Today card programmes are at the centre of working capital solutions, offering far greater funding opportunities and benefits to clients, with a plethora of options capable of adding value throughout the supply chain. Coupled with the globalisation of many businesses and despite the economic uncertainty, increasing numbers of corporates are looking to optimise the benefits of rolling out a global commercial card programme.
Rise to Prominence: The Evolution of a Working Capital Solution
In the past 15 years, the purchasing card, or ‘p-card’, has evolved from a simple card-based solution for point-of-sale (POS) transactions to where the card is today – we have even reached the stage of virtual use, without having to be physically present at the transaction. A global card programme is integral to optimising payments, by decreasing the number of card providers, and delivering greater efficiencies. This is achieved via harmonised support processes and management systems to give an enterprise-wide view of cash positions and spending. Consequently, demand and utility of the solution is derived from business banking clients through to the largest organisations.
From a client perspective, p-cards have become a valuable part of its working capital solutions set. Although primarily a solution for low-value payments to drive more efficient payment processes, the wider benefits also include greater visibility, better tracking, enhanced risk management and greater purchasing controls. This gives clients an invaluable, accurate snapshot and absolute clarity on expenditure with key suppliers and vendors, along with greater knowledge to better equip them in future vendor negotiations. As risk management continues to occupy the top of the agenda for corporates, it has become a key control in managing operations, allowing them to know exactly where their cash lies.
In contrast to other payment mechanisms, commercial cards provide far greater detail, so the corporate can validate their purchasing decisions to ensure that they are paying the right price for goods and services. This solution offers line item detail so clients can see how they are paying, what they are paying for and whether the activity is compliant with the company’s internal policies.
Local Delivery, Worldwide Expertise
Increasingly, clients are moving from a card that offers the ability to make low-value payments towards a card solution that has a wider reach, providing support for multinational companies (MNCs) with global operations – all through a single point of contact. We are increasingly being asked by clients how such a solution can be taken globally and what needs to be done to achieve this.
These days, card programmes can be implemented across the globe, capable of consolidating reporting across multiple currencies and countries. Key to this, however, is the ability to implement a solution which can be managed locally in order to understand the local issues prior to implementation, whether cultural, legal or economic, such as tax laws which can vary considerably across jurisdictions. Therefore, best practice must demonstrate the flexibility required to accommodate regional nuances, while being global in scale in order to keep up with the breadth of payments being executed. All this must be achieved while still giving a real-time cash position.
Regional and Industry Adoption Trends
The concept of p-cards is not new in North America. This geography represents a mature market where their technology and usage has evolved to create a thriving market. However, with the exception of the UK and Australia, markets outside the US are far less developed. This difference is attributable to entrenched payment mechanisms. In the case of Europe, the lack of a central payment mechanism hampers the adoption of European-wide card programmes. However, we are optimistic that the implementation of the single euro payments area (SEPA) and the Payment Services Directive (PSD) will continue to bring greater harmonisation of payment systems to allow card programmes to be rolled out across multiple markets via ‘passporting’ rules. This will inevitably provide the impetus towards greater ubiquity, all of which can be managed from a single centralised point which better manages the diversity that defines the European marketplace.
Interestingly, it is the public and government sectors that have provided much of the impetuous behind the adoption of p-cards. For instance, in the countries where p-cards are most ubiquitous – across North America, the UK and Australia – utilisation has been driven by government-led initiatives brought on by the rigors of procurement processes and controls of public finances expenditure. In regions which are less mature, such as Asia for example, we see the same trend emerging. The governments of Singapore and Hong Kong have recently embraced p-cards as payment mechanisms to replace cash and cheques, primarily to create greater transparency in an online environment. We anticipate more governments in Asia will follow their initiative.
One of the key benefits of a widely adopted card programme, which is only just being realised, is the incremental data it exposes. Traditional payment methods do not make information as accessible and certainly not in a way which can be aggregated for deeper analysis.
For most of Europe, the biggest opportunity for p-cards comes from the low-value payments still conducted manually via a paper-based environment towards an automated, electronic, data-read type of transaction. And on the world stage, as the global regulatory environment continues to press the need for optimum transparency, the demand for data to meet these requirements continues unabated. All this suggests a key role for the p-card as a tool for corporates to manage their financial, supervisory and reporting requirements.
It should be noted that not all European markets are alike in terms of sustaining paper-based environments. The Nordics, for example, have for many years used electronic payment and e-invoicing systems. As a result, their lack of a paper-based environment creates a much reduced need to adopt a card programme.
Creating a ‘Win-win’ for Buy- and Supply-side
Although there is still some way to go towards widespread adoption globally, it is fair to say that p-cards have come a long way from a piece of plastic to being a key financing tool. Their virtue lies in the provision of financing options to both the buy side and the supply side. It allows the supply side to know they will receive immediate payment, far more beneficial than operating with a purchasing order (PO) and waiting up to 45 days to be paid. Meanwhile, on the buy side, purchasing cards prove their worth by accelerating payment terms, while at the same time providing incremental data, enhanced transparency and far greater efficiency.
Certainly there is a trend from clients in developed countries to implement a global solution from a single provider in order to aggregate data on a worldwide basis. There’s no doubting the leverage that can be achieved from collecting data from each and every card transaction, which can then be used across the whole financial supply chain. This leaves the corporate far better equipped to move money in the right way, as and when it is needed, in order to optimise its cash around the world.
Looking to the future, we anticipate p-card solutions will not only be deployed for low-value payments, which represent the majority of today’s catalyst for change, but also for higher-value payments. The impetus for this evolution is corporates’ continual move towards globalisation and the recognition of how p-card programmes can provide enriched and valuable data on a global basis which will help them manage through increasingly complex financial, supervisory and reporting requirements.
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