A Framework to Evaluate Commercial Card Programs
Large private and public sector organizations typically use an RFP process to select commercial card providers. Issuers’ responses to RFPs are typically scored based on several key criteria such as issuer’s qualifications, features of the online card management systems, program fees, and revenue sharing terms. These criteria are weighted; and the winning bid is determined based on the overall score. However in many cases, organizations do not adequately perceive appreciable differences between issuers’ products and services. Therefore, the deciding factor in such bids defaults to revenue sharing offered by issuers. This outcome is usually disadvantageous to both issuers and organizations – issuers’ profitability is eroded and organizations may select suboptimal products.
First Annapolis conducted a survey in July 2012 to study patterns in payments among organizations. This survey was conducted independently with promotional assistance from NAPCP. The 44 respondents were commercial card users or administrators from a wide range of industries including Healthcare, Technology, and the Public Sector. A key insight is that although revenue sharing is generally an important factor to end user organizations, other criteria that improve the efficiency of the payments process are also significant.
Figure 1: Key Insights from Survey of End User Organizations
The End-User Organization’s Perspective:
In the survey mentioned above, respondents were asked to weight criteria that affected their issuer selection and card usage to estimate their relative importance. Figure 1 shows that revenue share is the most important factor that affects issuer selection. However other factors such as processing savings and spend control are more important than rebates in driving organizations’ card usage.
Figure 2: Issuer Segments
The Provider’s Perspective:
Figure 2 shows the broad segments into which issuers can be grouped. Although Segment D is more attractive to customers in the short term, it would add less value over the long term. However Segment C represents a market equilibrium and would be optimal for both customers and issuers over the long term. Issuers, due to higher profitability, will be motivated to invest in product capabilities. Customers will realize more value from improved products than from higher rebates. Although most issuers would aim to move to Segment C, they would also have to make sizeable investments in product capabilities that are valued by customers. Some of these capabilities include online card management solutions, consultative account management, supplier enablement services and specialization in certain verticals. Each of these capabilities is valued differently by different organizations. So issuers would also have to consider their target customers in making investment decisions.
Figure 3: Target Segments & Potential Strategies
Development of these capabilities would typically take a significant amount of time and may have to be coupled with aggressive marketing to communicate the value of the capabilities to customers. However once developed, known product capability advantages could give a more durable competitive advantage than rebates. One approach issuers could take is to offer higher rebates in the short term to build market share and customer bases, while gradually decreasing rebates as product capabilities are enhanced. Figure 3 lists some potential short term and long term strategies for each issuer segment.
Using insights from the First Annapolis survey and competitive landscape along with the issuer segments analysis could be an important step for organizations and providers to more efficiently and effectively join forces in launching and enhancing commercial card programs.
For more information, please contact Balaji Viswanathan, Consultant specializing in Commercial Payments, email@example.com
To read the rest of this article, please subscribe to