US card issuers and networks see great opportunities to migrate US businesses away from their heavy dependence on cheques. A key development is the emergence of automated B2B procurement systems where businesses pay suppliers using virtual cards or by ACH, feeding invoice data into their accounts payable (AP) systems. Robin Arnfield reports
Another driver is the US move to implement Faster Payment Systems offering real-time electronic payments by 2020 under the Federal Reserve’s aegis. The Clearing House, which operates a private-sector ACH/wire transfer network, has already launched a real-time system using technology from Mastercard-owned Vocalink.
“In the absence of strong GDP growth or major economic disruptions, the growth of U.S.-based spending on commercial cards has been fairly steady in the last few years,” Steve Murphy, Director of Mercator Advisory Group’s Commercial and Enterprise Payments Advisory Service, says in his “The Drive Toward Mainstream Payables” report.
“There was a minor downturn in spending in the second half of 2016 due to pre-election uncertainty and sector behaviour, but the industry managed to achieve continued good growth overall. The critical factor for commercial cards is to gain a faster rate of growth of share of B2B payables during the next five years, as the changing e-payments environment presents easier, faster alternatives to paper-based solutions.”
“B2B payments portals offering ACH or card payments and integration with AP systems have generated a lot of interest among accounts departments, as they save time and money compared to cheques,” says Senior Aite Group analyst Kevin Morrison.
Murphy says growth rates for single-use virtual commercial card accounts are triple those of traditional plastic card products. He adds that straight-through-processing (STP) payments solutions integrating cards with AP systems can drive higher growth and spending share capture. “Expanded partnerships and new technology are moving the (commercial card) industry into the payables mainstream,” he writes.
The Federal Reserve Payments Study’s 2017 Annual Supplement says that 17.8 billion commercial cheques were paid in the US in 2015, worth $28.8tr. Total commercial cheques (excluding US Treasury cheques and postal money orders) paid in the US fell 3.0% a year by number from 2012 to 2015, but rose by 2.2% a year by value.
“Estimates for 2015 to 2016 show declines of 3.6% by number and 3.7% by value in commercial cheques paid by a group of the largest US depository institutions,” the study says. “In 2015, businesses made about 19.7 card payments per month, on average. The total value of business card payments was quite small relative to other business payment types such as ACH (automated clearing house) and cheques.”
The 2016 AFP (Association of Financial Professionals) Electronic Payments Survey, underwritten by J.P. Morgan, found that 94% of US organisations continue to pay their major business suppliers by cheque. It says: “survey respondents also use other payment methods to reimburse those vendors, including:
ACH credits (cited by 83% of respondents);
Wire transfers (79%);
Purchasing cards (48%);
ACH Debits (24%);
Single-use accounts (8%).”
The AFP says the average company makes an estimated 41% of its payments to major suppliers via cheque. Thirty-four percent of payments to major suppliers are made using ACH Credits and 13% via wire transfer. “Purchasing cards, ACH Debits and single-use accounts are used for far fewer payments to major customers,” the AFP says.
“In the past few years, most issuers’ primary focus has been consumer payments, reflected in strong increases in electronic transactions and a shift from cash,” Aite Group Senior Analyst Gilles Ubaghs says. “Commercial cards tended to take a backseat in most issuers’ modernisation plans, and, arguably, the great recession slowed down the growth and development of the commercial cards market.
“While consumer digital payment and banking services are relatively strong at most FIs, the SME and corporate payments and banking space is playing catch up after several years of under-investment. Aite Group research found that 50% of SMEs make online banking transactions on a daily basis, while 36% make mobile banking transactions on a daily basis. So many banks are investing heavily in improving their digital capabilities targeting the SME and commercial space, and commercial cards are a big plank of this.
“The key is better integration and use of data by banks, and helping to place commercial cards more squarely into the payables landscape. Procurement cards have been a major avenue for growth, particularly where cards can be closely integrated into broader payables infrastructure and ERP (enterprise resource planning) systems and help reduce operational costs and the continued shift away from paper.
“T&E cards are still a crucial part of the market, and, like payables, are seeing growth due to their closer integration into internal back-office systems and the shift from paper. But overall business travel statistics are static and not seeing major increases. Given the growing use of teleconference and telecommuting capabilities, I wouldn’t expect any major increases in T&E card usage due to shifts in travel behaviour on their own. But many businesses nonetheless want a smarter, more digital program that they can have better oversight and control of.
