2009 Articles
19 January 2009
Commercial Payments International
Thoughts from the industry on opportunities from the recession
Article in Commercial Payments International
Received wisdom has it that the recession presents an excellent opportunity for corporate card providers to win new business. The case for introducing a mechanism that improves cost controls, the argument goes, is stronger than ever, and cards meet precisely that requirement. Amon Cohentalks to industry insiders in different segments of commercial payments to test this theory and finds some surprising opinions.
Is the received wisdom correct? Not the biggest fan of his bank-backed rivals, Universal Air Travel Plan president and CEO Ralph Kaiser says not. He claims the downturn will expose plastic corporate cards as expensive, unreliable extravagances. “We might see a retraction in walk-around cards,” he says. “There may be a move to better control with centrally placed lodge cards, where it is easier to make sure spending is sitting within policy. The walk-around cards reward travelers for booking more flights by giving them a set of golf clubs or a trip to Hawaii.”
One might expect Kaiser to say such things, but some corporations also consider plastic a liability in a recession. CPI recently obtained a copy of a memo sent out by a very well-known hi-tech company telling employees their cards were being withdrawn. “Keeping in line with our goal of ensuring better cost controls across our business, we have decided to significantly reduce the use of our corporate cards,” the memo said. “Effective immediately, ALL employees (with the exception of senior management team or newcomers that don't have any credit history) that currently have a corporate card will no longer be eligible to use these and will be asked to return these cards into HR over the next two-week period.”
The good news for card providers is that most of their clients still believe the opposite is true: that a card equates to more, not less, control. One example is the aircraft manufacturer Airbus, which uses a card in conjunction with an expense management system. “It is definitely useful for helping our cost control,” says Airbus’s UK travel manager Geoff Allwright, who thinks the recession makes the case for cards more compelling.
Airbus asks its travelers to provide an estimate of their total trip cost before departure. Their managers are then able to set a budget for the trips and compare the actual expense incurred on their return. “The alternative is to let travelers use their own cards or cash but that means we don’t get good data,” says Allwright. “It all adds to the big picture.”
Brian Merry, director of product for the travel management company HRG, agrees. He is seeing greater interest from clients in cards, especially for filling in the gaps in data left by other sources. “You can use your TMC data to manage travel expenditure, but the only way to manage entertainment expenditure is through a card,” he says. Merry reports that clients are cracking down on restaurant spend – spending less, and judging whether entertaining customers is justified in the first place.
However, if card companies are to gain from the opportunities presented by recession, they need to make a vigorous case for how they can help clients, and they also need to show more flexibility. That is the opinion of Stephan Hylander, global travel manager for the Volvo Group, the collection of all Volvo’s businesses other than its car-making operation.
Whether this is a good time for corporations to introduce or change their card programs depends on the contract offered, according to Hylander. “If it is just replacing one card with another without enhancing the conditions, that would not be a priority,” he says. “If there is a good business case, then right now is the best time for any procurement initiative. However, senior management will only approve projects if they can see a fast payback.”
Hylander is unsure whether card companies are capable of meeting this requirement. On the one hand, he finds that having a single global card is greatly improving his hotel data. However, as an experienced procurement professional who has only started to deal with travel and cards over the past couple of years, he is disappointed with the conservatism of bank issuers. “I have found it one of the toughest industries to persuade to make adjustments to client needs,” he says. “It is very much a case of the client adapting to the supplier’s needs.”
His chief complaint is that banks will not agree to consistent global conditions for criteria such as exchange fees, data collection fees or application form procedures. In Hylander’s experience, issuers make much better offers in markets where they are well-established than in those where they are not.
The improvement Allwright would like to see from card companies is better detection of potentially fraudulent use of cards, which is also an increased concern in the recession. “It seems to be down to us to spot what is going on. They seem a bit slow on the uptake,” he says.
Misuse of cards is, naturally, a source of concern to issuers as well. Kaiser believes this could lead to traditional issuers restricting their lines of credit for new corporate customers and reducing credit for existing clients known to be experiencing financial problems. This could take the form of limiting the number of permitted purchases or even placing daily restrictions on expenditure, he says.
Merry also thinks issuers are likely to reduce credit lines, but for a slightly different reason. Given that banks have much tighter constraints on their liquidity, he predicts they will shorten credit for customers who are not using their full entitlement. “If a company has a $1 million credit line and it is only using half of that, the bank will not leave it lying around idle because it precludes the bank from offering credit lines elsewhere,” he says. “In the past, idle credit didn’t matter.”
And while on the subject of better management of funds, Kaiser has one last comment for the mainstream issuers for what he regards as the profligacy of using higher merchant fees to fund cardholder incentives. “It will be interesting to see whether they can maintain the benefits they give to their customers,” Kaiser says. “Will merchants be able to sustain fees at that level?
