Purchasing card programs have been around since the 1980s, but p-cards still represent a minute percentage of total corporate transactions. In fact, according to the Commercial Consumption Expenditure Index put out by card company Visa, purchasing cards account for just 2 percent of B2B spending in the United States. The fact is that paper continues to dominate B2B payments, with checks accounting even for 43 percent of purchases through e-procurement systems, according to the 2003 Purchasing Card Benchmarking Study conducted by Richard Palmer and Mahendra Gupta of RPMG Research.
Not surprisingly, the major card companies and issuers are continuing to roll out new tools and services to help enterprises get the most out of their p-card programs and to encourage broader adoption and use of the cards. Supply & Demand Chain Executive recently spoke with representatives of American Express, MasterCard and Visa, as well as card issuer GE, to find out what 2006 holds in store for their respective p-card offerings, and what we learned may give you cause to take another look at your company's current purchasing card program.
With enterprises looking under every rock to find new ways of achieving savings, the card companies are offering new tools that give organizations increased control over their expenses. Dana Kirchman, vice president, global B-to-B payments at American Express, says that the tools can bring dollars straight to the bottom line. American Express, for example, is launching a Web-based reconciliation platform, dubbed "American Express @ Work CPC Reconciliation," intended to give company executives daily oversight over expenses. "In as little as 24 to 48 hours after the purchase, your purchasing manager or business owner can go online to review and reconcile their transactions right away," says Kirchman.
This type of tool can be particularly useful for giving companies oversight over expenses that previously were paid with cash. One client of American Express, a major motion picture studio, issued cards to production assistants on movie sets rather than following the old practice of handing out wads of cash on a daily basis. By switching to a purchasing card, not only did the company eliminate the security and financial risks associated with cash, the online system gave Purchasing the round-the-clock ability to issue and cancel cards, set time and spending limits, include or exclude certain suppliers, and monitor charges. In addition, with more expenditures captured on the cards, the company eliminated costs of invoice processing and payment for most in-production expenses, and it gained a clearer picture of its total spend, arming it with ammunition to negotiate better deals with suppliers.
In addition, American Express is offering a Spend Analysis Workbench solution, which analyzes a company's accounts payable (AP) data to provide better visibility into the enterprise's indirect spend and to identify opportunities to move portions of that spend onto the company's card program. This benefits the company by increasing the spend running through more efficient and cost-effective payment channels (naturally, American Express benefits from the increased card activity as well). The card company can also provide benchmarking information, giving a customer an idea of how much it's spending on a particular commodity versus its competitors.
GE, a card issuer that works with MasterCard, also is offering new tools to help companies gain increased control over their spend. Specifically, GE provides a service, called Opportunity Analysis, that involves the company's consultants running an analysis of a client's AP file to determine which of the merchants used by the client currently accept MasterCard but are still getting paid by check. "We're getting a snapshot of your vendor base and determining where the opportunity is to go electronic," says Michael O'Malley, marketing manager with GE Corporate Payment Services.
Another service that GE offers draws on the company's long history as a leader in Six Sigma. In an "At the Customer, For the Customer" engagement, GE will send one or more of its black belt Six Sigma consultants into a GE Corporate Payment Services client to work with the customer on an issue that may or may not tie in directly to the corporate card program. For example, for one client, a large oil company, GE's quality experts helped the customer on four projects, including streamlining how it reimbursed expatriate employees and improving the risk modeling process used in determining the company's capital budget for the following year. "This customer estimates that it saw upward of $2 million of savings based on our consulting services," says O'Malley. "So it's a great differentiator for us to be able to bring the GE quality toolkit to bear for our customers."
Back on the purchasing card side, GE is rolling out capabilities to make it easier for its clients' p-card program managers to service their companies' cardholders more quickly and efficiently, with a minimal need to draw on GE's resources to support those cardholders. Through its online NetService tool, GE offers the ability to view account status, change limits, view authorizations, close accounts and otherwise administer accounts. A new capability through Net Service is "Manual Authorizations," which allows account managers to go online to authorize a purchase after a cardholder is declined at the point of sale. "We like to say we've eliminated two out of the three phone calls that usually surround declines at the point of sale, and it eliminates a confusing and time-consuming process for the merchant," explains Kristen King-Ward, NetService product manager for GE. "It should reduce 60 or 70 percent of the work associated with these issues."
Visa, like the other card companies, has been focusing on expanding adoption of its cards among both suppliers and buying organizations. To encourage greater acceptance on the supply side, for instance, Visa has initiated what it calls its "Large Ticket Interchange" program, which adjusts the fee that the card company charges on a sliding scale, depending on the size of the transaction, to make it more cost-effective for the supplier to accept payment cards. Visa also offers a non-card-based payment model, called Visa Commerce, which allows known buyers and suppliers to transact their commerce payments over the card company's processing network, VisaNet. "We're thinking not just in terms of simple card-based payments, but in terms of how we can bring this great settlement network that we have in VisaNet to bear and do more of these transactions electronically," explains Kenny Thomas, director of corporate relations for Visa International.
On the buy-side, Visa is offering its member banks' customers a service called "Optimization Review," which involves a thorough evaluation of a company's procure-to-pay process against a broad set of best practices to identify opportunities to realize hard- and soft-dollar savings, and to find ways to expand the p-card program at the company. Visa's review of the practices in place at a $1 billion manufacturing company, for instance, revealed that while the manufacturer had a solid procure-to-pay process in place, with many best practices firmly entrenched, the company could still realize further savings by integrating corporate card payments into its e-procurement and electronic invoicing system to automate payment to vendors. The review also suggested that the company put in place more a formal travel and expense function to support business travelers. In sum, Visa projected that the manufacturer could save more than $100,000 due to process efficiencies gained over three years by expanding its card program.
Like the other card companies, MasterCard has been rolling out tools and solutions designed to help companies expand their corporate card programs. For example, MasterCard offers a no-cost online survey and diagnostic tool called Purchase Optimizer, developed jointly with Boston-based analyst firm Aberdeen Group, which lets companies benchmark their p-card program against their peers in the marketplace. MasterCard also offers, through its MasterCard Advisors group, a service called Purchase Logic, which provides a Web-based financial tool for evaluating a company's spending patterns. "This is a real in-depth diagnostic that goes through your AP file, analyzes your suppliers to see who accepts the cards and tells you where the opportunities are," explains Marcie Verdin, vice president, large market segment, at MasterCard Corporate Payment Solutions. Those opportunities could include supplier consolidation, process efficiencies and expansion of the card program, potentially resulting in significant savings for a company.
And, like other companies in its space, MasterCard is looking to offer new ways to further integrate corporate cards into an enterprise's procure-to-pay process. MasterCard already offers its e-P3 program, which integrates the card company's settlement options into electronic invoice payment and presentment (EIPP) platforms to provide paperless electronic commerce, along with Level III data in its transaction reporting. Verdin says that her company will continue to expand on its electronic payment initiatives by offering new solutions in addition to e-P3. The goal: to move as many of an enterprise's payments as possible onto an electronic platform that offers built-in efficiencies and cost-effectiveness.
"Companies are looking for a global payment solution that has all the benefits of a [corporate] card with some of the attributes of [automated clearing house (ACH) settlements]," Verdin says. "ACH is very efficient, but you don't get much information, and the card is good for information, but it may not be a good price performer in the higher ticket areas." The challenge that the card companies are tackling, she continues, is to combine all the attributes of the existing payment methods to provide a flexible payment solution that's global in nature and that provides solid reconciliation and reporting capabilities. "That's the Holy Grail of payments, so to speak," Verdin concludes.