Creating Synergies through Commercial Cards and Payments Innovation

by Catherine Moore, Head of International Cards, J.P. Morgan Treasury Services, EMEA

As this Guide has illustrated, there are numerous reasons for procurement and treasury to work together more collaboratively, and the opportunities for doing so are increasing. As we have discussed, there remain some challenges, not least the fact that the two business functions typically have different objectives and performance metrics. The use of commercial card programmes can make a major contribution to achieving the objectives of both procurement and treasury, enhancing payments efficiency and working capital whilst supporting rich information on supplier payments and facilitating strategic supplier relationships.

Benefits of commercial cards

Commercial card programmes will be familiar to many multinational corporations, from travel & entertainment (T&E) cards to meetings and events (M&E) and purchasing cards (p-cards). The implementation of a card programme may be driven by finance, such as treasury, or by procurement, with benefits extending across both business functions:

Benefits to procurement

• Business expenditure can be restricted or blocked according to type, amount or specific merchant category, enabling employee expenses or procurement spend to be controlled and monitored;
• The invoice and approval process for payments is straightforward, with a high level of auditability;
• Card payments are supported with high quality reporting, enabling procurement to negotiate better terms with key suppliers.

Benefits to treasury

• Suppliers are paid immediately, while the company benefits from the ‘float’ period between the transaction date and the card balance payment;
• Individual supplier payments are replaced with a single payment for the card balance, reducing the number and cost of payments;
• Improved invoice and approval steps increase the integrity of financial processes;
• Card payments are supported with reference data to facilitate automated posting and accounts reconciliation.

Other benefits

• Employees benefit from convenient management of expenses or company purchasing, without the need to use personal cards or cash.

Consequently, implementation of a commercial cards programme can be a valuable means of achieving both business functions’ objectives and facilitating the flow of information. These in turn enhance financial processes, such as reconciliation and account posting, as well as purchasing decisions and can be seamlessly integrated into an existing financial infrastructure. Many companies have become increasingly focused on streamlining end-to-end processing. Card programmes support these data integration objectives across systems and business functions, together with the ability to deliver a common front-end across regions and different types of user. [[[PAGE]]]

Extending regional and global synergies

In many cases, companies have implemented card programmes in a particular country or region, or separate programmes exist in each location. The drawback of this approach is that the technology platform, business processes, reporting and employee experience may differ across regions, creating fragmentation and inconsistency. However, as both procurement and treasury have become increasingly centralised with regional and global business functions, the potential also exists to implement regional or global card programmes to bring a consistent platform for expenses. This approach enables the benefits of an efficient, automated cards programme to be expanded regionally or globally, therefore supporting a global treasury and purchasing strategy. Successfully implementing a global or regional commercial card programme is dependent upon a card issuer’s geographic footprint matching that of the organisation as well as a consistent approach across both parties to technology and solution deployment globally.

The use of commercial card programmes can make a major contribution to achieving the objectives of both procurement and treasury.

Opportunities for prepaid cards

J.P. Morgan has proven capabilities in developing and delivering card solutions that support clients’ regional and global financial and procurement strategies. These include not only purchasing cards and T&E cards, but also prepaid cards. These are proving increasingly popular not only in North America but also in Europe and Asia. Prepaid cards are typically associated with sales, marketing and distribution initiatives, such as for customer, distributor and employee payments and incentives, but there are also advantages for those issuing payments that may currently be made with cash or cheques. These payment methods are often expensive, difficult to control and audit, with a high risk of fraud, loss or error. Replacing these with prepaid cards, particularly for unbanked employees or beneficiaries (such as for government or council payments) or even payments to suppliers can bring significant benefits. Payments are straightforward, convenient and better controlled, without the need to maintain counterparty payment instructions, therefore again satisfying the needs of different business functions.

Emerging initiatives

There is a variety of new and emerging initiatives in electronic payments that have the potential to enhance further the synergies and objectives of procurement and treasury. One such opportunity is the growing use of mobile devices for financial transactions. For example, in emerging markets, mobile penetration is often far higher than online access or banking inclusion. In Kenya, 13.5 million adults or over 70% of the population are registered for mobile payments through M-PESA while only 4 million have bank accounts. During 2010, nearly 25% of Kenya’s total GDP was transmitted using mobile technology. This technology is extending into other emerging markets, but the ability to use convenient devices to make secure payments without the need for physical cards is also likely to increase in the developed world, leveraging the prevalence of mobile devices.

Another development to the use of cards for making payments is the growth of virtual cards or single use accounts. These can be used for a single transaction or multiple uses as required. Instead of using a physical card, a user or system can request a virtual card number with controls on amount, transaction type and supplier(s) according to each user’s rights. This number is then created in real-time to transact a purchase. The transaction is then authorised and cleared in the same way as a physical card payment, with both supplier and purchaser receiving comprehensive information about the transaction to be integrated into in-house systems. Single use accounts offer a variety of advantages, such as:

• Authorisation on purchases can be undertaken before the transaction is made, enhancing controls:
• Restrictions over transaction amounts, purchase type, user and authorised suppliers can be very detailed, ensuring that purchases are made according to procurement policies:
• Reconciliation and reporting on each transaction is enhanced with the use of custom data fields:
• The unique card account number generated is virtual, eliminating the need for paper-based transactions and reducing administrative costs;
• The potential for fraudulent use of card details by third parties is reduced as the company’s real card number is not given to suppliers.

Consequently, along with prepaid cards, mobile technology and other innovative types of electronic payment, single use account programmes have the potential to create even greater synergies and fulfil the objectives of procurement and treasury functions globally. J.P. Morgan’s commercial card programmes support the needs of a wide variety of clients, from government departments with high volumes of domestic card transactions to multinational corporations with regional and global programmes. Our bespoke approach is designed to support our clients’ strategic sourcing, operational and financial objectives, both today and in the future, leveraging proven technology, processes and data integration.