“The commercial cards space will be a big beneficiary from the growth of US real-time payments. It’s likely the market may even move away from traditional cards-based systems to something more virtual and account-based with a big emphasis on data-rich messaging tied into transactions, and more nimble and configurable rule sets that can be added to commercial card programs. The US has been a strange market in the last few years due to the fact that cheque use, after years of steady decline, has started to plateau. But the shift to real-time payments will eat into that in a big way and help fuel the commercial cards market.”
“American Express’s Global Commercial Services division offers payment and lending products to help businesses of all sizes gain financial savings, control, and efficiency,” says Amex spokesperson Melissa Filipek. “We provide solutions for travel and everyday business spending, cross-border payments, global currency solutions, and business financing.”
During 2017, Amex announced B2B payments partnerships with AP systems providers MineralTree, Intacct, RegalPay, and SAP Ariba to enable better integration between virtual Amex corporate cards and AP systems. Amex also launched its enhanced Business Travel Account (BTA), which now incorporates virtual account numbers to centralise more types of business travel spending into a single account.
Amex’s virtual card technology generates a single-use card number for each transaction.
Bank of America Merrill Lynch
BofA Merrill’s commercial cards business processed $56.3bn in US purchases in 2016 on purchasing cards, corporate cards, and prepaid cards, up 9.2% on 2015.
“Globally, we offer traditional purchasing cards and Virtual Payables our virtual card solution,” says Jennifer Petty, head of Global Card and Comprehensive Payables at BofA Merrill Lynch. “In the US, our largest market, we also offer Paymode-X Connect, an ACH network solution that can be deployed stand-alone or with our Virtual Payables offering.
“In 2017, we introduced API connectivity as an additional option for buyers to initiate virtual card payments. We also expanded the use of single-use account capability to streamline the payment and reconciliation process for buyers and suppliers. We see a growing demand for mobile access and mobile technology by corporate card accounts. We have cardholder level alerts in place, and our card management systems are optimised for mobile use.”
“A major focus in the commercial market is working with clients to move their payments from cheques to cards,” says Tony DeSanctis, Senior Director at Cornerstone Advisors. “The efficiency and tracking capabilities that clients get from using cards is significant. The ability to control categories of spend, elimination of paper cheques, and reduced risk of employee fraud are driving the migration.
“The reduced processing costs, better reporting and tracking, and expense reduction opportunities make the migration an easy sell for most issuers. Most treasury executives are looking for opportunities like this to automate and simplify their payments and procurement processes.”
DeSanctis says that treasury executives expect issuers to offer a mobile capability. “To have mobile account set-up and management as a core part of your offering is now an expectation,” he says. “But digital tools are less focused on mobile payments and more about service and mobile support for issues like controls and line management.”
Mastercard sees opportunities to work with banks, its payments technology partners, and large corporations to automate B2B payments, says Colleen Taylor, Mastercard’s EVP of New Payments Business. “Technology such as APIs and the Cloud make it much easier to integrate payments with invoicing data, and will really drive migration to electronic payments,” she says.
Mastercard also wants to help SMEs, Taylor says. “Increasingly, we’re seeing small business cards offering more data to help business administrators, but corporate cards and purchasing cards still offer more data for accounts departments,” she notes. “We’ve focused on the information needs of larger companies, but are seeing a trend for smaller businesses to want more data to manage their business. So we’re working with our partners to deliver to small businesses more of the data we capture at the point of sale and from e-commerce transaction processors.”
In June 2017, Mastercard launched the Mastercard B2B Hub digital payment system for SMEs to manage invoices, payments, and supplier relationships. The system, which offers card and ACH payments, is available to companies through their bank or commercial card issuer. AvidXchange, a provider of automated invoice and payment processing, was the first software vendor to partner with Mastercard in the B2B Hub.
“Companies want the option of making supplier payments via different methods,” says Taylor. “Sometimes, virtual card payments work fine, and sometimes it’s cheques or ACH payments. We’re partnering with AvidXchange and other payments players so that middle-market firms can give us their complete AP files and make virtual card payments if their suppliers accept virtual cards.
“Cheques represent around 50% of US B2B payments, so the opportunity in B2B is twofold,” says Taylor. “Helping companies move from cheques to efficient electronic payments such as single-use virtual cards, and providing improved levels of data so suppliers receiving electronic payments can move the associated data into their accounts receivable system. Mid-market and large companies want the convenience of mobile payment apps. So Mastercard is partnering with various players in the US and elsewhere to provide virtual T&E card mobile apps.
“I expect some of today’s B2B cheque payments will move to real-time payment rails in the US, and others to slower ACH payments. As the real-time payment rails use ISO 20022, there is more robust data, which facilitates invoicing information being sent with payments. However, banks have to update their online business banking apps to incorporate that data as do the large companies’ ERP systems.”
