual intervention required and to maximise data integrity.
“Thirdly, prepaid card solutions and purchasing card solutions are increasingly requested by customers, typically as an alternative to petty cash, creating greater control and auditability of expenditure.”
David Rockliff, Managing Director, Global Commercial Cards & Travel Money Services, Global Transaction Services, RBS, illustrates that card adoption is also driven by local factors,
“Companies are focused on reducing the cost of payments processing, strengthening control and compliance, enhancing cash flow and working capital management. Commercial cards help to facilitate this by creating float and controlling expenditure more effectively.“In the UK, another driver is the continuing reduction in cheque acceptance. Cheques do not guarantee payment, are expensive and manually intensive to process. As cheques are set to be discontinued by 2018, there are significant incentives to migrate to commercial cards.”
However, while cards often represent a strong proposition for payments, there are potentially more challenges when accepting cards, as Kevin Phalen, Bank of America Merrill Lynch warns,
“Many clients, multinational corporates and public sector bodies alike, are becoming aware of the cost of acceptance of cards; consequently, they need to balance this with the convenience and value of acquiring goods and services with cards. These companies are therefore aiming to bring together buy and sell sides to ensure that both are adequately accommodated.
“This has been largely prompted by the growing synergies between accounts payable (AP), purchasing and accounts receivable (AR) within the business. While AP is seeking to increase card usage and generate higher rebates, purchasing and AR recognise the cost of card acceptance, and these same considerations also apply to suppliers.”
It is a very positive development that corporations are increasingly able to take a complete view of card usage and acceptance, as opposed to accounts payable and receivable having quite different goals, which may have a detrimental effect on the business as a whole. Furthermore, pressure from larger companies is likely to push down the cost of card acceptance over time. Otherwise, there is a risk of a ‘two-tier’ system whereby larger companies make payments using cards, but do not accept them, while their smaller suppliers are obliged to accept card payments and therefore effectively have to absorb most of the cost.