By Joanne Robinson, Commercial Payments International 

EDITOR’S NOTE: The following article is the first of a two-part series analyzing the state of the commercial cards market today. Look for the next segment in the winter issue of n>genuity.

Commercial cards — just one type of vehicle used by business and government to make payments between organizations — come in many forms and are present in most markets around the globe, though the level of maturity and types of products offered varies widely. The potential for commercial card use is enormous; however, penetration of spend on these cards is estimated at less than 5 percent of potential spend. The biggest driver of growth, according to Steve Abrams, MasterCard Worldwide‘s group executive for Global Commercial Products, is to “get issuers to distribute applicable products to replace cash.”

Visa’s Commercial Consumption Expenditure (CCE) index illustrates just how large the commercial spending pie is and the vast, untapped opportu­nity that remains for commercial card growth. Darren Parslow, head of Global Commercial Products for Visa, Inc., agrees that commercial cards “have not yet scratched the surface in any marketplace.”

The commercial card spectrum is wide and includes a variety of products, such as traditional corporate travel and entertainment cards, purchasing (P-cards), prepaid cards, fleet cards, debit cards, meetings cards and others.

How each of these categories of cards is developing around the world will be examined in more detail throughout this report.

According to the 2008 Visa Global Cash Management survey of 800 respon­dents from large global businesses, 50 percent of respondents currently use commercial payment cards to make payments. In the next 12 to 18 months, 52 percent of survey respondents intend to reduce reliance on checks and 45 percent plan to increase their use of commercial card programs. Market maturity for commercial cards varies across the globe, with a few markets considered mature and most falling into the developing or emerging categories. Product variation and penetration levels reflect the level of development of the markets. Suffice it to say that there are literally thousands of variations of commercial card products that can be found around the globe, with new twists being introduced at a dizzying speed.

Commercial Cards and the Economy

Like all industries, commercial cards have been affected by the recent global economic downturn. In most markets there has been a significant decrease in spending on traditional corporate cards, reflecting a downturn in business travel and overall spending. P-card spending growth has also slowed in the wake of spending decreases, but remains strong. All cards have experienced declines in numbers in some markets, due to staff layoffs and changes in company policies.

On the other side of the coin, however, is an opportunity presented by not only the current economic downturn but what is likely to be a long-term change in the way that organizations spend money. The benefits offered by commercial cards represent the very practices that organizations need to accelerate in challenging climates and will continue to practice once the current cycle is complete. According to Visa’s Parslow, these key benefits are primary selling points for commercial cards and include “cost controls, increased efficiencies, improved transparency and data availability.”

Regional Round-up

The state of commercial cards varies significantly by market and region. Generalities do not apply to some diverse regions such as Asia-Pacific, so specific markets may have unique characteristics. As illustrated in the related table, significant growth opportunities exist as penetration of certain products is still low, even in some developed markets.

North America

North America is the most developed commercial card market in the world, with both the United States and Canada at mature stages, especially when measured against other regions. Many types of commercial cards are offered in both markets, and both the U.S. and Canadian governments are active users of these products. Prepaid and debit cards are two products experiencing healthy growth rates in these markets, with other, more developed products continuing to grow at moderate rates.

P-cards have tremendous potential in both markets and, while growing, are challenged by supplier acceptance issues. Debit cards are a significant opportunity, especially for small and medium businesses. According to Visa’s CCE Index, small businesses in the United States alone spent an estimated $4.7 trillion in 2007, representing a significant opportunity to migrate paper-based payments to electronic payments. In 2007, only an estimated $90 to $95 billion of volume was on business debit cards, and less than 50 percent of small business checking accounts have business debit cards.

Europe

Europe can really be divided into two sub-regions — the UK and other countries. According to research conducted by TSYS and PSE Consulting, corporate cards are used by about two–thirds of companies in Europe but only account for about 3 percent of spend.

The UK market is the most developed in Europe and has the second largest government card program after the United States. Corporate cards and centralized travel cards are both popular in the UK. P-cards are growing as well, with more issuers offering this product. Prepaid programs, including government benefits disbursement, have been introduced in the commer­cial space and significant future growth is expected there. Fleet cards are active with good growth rates, and business debit cards remain limited and present a significant opportunity.

