Commercial card programs could yield broader overall benefits for corporations and banks if card issuers considered the unusual step of reducing the rebates they traditionally pay to corporations, Frank Martien, a consultant with First Annapolis Consulting, contends.
Corporations often negotiate with card issuers to share a portion of card revenue based on their total commercial-card spending volume. Usually these rebates range from a low of five basis points to as much as 160 basis points on the high end, according to Martien’s analysis. A basis point is one-hundredth of a percentage point. Typically, rebate amounts increase as the transaction volume increases.
But Martien says that taking the opposite approach—shrinking the rebate percentage as volume grows—could provide mutual benefits for corporations and card issuers.
According to Martien’s seemingly counterintuitive theory, commercial card users would receive less revenue as transaction volume rose, but the rebated amount would still be sizable for the corporate client because card volume would have increased substantially, he says. “Banks and end users ought to consider that,” Martien tells PaymentsSource.
Martien’s research suggests that 10% or less of the total value of a commercial card program to the corporate client comes from revenue-sharing programs. The other 90% comes from savings corporations gain from the migration away from more costly paper checks and useful transaction data corporate card managers may harness to gain further savings, he says.
Shrinking the rebate percentage as volume grows would motivate both corporate card issuers and commercial card users to grow their programs, Martien says.
Corporations are likely to resist such a change because there is so much emphasis on rebates in corporate card a contract, Martien concedes. But the potential benefits could be rich.
“Whoever is first would get tremendous visibility from their card provider,” he says. “The first mover would need to be a large customer.”
