Commercial cards in a post-COVID world
Around 10% of all global card payments come from corporate credit cards. These payments can be made for anything from a meal with potential clients to the materials needed for a construction project, and corporate card users can be anyone from a sole trader to a member of staff at a major corporation. As the pandemic that began in 2020 has permanently altered payments, increasing the speed at which everyone, from individuals to businesses, adopted digital technology, we are also seeing a sea change in the corporate cards landscape. The Payments Association’s recently issued report, Navigating the New Opportunities for Corporate Cards, takes a close look at the world of corporate card payments, finding that there is much to do to make them as seamless as personal payments or even those for small businesses, but that there are innovative FinTechs who are solving the specific problems of making payments in a business setting.The payments problem for large organisationsThe 10% figure quoted above has been growing, and we expect it to continue to grow for the foreseeable future. Why? Because the ways in which corporations and other large entities like government departments pay for the goods and services they need is changing. Previously, large sums were paid by direct bank transfer in response to an invoice, typically with lengthy payment terms of 30 days or more. Small items might be purchased with cash or a corporate credit card, and any expenses that an employee incurred would be paid back by the company, providing they remembered to keep a paper receipt. In a world where digitalisation has made so many parts of our financial lives much easier, this system seems unnecessarily slow and prone to error. Unpaid invoices are a serious problem for many companies, with UK businesses chasing billions in late payments, and even payments that are on time can come up to two months after an invoice is sent, meaning that companies have little working capital for emergencies and difficulty planning ahead. For employees, having to wait until their next paycheque to receive their expenditures back and keep every paper receipt is unnecessarily difficult and can lead to bad blood between employees and their employer. COVID-19 spurred this to change: card spend for mid-large market companies outside of North America was 42% lower in 2020 than in 2019, but is now returning to pre-pandemic levels, and both the companies who use commercial cards and the banks who supply them with cards have learned the importance of protecting cashflow. One way of doing this is to pay on corporate cards: the supplier is paid immediately so that they have working capital available rather than unrealised capital in invoices and the buyer can pay the balance of the card at a time that is convenient.Agile corporate card solutions‘Cards’ is something of a misnomer for the forms of payment that is solving the problem of agile corporate payments. Many are not physical cards (though those are still an option) but digitally-generated virtual cards. Since commercial cards are being used to pay for more than just incidental business expenses and are increasingly used to cover larger operating expenses there isn’t any need for a plastic card, especially when a physical card can be lost or stolen. Instead, companies are opting for commercial cards with high levels of usability, broad digital capabilities (including integration with digital wallets) and increasingly intelligent offerings that will prove a key payment tool for many businesses. There are huge advantages to digitalisation in card payments. The first and most obvious is the significant reduction in admin – processing receipts and invoices takes time, even with modern accounting software, and that time could be better spent producing real value for a company. Secondly, the cards themselves, whether they are physical or digital, can be configured for use with specific suppliers, have set budgets or only be used for certain types of payments. They can also have transaction-level authorisation controls, allowing management to approve purchases if they are above a set threshold. Real-time data visibility means that they are unlikely to be misused and administrators can reconcile payments immediately.Open banking and challenger banksAs mentioned above, there is a lot of innovation happening in personal and small business banking, but little new developments targeting medium to large businesses. This may change as challenger banks who already have mature digital infrastructure, start to expand and come to challenge traditional banks for enterprise-level clients. Other non-bank fintechs also have the opportunity to service larger corporate customers by using systems like Open Banking to enable easier payments. Request-to-Pay (RTP) services, for example, would allow a supplier to send a request for payment directly to a customer through a secure messaging service, allowing them to pay immediately, pay an invoice in part or request an extension. This could significantly speed up the difficult process of paying invoices and negotiating payment terms if the situation changes and, since it operates through an API rather than through centralised national clearing mechanisms, would make international payments much faster. Again, this would have the advantages of decreasing administration and increasing the speed at which payments can be made. More modern banking and payment providers, usually digital natives, will also be able to offer cloud-based, API-integrated systems that can integrate with other applications to manage payments and unlock actionable business intelligence. In the age of ‘big data’, this kind of real-time intelligence can be very valuable, especially when it can be combined with artificial intelligence and machine learning.Seizing growth opportunitiesWith a projected market size of $90.4 billion in 2020, the global corporate cards market is set to experience a compound annual growth rate of 18.9% between 2020 and 2025, according to The Payment Association’s latest report. Europe, with an estimated corporate cards market size of $7.8 billion in 2020, could grow by 7.4%, largely fueled by demand for corporate and procurement/purchasing cards from governments, public sector entities and large corporations. Larger organisations are increasingly seeing the value of having the same flexibility and digital integration in their payments systems that is available to individuals and small companies. That demand is opening up an opportunity for corporate card payment providers to create new use-cases and offer new solutions to these organisations, and, accelerated by the pandemic, this will lead to greater flexibility, lower administration load and ultimately greater profits for businesses. To download a copy of the ‘Navigating the New Opportunities for Corporate Cards’ whitepaper, click here. ENDSAbout the authorTony Craddock is Director General at The Payments Association (formerly the Emerging Payments Association (EPA)). An enthusiastic business leader of the world’s most influential trade association in payments, a lively public speaker and avid networker, Tony is passionate about payments and the difference it can make to lives everywhere. Tony champions payments technologies globally. He shares his deep payments knowledge, borne from 15 years in payments and evangelical zeal for innovation, when speaking and chairing conferences, publishing books and white papers, or enrolling payments leaders to join the EPA’s collaboration network. A serial entrepreneur; Tony invests in many early stage payments and PayTech companies – enabling them to succeed in a highly competitive payments ecosystem. Tony conceived and launched The Payments Association (EPA) in 2012. The community promotes the UK as global hub for payments innovation and the interests of its 150+ members, which include banks, card schemes, PSPs, issuers, processors, acquirers, who all come together to drive collective industry change. Tony also leads the communities of EPA Asia and PA EU. His vision is that this global network of interconnected capabilities, people and knowledge will prove to be transformational in how the world works, for the benefit of everyone. In 2019, Tony set up the Inclusion Foundation, a not-for-profit platform company promoting products that help address financial exclusion. About The Payments AssociationThe Payments Association (previously the Emerging Payments Association or EPA) is a community for all companies in payments, whatever their size, capability, location or regulatory status. Its purpose is to empower the most influential community in payments, where the connections, collaboration and learning shape an industry that works for all. It works closely with industry stakeholders such as the Bank of England, the FCA, HM Treasury, the PSR, Pay.UK, UK Finance and Innovate Finance. Through its comprehensive programme of activities and with guidance from an independent Advisory Board of leading payments CEOs, The Payments Association facilitates the connections and builds the bridges that join the ecosystem together and make it stronger. These activities include a programme of monthly digital and face-to-face events including an annual conference, PAY360, the Emerging Payments Awards dinner, CEO round tables and training activities. The Payments Association also runs five stakeholder working project group covering financial inclusion, regulation, financial crime, cross-border payments and open banking. The volunteers in these groups represent the collective views of the industry and work together to ensure the big problems facing the industry are addressed effectively and collectively. The association also conducts original research which is made available to members and the authorities. These include monthly whitepapers, insightful interviews and tips from the industry’s most successful CEOs.