What’s Next for Commercial Cards?
With more people working remotely and seeking to avoid paper — and with security a priority — the future of commercial card payments looks bright.
Commercial Cards Appear to be at an Inflection Point
For years, commercial cards have been part of the cohort of electronic payment methods expected to supplant paper checks. The cost of issuing and accepting paper payments was expected to drive checks’ demise, and cards have been a candidate to fill the void.
Clearly, with the most recent Federal Reserve study showing 14.5 billion in checks still being issued each year1, that has yet to happen. Still, emerging drivers favor a growing migration from checks to commercial card payments. People are coming to expect the convenience and speed of electronic payments in all of their transactions. What’s more, in business, both buyers and suppliers increasingly are focused on enhancing working capital, and commercial card payments allow buyers to disburse slower and suppliers to get paid faster.
The normalization of working remotely is also playing a pivotal role in check-to-commercial card migration. With many employees working from home or elsewhere and needing to make business purchases, and the waning interest in handling paper for reasons of both safety and efficiency, more companies are turning to commercial cards in all their forms — including ePayables, which uses virtual card accounts for Accounts Payable payments. When disbursing funds by commercial card, companies get the efficiency and convenience of electronic payments plus working capital benefits in safe, contactless transactions. Virtual card account disbursements provide the added environmental benefit of reducing the production of plastics.
Of course, this bright future for commercial card payments can’t happen without effective supplier enablement. Read on to learn the role banks can play in that process, how enhancements to mobile apps are accommodating commercial card needs to support remote work, and how being more strategic can maximize commercial card program benefits.
The Rise of ePayables
Increasingly, the focus in growing commercial card programs is on creating working capital benefits for both buyers and suppliers, rather than just rebates for buyers.
Case in point: ePayables growth is flourishing due to negotiations between buyers and suppliers that are producing benefits for both sides. Juniper Research estimates that the global transaction value of ePayables, which stood at $1.6 trillion in 2020, will more than triple by 2025.2
The trend is for buyers with the necessary leverage to extend their payment terms with suppliers as a way of increasing their working capital. But that’s where discussions around ePayables are facilitating win-win scenarios. In some cases, suppliers are able to keep their current terms by agreeing to accept efficient ePayables payments from buyers. In others, suppliers are at least able to minimize terms extensions by agreeing to accept ePayables payments. For instance, a buyer might dictate a shift from net 30 to net 90 days terms for most of its suppliers. But for a supplier willing to participate in ePayables, the buyer might agree to limit the extension of terms to net 60 days.
In establishing ePayables with suppliers, buyers look for benefits like improving their days payable outstanding (DPO), even if payment terms extensions are limited to encourage card acceptance; a discount on transactions in the form of spend rebates; and the ability to reduce fraud and eliminate buyer liability in the rare instances that fraud does occur. Additionally, buyers can reduce processing costs associated with check printing and improve payment process cycle time to reduce late fees to suppliers.
Suppliers, on the other hand, can sometimes negotiate lower ePayables interchange costs, receive enhanced transaction detail from buyers, and gain flexibility in how and when they receive payment reconciliation files, allowing them to minimize the administrative burden of manually recording receivables.
Experts believe this more holistic approach to improving the economics for all players in the transaction will continue to drive ePayables growth.
Successful Supplier Enablement
The success of an ePayables program depends on supplier enablement, and the first step in that effort is for the buyer to truly commit to growing its program.
The surest sign of commitment is getting the leadership team on board. ePayables supplier enablement needs to be a top-down effort. Executive management must provide the internal messaging about the program. In addition, a buyer’s Treasury Department needs top management’s support in facilitating a high level of collaboration on supplier enablement with both the Procurement and Accounts Payable Departments.
Procurement owns the relationships with suppliers and knows the history of what has been promised to them. Having Procurement consulting with the supplier enablement team and involved in terms negotiations is critical. Then, on the back end, you need Accounts Payable to work with each supplier to facilitate any transition in payment terms and the remittance process.
