Bankers that have entered the commercial card game have not gotten rich as quickly as they had anticipated.
Despite the untapped nature of the market and optimistic growth projections, various institutions have encountered growing pains, technology snafus, even organizational confusion.
They have lacked the manpower to sell and implement card systems, and have found it difficult to get some corporations to make full use of them.
Many bankers are finding, to their dismay, that a commercial card business is more complex than issuing consumer cards. The latter are mature products, well understood by all sides in a transaction. Companies need hand-holding.
"It's a different world," said Edward P. Gilligan, president of American Express Co.'s corporate services. "It's the difference between selling products, which you do on the consumer side, and selling solutions to companies."
Mr. Gilligan estimated the market for travel and entertainment cards at $150 billion; for purchasing cards, $400 billion.
Companies are eager for the products, and most bankers say they got into the business in response to inquiries from corporate customers. But the road from paper-based to electronic purchasing and expense reporting can be bumpy. Many companies are unprepared for the changes in practices and procedures that such a move entails; many banks are caught off-guard by the support their clients need.
"Very few banks have been successful" with purchasing cards, said Moshe Orenbuch, an analyst at Sanford C. Bernstein & Co., New York. Of the 150 banks Visa says are issuing them, he wonders "how many are issuing cards other than to their own employees. If you look at how many cards most of those players have, they're de minimus."
Mr. Orenbuch said Visa and MasterCard have been pushing member banks to offer the cards and publishing rosy profitability assumptions. But most banks underestimate the size and sophistication of the management information systems needed, Mr. Orenbuch said. Even the purchasing card market leaders, U.S. Bancorp and American Express, have been constrained by the formidable back-room requirements.
Because the systems have to be installed at customer sites, "your ability to do a lot of those in a short period of time is reduced," Mr. Orenbuch said.
Executives at BankAmerica Corp. predict the number of banks offering commercial cards will dwindle to five or six as marginal issuers drop out.
"A lot of the banks went into this without the proper funding and the proper skill set to handle the programs," said Kerry Williams, manager of BankAmerica's commercial card division.
That specialized BankAmerica unit has been offering small-business cards for 12 years, purchasing cards for three years, and corporate travel and entertainment cards for one year. The bank has made significant infrastructure investments to make the programs work, Mr. Williams said.
He said the bank this year has taken commercial card business away from others "that were unable to deliver on their promises."
Some banks have had a hard time finding the revenues they need, which serves as a marketing disincentive. Most travel and entertainment cards are nonrevolving, so they don't generate the interest income banks get on the consumer side, and interchange income from card-accepting acquirers is relatively low.
Though the purchasing card market is less than a decade old, new bank entrants find it hard to catch up to the earlier adopters.
Wachovia Corp., which has a thriving retail card business, entered the corporate card arena last year and got off to "a slower start than I had hoped," said Beverly B. Wells, president of bank card services.
"If you weren't in the first group offering that product-like First Chicago or NationsBank-it's hard to get it off the ground," she said. "They are really different to sell."
Wachovia, like many others, offers commercial cards in conjunction with cash management services. Some have spun off the business card operations into stand-alone units, relying on treasury departments for cross-selling.
NationsBank Corp. has offered purchasing cards for four years and now has a separate group dedicated to commercial cards. But the learning curve has been steep.
"We have to go in and really understand our customers' business, understand the processes they go through, the information they're looking for on the back end," said Jeffrey Rankin, senior vice president of NationsBank's card services division. "There is quite an investment that we need to make, both in systems and in people, to be able to provide that service.
"We had to learn payables, to understand sales and use tax," Mr. Rankin said. "We also needed to understand minority- and women-owned business reporting."
Few banks have achieved the necessary degree of sophistication. Larger institutions that have developed a depth in purchasing cards are crowding out the dabblers.
"It's not unusual for us to be competing on five or six deals in a row with five or six of the same competing banks," Mr. Rankin said.
