Visa's legacy credit and debit card transactions continue to drive the majority of its revenue, but the company has made no secret of its pursuit of
One reason the card network needs to find new sources of revenue is the downward pressure on credit and debit interchange fees around the world, including in the U.S., where Sen. Dick Durbin, D-Ill., is pushing for legislation to overhaul existing credit card swipe-fee rules that merchants claim are unfair.
Faster payments technology has also opened the door for account-to-account payments to displace traditional card payments, such as in Brazil where the central bank-supported
In recent quarters, Visa saw its fastest revenue growth in areas such as
Virtual commercial cards, which can improve efficiency and close key gaps in corporations' cash-flow pain points, are
"Recent interest rate increases and economic changes interrupted a 10-year period of stable interest rates and predictable cycles, and it's no longer so easy to know when to pay a bill early, or delay payment, to gain the best advantage," said Alan Koenigsberg, global head of large/middle market, treasury and industry verticals for Visa's commercial solutions.
Recently, the San Francisco-based firm released its first global study examining how midsize corporations plan to use working capital in the year ahead, and the extent to which virtual cards — which provide precise timing and controls — can help companies manage cash flow and liabilities, including for accounts receivable/payable.
The survey underlying Visa's 2023 Growth Corporates Working Capital Index was conducted between March and June 2023 among 873 chief financial officers and treasurers at midsize and large corporations in 23 countries.
Over the last several months, these "growth corporations" have begun retooling their work around their cash flow, the study revealed. Most than half of respondents said they plan to use more working capital in the year ahead to fund growth initiatives, and more than 60% expect to see virtual card usage expand in 2024.
About 18% of corporations surveyed admitted they're not optimizing their working capital, and nearly a third said they routinely turn to external working capital providers when they need to expand, buy inventory or upgrade equipment, according to Visa's data.
Among respondents leaning on working capital resources last year, 36% used working capital loans, 19% used a bank line of credit and 16% relied on corporate overdrafts, Visa said.
Using a scale of 1 to 100 to measure effective use of working capital, the average company studied scored 49, pointing to a lack of efficiency, Visa said.
Commercial travel and agriculture firms surveyed were most likely to use working capital loans and bank lines of credit to fund short-term working capital needs for unplanned cash shortfalls, Koenigsberg said.
Overall, 37% of CFOs said they plan to use virtual cards for strategic growth initiatives; 29% plan to use virtual cards for strategic cash-flow continuity; and 30% plan to use virtual cards to pay for emergency expenses, according to the survey.
Virtual cards are one of many tools available for corporations managing their cash flow and working capital, said Pierre Buhler, managing director for financial services at SS&A, a global management consulting firm.
"Corporations first need to look for available internal levers that reduce the need for working capital, including limiting outstanding projects and excess inventory, and potentially lengthening delivery times," Buhler said.
Next, companies facing a cash crunch should tap cash on hand and easily accessible revolving lines of credit, and consider initiating capital calls to shareholders and investors and accelerating payment receivables, while determining which bills must be paid immediately and which might be delayed, he said.
Virtual cards could come into play here for corporations looking to plan and tailor the timing of payments to ease liquidity, Buhler said, but he noted that Visa also has plenty of competitors in this arena.
"There are many alternative payment providers and real-time payment networks that compete directly with Visa in treasury and business payments," Buhler said.
Visa plans to continue its study of corporations' rapidly changing payments needs across various sectors to guide product development and investments, Koenigsberg said.
"Over the last 15 years, through strategic acquisitions and partnerships, Visa has developed a lot of expertise in helping financial institutions manage their relationships with corporations and it's an area where companies say they need help," he said.
