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.[[[PAGE]]]

Pressure from larger companies is likely to push down the cost of card acceptance over time.

Evolution of prepaid cards

Prepaid cards are one of the more exciting payment innovations in recent years, which again are enjoying greater adoption, as Kevin Phalen outlines,

“The trend in prepaid cards is similar, with a considerable acceleration in adoption. There are also new emerging applications for prepaid cards. For example, the fiscal crisis has resulted in US state governments seeking to minimise the cost of manual processes, and move to prepaid cards for tax payments. In Europe too, there is pressure on government bodies to reduce administrative costs, so prepaid cards are becoming increasingly attractive for pension payments and other disbursements. In Asia, where fewer legacy issues apply, the growing demand for prepaid cards is closely linked to innovation in mobile integration.”

David Rockliff, RBS agrees,

“We are seeing a demand for prepaid capability, such as for benefit payments within the public sector. In addition, there may be further benefits by using variations on this, such as declining balance cards.These cards ensure the same degree of control over expenditure, but avoid the challenge of large balances left on cards that can impact on working capital.”

What is interesting about prepaid cards is the diversity of their use, which makes them a very attractive means of managing very specialist forms of payment. For example, staff or distributor payments, marketing incentives, petty cash, pension or benefits payments can all be managed efficiently with greater control than using cash or vouchers, and in economies where the use of cash predominates, prepaid cards can bring significant benefits. In Asia, prepaid cards are proving particularly successful, as described by Jason Tiede, Citi, 

“Citi was a pioneer of prepaid cards in Asia. We launched in 2010 and have already extended our capability across six markets, with many more to follow.The opportunities for companies to take advantage of innovative prepaid card programmes to attract and retain customers, increase brand recognition, and to pay employees, distributors and agents, are boundless and we see significant interest from companies seeking to take early mover advantage.” 

Local, regional or global?

With corporations of all sizes leveraging card programmes to help increase control and auditability over expenditure, enhance working capital and create economies of scale, success in achieving these objectives often comes at a price. In particular, in-country programmes may have proliferated, leading to difficulties in standardising processes, platforms and information at a regional or global level. Alternatively, companies that have undergone mergers or acquisitions may find themselves with incongruent programmes that cannot easily be integrated. Consequently, there is a strong trend towards implementing global commercial card programmes based on a common platform, with standard processes that can be managed through a shared service centre. As Kevin Phalen notes,

“It is now rare that multinational corporations do not look for global card solutions. Two or three years ago, perhaps 20-30% of clients were seeking global card solutions. Today, this figure is over 90%. Multinational corporations are seeking to consolidate their disparate card programmes into an end-to-end solution across their various purchasing activities with a single provider.”

Jason Tiede, Citi, continues,

“A key value driver for corporations leveraging a commercial card programme is achieving greater consistency across regions, and indeed globally in their treasury and procurement functions. We are increasingly seeing companies manage their commercial card programme through one SSC (shared service centre), and they expect their bank to be able to provide a consistent card platform, data integration and cardholder experience across all countries in a seamless fashion.”

There is a strong trend towards implementing global commercial card programmes based on a common platform.

However, issuing banks are divided in the ways that they deliver integrated card programmes on a global basis. In some cases, such as Citi, there is a preference for direct issuance in each country, so programmes  are delivered by a single provider. Other banks, such as RBS, leverage a partner network, as David Rockliff, RBS describes,

“RBS is a direct issuer of cards in countries such as the UK, US, Netherlands and Ireland, and works with our Zenix Card Alliance, a partner network that includes Nordea, UOB, Societe Generale, Deutsche Bank and HDFC in the relevant jurisdictions. This provides the geographic coverage that our clients require, whilst providing a cohesive service through a single online portal, Smart Data Online.”Wouter Versonnen, ING emphasises that diversity across countries means that a local approach to delivering solutions is still required, with technology providing the necessary integration and standardisation,

“Europe is still a patchwork of languages, currencies and systems, which creates challenges when seeking to implement a consistent card or payment solution across the region. This is particularly apparent amongst banks that are still struggling to consolidate and standardise their technology, products and processes following acquisitions in recent years. The key to success is typically to have local solutions that meet the need in each market, with a technology overlay creating the streamlined processes and consistent data that companies require.”