What to Look for in a Bank Partner
The other determinant of success is selecting a banking partner capable of executing on a supplier enablement plan. The right bank partner is critical to your success as it will lead the effort on supplier communication based on the approved messaging from company leadership. Seek a bank with a consultative approach that will:
- Manage supplier outreach to convey the working capital benefits to suppliers
- Identify opportunities to leverage custom interchange to influence suppliers’ card acceptance
- Balance the benefits of ePayables for both buyers and suppliers to ensure program growth
Enhancements to Mobile Apps
In the emerging remote working environment, our business and personal lives increasingly overlap. Fortunately, banking technology continues to evolve to address the needs this creates around payments.
Today, it would not be unusual for a parent to be sitting in a parking lot waiting for a child to emerge from a piano lesson while at the same time initiating a vendor payment in his or her role as an accounts payable professional.
Banks are helping normalize scenes like this by developing mobile apps that enable authorized employees to easily manage procurement and payables activities and provide control and oversight through a variety of features, including:
- 24x7 access The importance of having the ability to make payments round-the-clock increases as those with payment duties not only work remotely in the vicinity of their company, but also as they find themselves needing to make payments while traveling or residing in other time zones — even in other countries.
- Self-service Mobile apps support remote work by enabling cardholders to execute a variety of service functions on their own by phone but without calling customer service. Using a mobile app, cardholders today can update their address or phone number, for instance. Mobile apps are also being developed to manage other customer service needs that previously required a call to the company’s card program administrator, such as requesting higher credit limits or expanding merchant category code eligibility.
- Reactive notifications Mobile apps also allow cardholders to request notifications on their phones, such as timely warnings that a payment is due, they are nearing their card’s credit limit, or a transaction over a certain amount has been initiated on their account.
- Real-time response Many commercial card service needs require fast responses that mobile apps increasingly offer. For example, if a cardholder receives an alert about potential card fraud, a mobile app allows them to reject or accept the transaction on the spot. Similarly, if they need to activate their card to make a purchase immediately, a mobile app will allow them to do that too.
A More Strategic Role for Program Administrators
T&E cards are the oldest form of commercial card, but changes in the travel environment are creating opportunities for card program administrators to play a new, more strategic role.
Historically, companies have spent around 10% of revenue on business-related travel.3 Given the significance of this expense, the trend toward remote work and changes we’ve seen in business communications (e.g., the growing use of videoconferencing) are providing an opportunity for program administrators to redefine travel expense with the potential to significantly lower this cost.
Taking a strategic approach to travel management, program administrators have an opportunity to propose significant changes to the travel policy that will improve business interactions while reducing costs. Here are just a few steps program administrators can take in helping their companies manage the return to travel:
- Educating company executives and cardholders about fast-changing global travel restrictions and requirements
- Researching past expenditures and proposing strategies to reduce future expenses, such as oversight of memberships and subscriptions
- Taking advantage of airline modifications to their travel restrictions, such as repurposing unused airline tickets to alternative travelers and destinations
- Identifying and eliminating inconsistencies in expenses such as company issuance of cell phones and travelers submitting personal phone bills
- Developing new policies that modify valid reasons for business travel with the potential to reduce future travel costs
Elevating Your Card Program for the Future
Travel expense management is just one opportunity that commercial card program administrators have today to be more strategic. In fact, all of the other commercial card trends we’ve discussed here — from the rise of ePayables to innovative supplier enablement to mobile apps that support the use of cards in a remote working environment — are giving financial managers opportunities to reach for strategic advantages for their companies.
So, in many ways, we’re not just at an inflection point for commercial cards. We’re also at a pivotal time for those who shepherd and manage commercial card programs.
Will you be satisfied with a basic traditional plastic card program run by a clerk in a tactical fashion, with little time and energy devoted to growing it? Or will your company empower an administrator to be a strategic thinker about your card program, partner with a bank with extensive commercial card expertise and resources on initiatives like ePayables, and reap the working capital and other benefits that can flow from that approach?
1 The 2019 Federal Reserve Payments Study
2 The 2021 Global Payments Report by Worldpay from FIS
3 “How much do companies spend on business travel?” Salestrip.com
Please contact your treasury relationship manager.