In other countries, commercial cards are much less developed, though there are indications that this is changing and we can expect significant growth during the next few years. Many markets have sophisticated and inexpensive electronic transfer sys­tems, which are used by businesses of all sizes for multiple types of pay­ments. However, some governments are now introducing (or planning to introduce) cards for various applica­tions, including benefits disbursements in markets such as Romania, Italy and the Canary Islands. In some markets, such as Germany, where credit cards are not widely used, growth will remain a challenge. Purchasing cards are used in some countries such as France, but generally have a very low penetration level. Debit cards have more presence in Germany, Poland and Hungary.



Europe is an area where MasterCard’s Abrams sees “potential across the region for all products.” One factor he believes could drive growth is greater support from upper management, since most products are not mandated and usage is lower. He notes that the “expertise, systems capabilities, acceptance and availability of data are all [present]” to lay the groundwork for growth. Abrams sees fleet cards as an opportunity in Europe and believes that fleet will take off in Europe in a couple of years, but more sophistication is needed at the oil pump first. P-cards are another area of huge potential according to Abrams, and he points out that governments in Europe are much more likely to use P-cards than private companies. One product he noted as being very successful in Europe is the centralized travel account, which he describes as having “great take up” and successes for MasterCard.

Europe is also a center of commercial product innovations. A recent example, the Visa Green Card, is the world’s first carbon-neutral credit card and offers companies a payment solution aligned with the increasing demand for corporate leadership towards sustainable initiatives.

Asia-Pacific

The Asia-Pacific (AP) region is very large and diverse, with the commercial card market development levels reflecting this unique diversity. There is tremendous opportunity across the region, especially for products targeted at small and medium businesses, as many countries are dominated by smaller players. Like Europe, the AP region has one very large and developed market, Australia, with others in various stages of development.

Both Australia and New Zealand are well developed commercial cards markets that offer the full range of commercial cards products. The Australian government has a very strong card program, utilizing corporate, purchasing, fleet and centralized travel cards. Prepaid is fairly new but presents an opportunity to replace cash or route money to many workers who are located in remote places. Most large corporations use cards of some type, and the market is expected to continue to grow.
Hong Kong and Singapore are other well-developed markets in the region, reflecting their status as regional headquarters to multinational companies that often have card programs in place. Both have developed traditional corporate card programs, but penetration is lower for other products.

Increased activity is being seen across the region and specifically in markets such as Malaysia, Taiwan, Japan and India. In South Korea, business debit cards are increasing in popularity. China and India, two very large markets, present enormous opportuni­ty but have distinct challenges of their own. Both countries are home to large multinationals, foreign offices of multinationals and literally millions of small-and medium-sized businesses that largely deal in cash. India also has many organizations in remote rural areas and a large proportion of its population is unbanked. However, issuers have been focusing on this market and have introduced several programs that serve the unique needs of Indian companies. Corporate cards are widespread though usually limited to the top executives. P-cards are experiencing growth, and distribution cards are becoming more popular, especially in growth industries such as telecommunications. Another trend is the growing use of prepaid cards, especially for payroll cards and travel cards. Enabling government-to-business spend is increasingly an area of focus for countries where commercial card markets are nascent.

China still remains a cash society, even for large company payments. Most payments are completed through interbank transfers with the remaining balance, even for services such as travel, paid in cash. This is changing as foreign companies drive demand for commercial card usage and growth rates are expected to be significant in the coming years.

Latin America

The two largest markets in Latin America, Brazil and Mexico, are by far the most developed commercial card markets in this region. Regardless, the use of cards there remains very low. In Brazil, business debit cards have a respectable presence, and there is increased activity in the commercial prepaid area, especially for travel cards.  Mexico is new to commercial cards, with traditional corporate cards dominating the landscape.

Most other markets are in nascent stages, but many have well-developed consumer card markets paving the way for commercial cards. However, in Latin America many businesses only issue cards to a handful of senior executives — a cultural practice that will have to shift before these markets can enjoy higher levels of commercial card acceptance.

Middle East and Africa

There has been significant interest from certain markets in the Middle East recently to establish or grow their commercial card programs. This is especially true in Dubai, Saudi Arabia, Oman and Abu Dhabi. As home to many large multinational companies and the offices of numerous foreign multinationals, the region is ripe for an explosion in commercial cards.

South Africa’s commercial cards market is fairly limited with traditional corporate cards as the dominant product. However, this is another market with significant opportunity.

About the Author

Joanne Robinson is the co-founder of Commercial Payments International, a provider of premium information to the commercial payments industry. She has been in the cards and payments arena since 1979, when she began her career at Citibank. She also worked for MasterCard and Diners Club before starting her own consulting business in 1994. Joanne is a regular speaker and chair at industry conferences around the world and has been widely published and frequently quoted in many payments publications.