 Kevin Phalen agrees, describing Bank of America Merrill Lynch’s approach,

“When implementing a global programme, we look first at the client’s global needs, such as reporting, management and processes, and address these first of all. Then we drill down into the specific regional and in-country requirements, such as local support or language capabilities, and deploy local resources and solutions accordingly. These may be provided directly by Bank of America Merrill Lynch, in countries where we provide direct issuance, or with a partner bank, which works within the overall programme and provides Bank of America Merrill Lynch with the relevant data, reporting etc. to facilitate a global view. For example, in Europe, we are one of the largest card issuers through MBNA, with significant infrastructure to support programmes across the region. In Asia, we partner with UOB in six countries, which supports our clients’ local needs whilst providing standard data to us for global reporting and programme management. In some countries, we need to work with local partners, such as in China, where card issuance licences are available only to national banks. However, clients still benefit from the same technical platform, programme management tools and reporting.”

In Asia, differences between countries can create particular challenges as Jason Tiede, Citi explains, 

“There are inevitably some complexities when delivering programmes in Asia, mainly due to the fragmentation across the region. For example, different currencies in each country, diverse regulations, multiple language requirements and double byte transactional data (in China, Taiwan, Korea and Japan) all create challenges. These issues make it even more important to work with a single bank across the region that can reduce the impact of market fragmentation by ensuring a consistency of experience based on a common platform, whilst remaining compliant with local requirements in each country.”[[[PAGE]]]

A global approach to processes and technology is also required for prepaid cards, but the value proposition is typically more specific to particular geographies and business applications, so there is a greater focus on custom tools, as Jason Tiede, Citi suggests, 

“While prepaid cards programmes still benefit from a global processing platform, the value proposition is in the multiple ways the programme can be customised according to the specific needs of each organisation.  This customisation includes corporate branding of the card package, bespoke cardholder websites and enhanced payment notification channels.” 

Addressing cultural diversity

Although there is now growing demand for global commercial card programmes amongst multinational corporations, in terms of platform and processes, that  also satisfy in-country or regional requirements, the implications of this extend beyond the financial infrastructure and regulatory environment. For example, there are often significant cultural differences in the expectations and familiarity with the use of cards, as Jason Tiede, Citi outlines, 

“One issue is individuals’ familiarity with commercial cards in Asia compared with North America and Europe. Executives in these regions are comfortable with commercial cards and expect to use them for T&E or other business expenses. In Asia, executives have traditionally been accustomed to using their personal cards, through which they may accrue various benefits. In order to transition to a commercial card solution, the value proposition to both the corporation and the cardholder must be balanced and clearly articulated. Helping companies understand the benefits, such as a 20% reduction in T&E expenses or savings of USD $70 per vendor payment (compared with a manual payment) is usually very convincing. 

“However, executives in Asia also have different expectations of commercial card programmes than their European or North American peers. For example, as use of mobile technology in Asia has become ubiquitous, often ‘leapfrogging’ technology trends in other regions, executives’ expectations of communications technology and how this is integrated with a cards programme, are often quite sophisticated.”

Consequently, multinational corporations considering rolling out a global card programme need to work closely with their provider to ensure that cultural issues are taken into account when planning how the programme will be sold internally and delivered, to achieve maximum adoption, even if this results in temporary differences across regions.

A question of definition?

Card programmes now have many manifestations, from traditional T&E and purchasing cards through to single card number use or virtual cards, declining balance cards and those for specific projects such as meetings and events cards. Consequently, is it realistic any longer to refer to these payment programmes as ‘card programmes’ bearing in mind this diversity and the fact that a physical card may barely feature at all? With so many different titles, descriptions and business applications, there is a risk that these programmes appear inaccessible or too complex, when the value proposition should be the opposite. This is the concern raised by Wouter Versonnen, ING,

“With a variety of cards now available: T&E, purchasing, virtual cards, etc. there is a risk of over-complicating the value proposition or the solutions that are available. In reality, the value proposition of managed payment solutions is their simplicity and ability to reduce complexity, manual intervention and administrative processes from the payments process.”

Instead, he argues, cards should be considered simply as another form of payments, 

“Banks typically do not differentiate their card solutions through pricing or product, as this advantage is short-lived. A major differentiator for ING is our payments technology. In many ways, the concept of ‘cards’ is already outmoded: while in Europe there is still a tendency to think of cards as a plastic item, this is changing, and it is more accurate to refer to card programmes as examples of managed payment solutions. For example, virtual cards with one-time card numbers, that do not have a physical card, are already extending the concept of ‘card’ solutions. Furthermore, with a growth in initiatives such as mobile payments, the potential for innovative payment solutions is continuing to increase.”[[[PAGE]]]

Evolution and innovation

Indeed, when considering how card programmes may evolve in the future, it is this emphasis on efficient, convenient payments that will ensure their continued appeal. Bank executives outline a variety of new developments in card, or managed payment solutions in the future. Jason Tiede, Citi, argues that the trend to roll out programmes eastwards is already changing, 

In Asia, differences between countries can create particular challenges.