David W. Houser, first vice president in First Chicago NBD's global cash management division, said "two tiers of providers" have emerged: the major ones that compete for large accounts, and smaller ones that "have some customers and a limited product offering but aren't really in competition with each other." The latter group is "just trying to satisfy their customer base."
First Chicago, one of the leading cash management banks, has offered purchasing cards for five years, making it one of the earlier entries. American Express, the longtime leader in corporate T&E, introduced a purchasing card in 1994.
The Chicago-based bank found customer interest high from the start.
But even after getting companies to sign up, a program can get bogged down. "The card does have a relatively slow ramp-up time for getting usage up, because it's a change," Mr. Houser said. "It takes diligence and support to go ahead and fully utilize the card."
Mr. Houser said many companies take two years or more to achieve the efficiencies and transaction volumes they had hoped.
Transactions and dollar volumes have surged in the last year or two, he added, with customers cutting costs and improving efficiencies along the way.
When done properly, the benefits of purchasing cards can be enormous, bankers say. Companies can gain a clear view of which vendors they use the most and can use the information in negotiating volume discounts. Companies can exercise tighter controls over which employees can buy what goods and services, and from whom.
Companies that have used the cards most successfully are "interested in reengineering the back room" and "serious about wanting to reduce costs and streamline," said Mr. Rankin of NationsBank.
If customers get into it only because others have, he said, "it's a slower rollout."
Jon Casher, chairman of Recap Inc., a consulting firm in Oak Ridge, N.J., said purchasing cards pay off hugely in paperwork reduction.
"In a typical company, a third of invoices are for less than $100 and another third are between $100 and $500," he said. "Procurement cards have proven to be a better way of making those small-dollar purchases."
But not all companies have been motivated to make the change, Mr. Casher said. He noted the irony that "a very large number of banks that sell procurement cards to their customers don't use procurement cards themselves."
Dove Associates, a Boston-based consulting firm, polled companies that were considering purchasing cards. Most executives said they were tantalized by the promises of less paperwork and sweeter deals with vendors.
But "there is this paranoia that once they give the card out, people will use it" illicitly, or will spend more money than they would ordinarily, said Ed Batchelder, a director in Dove's financial services practice.
Card abuse is one of many commonly cited snags. Control policies can degenerate into a tug-of-war between purchasing and accounts payable. Corporate executives start worrying more about whether they are actually getting bargains from vendors. Managers and employees can be slow to embrace the new system.
A chief financial officer will say, "This is brilliant, give me 10,000 of those purchase cards," said Mr. Gilligan of American Express. "He'll hand it off to a manager of purchasing and say, 'Implement it,' and two years later you're still waiting to set up a meeting to get it rolling."
Mr. Williams of BankAmerica calls this phenomenon "the perpetual pilot."
In 1995 and 1996, he said, "a lot of companies looked at these systems and chose their bank to provide them, and that's one of the reasons those programs stagnated," he said.
The key to introducing the products successfully, Mr. Gilligan said, is to take a "holistic" view of client needs. American Express "starts with a consulting group to help companies figure out policies and give them benchmark data, to show them how they can streamline."
Then they try to show companies how they can use the travel and entertainment card model to lower costs in other areas.
The next steps are to install a card system and reshape management practices, all the while showing executives what the card can do for them.
"You have to enable the purchasing and accounts payable people to succeed," Mr. Gilligan said. "They've got to see this as a tool that's going to help them in their jobs, when on the surface they don't necessarily see it that way."
"It's one thing to be able to sign someone up for an account, and it's another thing to go there and work with mid-level executives and people who report to them, to make sure the cards are really used," said David Robertson, president of The Nilson Report, Oxnard, Calif.
"That's where the big companies that are serious about being in this business have an advantage over the smaller companies," he said. "Even the big companies-American Express and U.S. Bancorp and NationsBank-are undermanned."