Taylor says Mastercard hasn’t seen much demand from businesses to be able to use the Mastercard Send card-to-card payment platform for B2B payments. “We’ve seen demand for business-to-consumer card disbursement where corporations want to pay rebates to customers or send insurance refunds. Mastercard is also a big facilitator of Mastercard Send-based payments in the gig economy.
For example, Lyft or Uber drivers have the option to get their payment for rides via MasterCard Send. We’re also working with our partner banks to extend Mastercard Send for making payments to micro-businesses such as landscapers or contractors. But, due to their demand for more data integration with AP systems, I don’t see Mastercard Send being adopted by larger companies.”
“Digitisation of corporate payments is growing at an increasingly accelerated rate,” Peggy Yankovich, Large Market/Public Sector Product and Marketing Manager at US Bank, says. “We distinguish ourselves in the marketplace through our customer service and program optimisation.
“Our service starts well before the first digital payment is transacted. For example, many new clients don’t have the IT resources to set up virtual payment programs, or have barriers built into their systems making implementation challenging. We offer a universal ERP adaptor that streamlines the on-boarding process for electronic payments. It’s basically plug-and-play, requiring only a couple hours of client IT time.
“Once they’re up-and-running, we offer our clients a program optimization service that helps them gain maximum value from their card programmes. This includes a thorough analysis of their AP data, looking for unrealised opportunities. We flag cheque payments to suppliers we know accept more efficient methods. If one business line pays a supplier by card and another line of the company pays the same vendor by cheque, we flag that too. We leave no stone unturned to make electronic payment an irresistible option.
“We leverage industry data to benchmark a client’s payment practices against competitors of similar size. This helps identify opportunities and sizes the potential bottom-line impact to our clients if benchmark levels of spend are achieved. Using all this data, we map out effective supplier enrolment strategies for our clients.
“We find that year-over-year spending using electronic payments increases 9% with ‘optimized’ clients, compared with under a half-percent increase in everyone else. That translates into better rebates and reduced transactional cost for them.
“Our participation in the US General Service Administration’s (GSA) SmartPay programme is one of many factors driving our push for continuous innovation,” says Yankovich. “U.S. Bank has provided card payment programmes to Federal agencies since 1986. Last August, GSA selected U.S. Bank as one of only two financial institutions to participate in the next phase of SmartPay, SmartPay 3. To prepare for this, we’re investing heavily in next-generation technology and product enhancements, in addition to continuously advancing cyber-security.
“The use of digital tools in corporate payments picked up quite a bit of steam in 2017. Our total monthly transactions by B2B card had been inching up steadily for years, and then took a hockey-stick-like upward projection starting at the end of 2016 and continuing all last year. During that same period, mobile log-ins to our Access Online card management tool essentially doubled.
“Last Spring, we were the first financial institution to offer mobile payments for Visa travel card transactions, which allows our business customers to make purchases with a phone via Apple Pay, Samsung Pay, and Google Pay (formerly Android Pay),” says Yankovich. “The capability is still in its infancy as people try to understand the functionality and where it is accepted, but we can say that the people who use it love it. A similar capability for Mastercard transactions will be rolled out shortly. We believe that mobile payments on purchasing cards will be next, though we don’t have an exact timetable.
“We’re rolling out B2B payment platforms for our corporate/commercial cards on a continuous basis. Our corporate clients tell us they want to be able to perform the same functions anywhere in the world as they can sitting at their desks, and that’s our goal.
“Wider use of virtual accounts is also happening, which allows users to both request an account and make a secure payment directly from their mobile device. Our customer information portal, US. Bank Access Online, has a mobile app that allows users to request and receive virtual account numbers through their smartphones, and can take pictures of receipts to upload to their expense reports.
“Longer term, we see communication from device to device – the Internet of Things – making purchasing transactions ever easier and more seamless. Our cars will be set up to be mobile devices, for example. Just tap a button on the steering wheel to pay for fuel.”
In October 2017, Visa integrated its Straight Through Processing system into AP software firm Billtrust’s Virtual Card Capture tool. The partnership will enable suppliers to accept virtual commercial card payments made by buyers in their accounting system, and automatically capture payment information for reconciliation.
In June 2017, Visa announced Visa Ready Program for Business Solutions, a framework to help technology companies that integrate with Visa’s B2B payment services and data solutions to ensure they meet Visa’s standards. Bora Payment Systems, Bottomline Technologies, CSI globalVCard, MineralTree, and Priority Commercial Payments were the first partners to obtain Visa Ready for Business Solutions approval, and to launch Visa payments services for financial institutions’ commercial customers.