“While commercial card programmes have historically been implemented first in North America, then Europe and lastly in Asia, we are now observing the opposite trend, with Asian-based companies  implementing card programmes first in Asia and then spreading West as their organisations expand to the US and Europe.” 

He also envisages a growing trend towards card adoption in Asia, leveraging the cost and efficiency advantages enjoyed by companies in other regions, not only for T&E but as a way of streamlining payments processing more generally,

“Further to the global financial crisis, finance executives are increasingly recognising the value of cards for making supplier and vendor payments, particularly payments of USD $3,000 or less. With the processing costs of purchase orders, invoices and paper payments often amounting to USD $100 or more, there are significant cost benefits in migrating these payments to a card solution. Indeed, increased use of cards for supplier payments by government agencies, both in the United States and locations such as in Hong Kong and Singapore has fuelled greater acceptance of cards amongst suppliers.”

David Rockliff, RBS anticipates that the need for high quality data relating to payments will be a major factor in ensuring the continued appeal of cards, 

“Card programmes will continue to evolve – for example, we are now seeing huge opportunities for virtual cards, with developments such as one-time card numbers. When Thomas Cook had a major issue reconciling payments to low-cost airlines. RBS implemented a programme where each transaction had a unique reference, which was used by Thomas Cook, enabling automated reconciliation.”

Kevin Phalen, Bank of America Merrill Lynch, supports this view, emphasising data, collaboration and interoperability,

“In the future, we anticipate that developments will relate primarily to the quality and timeliness of data related to payments, with enhanced collaboration between buyer and seller using this data. Consequently, we expect to see related solutions such as eInvoicing developing further and becoming more closely aligned with card solutions. Greater integration of payments into mobile telephony will also result in significant innovations in the coming years. There is considerable progress under way and we would expect to see solutions emerging in the US in the next two to five years, and possibly more quickly in other regions where the infrastructure issues are less complex.”[[[PAGE]]]

Integration and co-operation are also the themes picked up by David Rockliff, RBS,

“We are also seeing an increase in e-payables networks, enabling large communities of buyers and suppliers to use Visa or MasterCard-branded purchasing cards to make payments. Each company knows that its customers or suppliers are able to transmit or accept payments using cards, which in turn makes it easier to do business across the community.”

Prepaid cards are likely to grow in popularity as a more secure, convenient and auditable alternative to cash.

Wouter Versonnen, ING describes how as card, or managed payment solutions extend their value proposition, the number of stakeholders in buying organisations increases, which will change both the way that banks and corporates work together, and how departments co-operate,

“With the evolution of new types of card solutions, banks have to extend beyond their traditional treasury and finance audience and embrace the needs of purchasing and HR, whose requirements and expectations may be different. Technology will continue to be an important enabler in satisfying the needs of different groups within the client organisation, and delivering payment solutions that are tailored to each client’s objectives.”

Cards will have a major role to play in corporate treasurers’ and finance managers’ future efforts to streamline payments processing, optimise working capital, control expenditure, create economies of scale and make it easier for consumers and organisations to do business with them. Prepaid cards too are likely to grow in popularity as a more secure, convenient and auditable alternative to cash.

Integration of payment processes into mobile applications is fast becoming an expectation of smartphone and tablet users, and companies with a direct retail customer base, most obviously utilities, telecoms, and retailers, and virtually every consumer product and service should already have a well-defined strategy in this area. Indeed, the B2B community should not be far behind as purchasing and sales organisations increasingly seek to leverage the same tools in business as they do for their personal business.

But if card programmes will continue to be a major part of companies’ payments and working capital strategy, plastic cards themselves are rapidly becoming an anachronism, at least for commercial cards, if not for prepaid cards. It is not difficult to anticipate that most payments under a certain limit, perhaps a few thousand dollars, will soon be made using cards, and it is undoubtedly in companies’ interests to use card programmes for as many payments as possible.

The hurdle continues to be the cost and potential inconvenience of card acceptance, and as developments in supplier-customer collaboration, integration with other forms of technology, such as mobile telephony, and the quality of payments data continue to develop, it will be critical  that the needs of card acceptors, as well as card users, continue to be a priority.