Expense Management: A Changing Market

Three factors are known to drive firms’ decisions to participate in an expense management programme:

  1. Cost control.
  2. Process efficiency.
  3. Policy compliance.

This view is not new – in fact, it’s been around for over a decade. The market was already well developed in both the US and the UK and the benefits of a multi-geography consolidated card programme were well known, particularly to the largest global customers. However, where this old message is falling on fresh ears is among the mid-market of mainland Europe. The global financial crisis is known to have accelerated the pace of change, ushering in more frequent contract reviews and tendering amongst corporates. Moreover, it has also forced companies that had not previously considered expense management programmes to introduce them as a cost-cutting measure – or implement organisation-wide schemes rather than fragmented programmes across multiple business units and markets.

It is widely documented that all issuers saw a drop of varying degree in travel and expenses (T&E) spend during the tail end of 2008 and throughout 2009. Only now, towards the end of 2010, are issuers talking of achieving monthly volumes not previously seen since mid-2008 before the economic downturn hit. More often than not, this has been achieved through aggressive growth of new customers rather than the existing customer base returning to their old ways. Those issuers who were in a position to react fastest and recognised the opportunity the financial crisis presented have benefited the most. This comment is particularly relevant when we reflect on the highly active European mergers and acquisitions (M&A) market over the past 24 months and the effects this has on issuers to function at peak productivity levels.

Furthermore, traditional T&E spend categories have been augmented by the rapidly evolving category of meetings conference and event bookings, now with an increased focus on data management as a way of creating further cost savings.

The Shape of the European Market

The market is still largely undefined throughout Europe, where many organisations still lack a clear sourcing strategy, with the result that they often have multiple card issuers supporting them across multiple countries – or worse still, multiple issuers even in one country. Over the course of the past five to 10 years, US issuers have sought in increasing numbers to bridge this gap for the multinationals by using a generic approach (which was accelerated by the introduction of the euro and single euro payments area (SEPA) legislation) in order to take advantage of this unclaimed opportunity. In doing so, they have placed themselves at the top of the list for those companies who are looking for a single sourcing solution on a global basis.

Perhaps as a consequence, the European commercial card market is starting to fragment into three clearer segments; at the top there are the true multinational corporate clients managing operations on a global basis with corresponding card requirements, including issuance in many of the 47 European markets. At the bottom, there are the domestically based small to medium-sized enterprises (SMEs), which are traditionally serviced by the local domestic business card provider. More recently and with increasingly sophisticated requirements, we are starting to see a middle market being defined by corporates with cross-border requirements but who are largely domiciled within Europe. This group presents an important opportunity for the European regional issuer.

Like the top segment, the mid-market increasingly demands solutions for both T&E and purchase-to-pay (P2P) activities that deliver outright cost savings, control and compliance as well as process efficiency. Unlike the global clients, this group has a stronger desire for a European solution, often retaining one of their home bank relationships, but increasingly with requirements for local language services, from application forms, to statements, call centre support and fraud operations support. It is here in the area of customer service that the European regional issuers have the first opportunity to capitalise and create a distinction from the generic global issuer approach.

However, this opportunity can only be realised by those European issuers who can offer the full value chain of products to cater for both the broadest definitions of T&E spend as well as P2P in multiple European markets, and are able to clearly articulate the benefits.

The Benefits

Cost control

In terms of cost control, solutions can be broken down in terms of:

  1. What upfront controls are offered to restrict out of policy spend, such as individual credit lines, cash access, transaction velocity limits and merchant category code restrictions for T&E. More recently, the advent of single use account number technology has enabled further controls to be added including those which can be prescriptive down to date, time, value, geographic location and individual merchant for every transaction executed in the purchasing cycle.
  2. Reporting platforms delivering information on consolidated programmes which provide companies with the opportunity to look at their spend holistically and police them against ‘rogue’ or out-of-policy spend. This same source can be used to provide reports so critical for vendor negotiations as evidence of spend in key categories.
  3. One factor in cost control that is often overlooked on a card programme, whether in T&E or in product sourcing, is the funding benefit – i.e. the card programme effectively extends payment terms for the corporate at no cost to them. It can also reduce payment terms when receiving payments. Both factors allow companies to use their cash more effectively in day-to-day business activity.
Process efficiency

Manually producing paper expense sheets, processing the data and reconciling with an enterprise resource planning (ERP) system can be extremely labour intensive. The same is true for employees, for whom filling monthly expense sheets can be a time-consuming task. By automatically integrating card based expenses into an organisation’s ERP system and enabling the expense claim process to be executed online delivers significant efficiencies.

Accordingly, issuers look to address the wing-to-wing process surrounding the payment process with extended value chain propositions – and consequently build a more durable, long-lasting relationship with companies rather than just supplying the end payments. One alternative is to provide the client with an expense management workflow engine directly or, depending on the issuer’s approach, introduce them to their expense management system (EMS) partner. Either way, the focus is on the start of the process being at point of requisition and the end of the process being at the expense approval

Policy compliance

Lack of adherence to an organisations T&E policy by employees is often cited as one of the primary reasons for lost savings. For this reason, being able to provide a clear insight into policy violation is one of the most important deliverables for a corporate card issuer. While the upfront controls mentioned earlier can serve as filters for blocking out of policy spend, reports generated out of an issuers reporting platform can serve as a way of tracking and consequently being able to target rogue spend perpetrators.

A Mid-market Niche

ING considers itself to be a European player in the commercial cards market, looking to support corporate, mid corporate and public sector relationships. The bank is therefore looking to take advantage of this recently defined landscape by adopting a more market segmentation-based approach. Rather than competing directly with those targeting the global multinational directly, ING is actively targeting the middle segment defined earlier.

In some of the markets in which it operates, the bank has only a portion of its client’s business, but alongside three or four other providers. With corporate card contracts now typically lasting three years, one in three of its clients are re-tendering every year. ING is therefore looking attract those contracts by offering standardisation across multiple markets or products, focusing on communicating the wider value chain of expense management and not simply the payment tool. To compete in this mid-market niche, an issuer must be present in multiple markets, be in a position to offer a single contract, standardised product features and pricing and provide a local settlement solution – preferably direct debit. Above all this, issuers require to be able to deliver a local solution from application forms, to statements to call centre support, to fraud operations support all in the native language.


European corporate card markets outside the recognised mature markets are still developing their understanding of the three drivers (process efficiency, cost savings and compliance) and corporate customers outside of the true global players are only now waking up to the benefits.

The corporate cards market – especially T&E – suffered as a consequence of the economic downturn, but this ultimately created an awareness from a different group of customers to control costs, enabling issuers to surge back.

The marketplace, with clearly-defined products serving both the top and bottom ends of the market, is seeing the most interesting changes in the middle, where regional players are seeking to exploit their new interest in streamlining their expense processes using a well established message while offering a more local touch. This niche is one where the banks in Europe such as ING, based on their existing client relationships and their European perspective, are hoping to play a significant role.

To learn more about ING, please visit their gtnews microsite.


Related reading