Published: August 09, 2010
What Matters Today
In this penultimate article in J.P. Morgan’s series on the issues that matter most to treasurers today, we explore trends and opportunities in the use of global commercial card programmes including travel and entertainment (T&E) and purchasing cards. Looking back on the series so far, we have focused on risk management, efficiency, bank relationships and supporting a sustainable liquidity strategy. Taking full advantage of a global commercial card programme can contribute positively in all of these areas, providing the control, visibility and efficiency processes that finance managers are seeking.
As we have seen in previous articles in this series, companies of all sizes are seeking to make financial processes more efficient and manage working capital more effectively. An important element of these initiatives is to optimise the financial supply chain, from order-to-cash (collections) through to purchase-to-pay (payments). Enhancing collections is often the more difficult of the two, as many elements are outside a company’s control; however it is easier to make improvements in purchase-to-pay processes and drive immediate benefit. Introducing or expanding the scope of existing commercial card programmes can be a valuable way of achieving this, both with T&E and purchasing cards. Furthermore, companies that have established card programmes in different countries are often now seeking to rationalise these programmes into a regional or even global card programme with a single provider to leverage the benefits even further.
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Adoption of T&E corporate card programmes has grown significantly in recent years as a way of supporting and automating expense submission, approval, processing and reporting. With T&E representing between 1.5% and 3% of corporate spend for many multinational firms (Source: MasterCard) it is also one of the most controllable areas of spend. These programmes ensure compliance with T&E policies and therefore control over T&E spend, deliver enhanced information for reconciliation and account allocation and automate the expense process.
Once T&E card programmes were established, they were followed shortly by purchasing cards which provide similar benefits but across a wider range of company purchases. Users of purchasing card solutions were soon using cards not only for ‘petty cash’ purchases, but also for large ticket items, leveraging the control, efficiency and reporting advantages more fully and earning higher rebates.
Early programmes were supported by technology platforms which were rudimentary by today’s standards. Card programmes today, provided by banks such as J.P. Morgan, are based on state of the art technology as a fully integrated element of the bank’s electronic banking platform. Customers now have the ability to track expenditure in detail and analyse where greater efficiencies can be achieved, establish highly detailed policy compliance controls and leverage supplier relationships to achieve economies of scale.
There is a growing trend amongst companies globally towards implementing card programmes. In the United States, for example, where the use of cheques is still prevalent, we are seeing rapid growth in the use of electronic payment methods, and card programmes are a highly advantageous way of automating payments within a controlled environment.
As multinational companies further centralise financial processes and extend the scope of shared service centres (by both function and geography) there is increasing demand for consolidating single-market T&E and purchasing card programmes into regional or global programmes. There are a variety of reasons for this:
i) By working with a single provider, there can be greater consistency in cost structures and service levels, and the time taken to manage bank relationships is reduced.
ii) By using a single platform, a company’s internal processes can be standardised and global visibility achieved more easily.
iii) A global programme ensures adherence with a company’s T&E and purchasing policies in a consistent way.
iv) There is the potential for greater economies of scale, both by reducing the cost of internal processing and in negotiations with suppliers.
v) By having greater control over expenditure and the timing of payments, a company can manage working capital more effectively.
vi) The payments process itself is streamlined, reducing the number of manual payments and the associated costs and processing requirements.
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A global banking partner
The shift from single-market to regional or global programmes has significant implications for providers. Few banks have the combination of global reach, local expertise and a single, integrated technology platform to support programmes that satisfy their clients’ multinational card requirements. Banks such as J.P. Morgan have developed a highly cohesive strategy to support their global clients. In most countries, J.P. Morgan provides card services directly to their clients, while in others, they work with carefully selected alliance bank partners that provide best-in-class solutions and services. Clients have the option to maintain a direct relationship with the alliance partners, or work solely with J.P. Morgan who acts on the client’s behalf. This flexibility of approach is an important element in delivering a client-focused service that meets the financial and cultural needs of our clients. The objective is to deliver the advantages of a local programme, in terms of on-the-ground expertise, with the benefits of a consistent global solution.
Ensuring global card acceptance
One of the challenges we often see with local programmes, particularly those provided by a local bank, is overseas acceptance. This becomes an even greater issue with regional or global programmes, which can only be successful if cards are universally accepted. If cards are not accepted in the countries visited by employees, employees may have to use an alternative payment method, which is inconvenient for them, and the resulting expense claim may need to be processed manually. This is time-consuming, lacks the enhanced management information which is provided within the card programme and raises the risk of non-compliance with the company’s T&E and purchasing policies. Therefore, J.P. Morgan works with Visa and MasterCard, whose cards have global acceptance, without the disadvantages of in-country debit card or closed loop card schemes.
Corporate treasurers have not only sought to extend T&E and purchasing card programmes geographically, they have also increasingly looked for programmes that combine both T&E and purchasing within a single programme. Single source programmes or ‘One Cards’ are gaining momentum as companies recognise the benefits of greater cohesion, including:
Ownership and accountability – rather than maintaining separate banking relationships for each programme, companies can work with one account management team and a single set of contractual and commercial terms, and a consistent approach to data aggregation, policy controls and processes.
Standardisation – by working with a single programme across regions, companies can take advantage of greater data consolidation, rebate and leverage opportunities.
Single platform – A single source programme uses single technology platforms, enabling easier implementation, usability and integration with in-house systems.
There are a number of factors that are likely to encourage a growing number of firms to adopt card programmes, including global and single-source programmes, and increased levels of spend amongst companies that have already adopted these schemes.
There is increasing demand for consolidating single-market T&E and purchasing card programmes into regional or global programmes.
The development of card security is one such factor. Chip and PIN technology is prevalent in Europe as well as various countries in Latin America and Asia and will become mandatory in Canada by the end of 2010. Expanded adoption of this technology will increase risk controls further and encourage greater confidence in card transactions.
As regulations around payments become more consistent in Europe with the Payment Services Directive and SEPA payment instruments (i.e. SEPA Credit Transfers and SEPA Direct Debits), there is likely to be greater adoption of card programmes in Europe as companies use SEPA migration as an opportunity to centralise, standardise and optimise their financial processing.
Finally, and perhaps most importantly, enhancing efficiency and control across the financial supply chain will continue to be a priority for many companies, including T&E and purchasing. This does not only apply to the largest MNCs, but smaller companies too can leverage the benefits of an optimised financial supply chain as technology becomes more readily available and affordable. Global card programmes bring significant potential to enhance companies’ purchasing process and optimise T&E spend. Companies that embrace the advantages of a global card programme have the ability to reduce costs, increase efficiency, enhance visibility and drive significant competitive advantages.
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