The poor economy is prompting many companies to shift their payments from paper to plastic, driving up volume for corporate credit cards, according to issuers.
Commercial cards, including purchasing cards and corporate travel and entertainment cards, have emerged as strategic tools to analyze spending and to find areas of inefficiency and waste, said Mike Heindl, a partner with Diamond Management and Technology Consultants' financial services practice. "The economic downturn has put a lot of corporate spending under the microscope, and purchasing and commercial cards offer a lot of tools to see exactly how funds are spent," he said.
Shifting spending from manual, paper-based processes to purchasing or T&E cards can cut costs significantly; Heindl estimated that businesses can save from $6 to $20 per transaction.
And businesses make plenty of payments. A typical U.S. company made 74% of its business-to-business payments by check in 2007, down from 81% in 2004, according to the Association for Financial Professionals, a trade group for corporate treasurers. (Its last survey on the topic was conducted in September 2007.)
Overall card spending is down sharply this year. MasterCard Inc. reported that its credit and charge card volume fell 15% in the first two quarters of this year from 2008, and Visa Inc. has said its credit card sales volume fell 9.7% in the first quarter.
But several large banks say their commercial card businesses are doing well.
"We are experiencing strong purchasing card growth this year, contrary to economic trends," said Gregory Kerwick, the managing director of commercial card solutions for JPMorgan Chase & Co.'s treasury services unit.
Though T&E spending is down this year, Kerwick said JPMorgan Chase has "offset some of those declines" by adding new clients and by finding "new pockets of spending" within corporations.
Last year JPMorgan Chase won a bid to provide purchasing and T&E cards to more than 30 federal agencies, and has attracted significant new T&E business this year in the private sector in the U.S. and Europe.
In July, Northrop Grumman Corp. agreed to use JPMorgan Chase's T&E cards, becoming its largest private-sector T&E card customer in total cardholders and spending volume.
Citigroup Inc. has also notched several wins for its commercial cards recently. In June, Citi announced a three-year contract to issue purchasing cards for Hong Kong's 3,000 government employees. And in the past year, Citi has extended its global commercial card-processing platform to several new markets, including Hungary, Romania, Czech Republic, Slovakia, India, Taiwan, Thailand, the Philippines and Indonesia.
Commercial card technology enhancements are helping to drive new business, said Paul Simpson, Citi's global head of treasury and trade solutions. In August, Citi rolled out a new generation of single-use, or "virtual," accounts in 48 countries, enabling corporations to improve corporate control over commercial card transactions.
Although single-use commercial card accounts are not new, Simpson said Citi's Virtual Card Accounts product, based on MasterCard's inControl technology, is the payments industry's first such multicurrency offerings.
"Enabling our customers to use inControl across our global commercial cards platform is a particular advantage for multinational companies looking to simplify their policies and more precisely dictate how and where cards will be used, right down to the specific store or vendor," Simpson said. If present trends continue, "within two to three years" virtual cards could account for roughly 30% of Citi's commercial card business, he said.
Payees tend not to resist when payers switch from checks to payment cards, said Joanne Robinson, the president of the research firm Commercial Cards International. "Suppliers might not like interchange fees, but they love guaranteed payment and quick turnaround on payments, especially in an uncertain economy," she said.
Although purchasing cards have been gaining ground steadily over the past few years, momentum has picked up recently as more government agencies have adopted them, Robinson said. "For some reason, when governments decide to use purchasing cards, corporations tend to follow," she said.
One of the chief benefits of switching routine payments to purchasing cards is the detailed data that accompanies electronic payments.
Visa, MasterCard, American Express Co. and Discover Financial Services all have gradually enriched the details available for each transaction, enabling companies to aggregate spending data for analysis more easily.
"With purchasing cards, corporations can easily analyze spending data from a number of different directions, which is hard to accomplish with separate, disconnected paperwork-based payment processes," Heindl said.
Bank of Montreal's BMO Financial Group is enjoying double-digit growth in its MasterCard corporate purchasing card program this year, said Mary DiRenzo, a BMO senior manager for market development and strategy. "More corporate clients are adopting purchasing cards, and the spending on those cards is also rising," DiRenzo said. (About 30% of BMO's commercial card business comes from the United States.)
Though the trend has been gathering steam for a few years, the economic downturn seems to be fueling greater purchasing card growth this year, DiRenzo said. "We are seeing a distinct desire by corporations to harness purchasing cards across more departments in order to get a better view of their overall spending and find ways to save money," she said.
BMO typically sends purchasing card consultants to corporate clients, where they analyze spending patterns and recommend areas ripe to move payments to plastic from paper. But one of BMO's biggest drivers of growth is when consultants help corporations expand their use of existing purchasing card programs, DiRenzo said.
"In many cases, corporations already have a purchasing card program, but only a fraction of people are using them and only on certain types of purchases," she said. "When more departments in an organization begin using purchasing cards, it's easier to see spending patterns across the whole organization and to analyze where there could be cost savings or spending-volume discounts."
The first thing corporations tend to see is the opportunity to negotiate better deals with suppliers of frequently purchased items. "When a company starts using purchasing cards more widely across the organization, redundant purchases and missed opportunities are often revealed," DiRenzo said.
