Unlocking a $5 Billion Commercial Card Prize for Issuers: Business Process Optimization Holds the Key to a Shift from Rebates
At a typical 1% level of rebates (akin to cash back for consumer and business cards) on card spend for corporate travel and purchasing, including virtual card spend, we project U.S. commercial card issuers’ rebate payments to their clients to reach $5 billion annually in the next year. For prospect stakeholders looking to show tangible benefits to their organization, the amount of rebate offered can, and often does, pose a strong determinant when selecting an issuer, even when commonly accepted estimates of the savings a client can achieve by purchasing goods and services “on-contract” (i.e., purchasing from an approved supplier with whom terms have been negotiated) range from 4-15% and organizations can achieve significant process savings, often estimated at $10 or more per completed purchase, through automating corporate travel and purchasing work flows.
While issuers have sought for many years to show clients the aforementioned on-contract and process savings vastly exceed rebates, these benefits have often been ascribed to internal efforts or third-party solutions, fostering a perception of cards as a commodity and reinforcing prospect emphasis on rebates. Conditions may now be ripe for a shift and for cards to be in a position to receive the credit. Amidst a preponderance of disruption and market innovation, we observe a path for card issuers to be the “tip of spear” for relevant business process optimization and to differentiate themselves as providers and advisors, shifting the conversation from rebates to value-add.
We see several prominent disruptors launching commercial cards into the new:
- B2B payments specialists are developing or integrating with different front end purchasing and accounts payable automation to deepen card’s reach and visible impact to clients.
- Commercial card payment networks and issuers are opening up access to APIs to allow client organizations to integrate network / issuer-delivered capabilities with their existing accounts payable and ERP environments and develop ‘best fit’ client solutions with the issuer as facilitator and advisor.
- Electronic invoicing providers are expanding from reliance on electronic bank transfers, such as ACH in the U.S., into virtual cards with card issuers and networks providing the financial backing to more profitably scale and the client-facing front-end relationships to deliver enhanced solutions to clients, including integration into buyer / supplier networks.
- Interchange rules in Europe have encouraged commercial card issuer promotion of and investment in exempted centrally billed virtual card solutions to replace a portion of their clients’ spend heretofore completed through non-exempt, individually billed corporate travel cards. These solutions, while often with distributed applications, can help centralize spend management and leadership oversight.
Within client organizations, these and other trends, evidenced through numerous recent innovation-related announcements by commercial card networks and issuers, could support CFOs, CPOs, and other organizational decision makers in driving a more coordinated and user-friendly pursuit of business process automation for corporate travel and purchasing. Figure 1 illustrates several key components for this card-based automation.
Figure 1: Key Components for B2B Purchasing Automation with Cards
1 Office suppliers, parcel delivery, and other miscellaneous business expenses that are not included in cost of goods sold. 2 For purchase of inputs into cost of goods sold. 3 Such as airfare or train tickets. 4 With a merchant initiated transaction, a card number is provided to a merchant to input the card number in a physical or virtual card terminal. For a buyer initiated transaction, the buyer requests a merchants’ card acceptance depository account details in advance and the buyer inputs the card number to initiate a transaction into this card acceptance account. 5 For example, can only complete transactions at merchant types A, B, and C – or – may not complete transactions at merchant types D, E, or F. 6 For example, cannot exceed X dollars per transaction, Y transactions per day, or Z transactions per billing cycle.
Source: Accenture observations.
Recognizing the particular optimal approach may depend on the client’s business needs. Figure 2 provides a simplified example, from a client’s perspective, of a potential client-tailorable, future state of preferred purchasing approaches and key challenges or impediments to reaching such a state.
Figure 2: Preferred Purchasing Approaches
1 Contemplates potential for a split purchase wherein auto approved items on a hotel folio bill or car rental invoice are settled via a virtual card with the remaining amount of purchase settled with a plastic card.
Source: Accenture observations.
Harnessing the ongoing market shifts, commercial card issuers may have an increasing repertoire of capabilities to deploy in helping clients automate processes in a manner that works best for them, advance preferred vendor, controls, limits, and approval work flows that occur prior to initiation of a transaction and deliver upon reporting and analytics thereafter. Up to $5 billion may be at stake for issuers from rebates alone as a more tangible emphasis on cards’ value could help shift the focus from being rebate-centric to more of a process automation and contract management / savings discussion. If issuers can seize the moment to clearly articulate and deliver cards’ value-add this may in turn help drive further adoption of cards in B2B with even greater potential for issuers and their clients.
For more information, please contact Frank Martien, Managing Director, firstname.lastname@example.org; and Tom Skomba, Consultant, email@example.com. Both specialize in Commercial Payments and Bankcard Issuing.
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