Going Global with Commercial Cards: Joining the Dots in the EU

Despite the recent economic uncertainty, regionalisation and globalisation remain important commercial trends. Many US corporations are now looking to roll out commercial card programmes in conjunction with expanding their market and customer base, or as a result of acquisitions or mergers.

The Business Case for a Global Programme

As a means of optimising payments, a single global card programme has much to recommend. Global card programmes reduce costs and risks, and simplify processes for treasury. By decreasing the number of card providers with a single global card programme, companies achieve great efficiencies, such as harmonised support processes and management systems, enterprise views of spending, a reduction in paper, easier compliance and greater security.

Global card programmes need not be overwhelming. Whether the aim is to extend the programme into a single additional country, across a region, or across the world, the approach can remain broadly the same.

The EU: A Good Place to Start

The EU provides a good case study for companies looking to expand their card programmes. While social and regulatory differences are relatively minimised and recent developments in payments harmonisation are encouraging from an integration perspective, the EU is not a challenge-free region. Corporates need to plan ahead for a successful EU implementation, but in so doing they can achieve all the advantages that come from single global card programmes.

Following harmonisation of the EU’s commercial environment and the creation of a single european payments area (SEPA), the Payment Services Directive (PSD) provides a legal framework for a single payments market within the European Economic Area (EEA). The PSD puts cross-border payments within the EEA on the same level as in-country payments in terms of ease, price, and efficiency. That process of harmonisation is continuing, with the next major reform being to address different consumer credit laws across the EU.

A single European marketplace means that commercial card issuers can use a single country banking license to issue commercial cards into multiple markets using ‘passporting’ rules. Consequently, global providers can directly issue cards across multiple countries with consistent functions, features, service levels and local language support. This model suits many companies well, as it allows a card programme to be implemented and maintained from a single centralised point.

With the recent developments in the EU, the fragmented and cumbersome approach that many companies still face of managing cards across borders and providers is ripe for updating into a single card programme.

Considerations

The sheer scale of the EU economy, the mature marketplace, international commercial relationships and open borders are certainly principal draws for US companies. However, in practice the EU is far more diverse than it appears and based upon our experience, a number of issues can arise.

The most obvious is currency; in addition to the euro, there are 12 other currencies in everyday use. The EU also has 23 officially recognised languages, with numerous additional languages actually used on the ground. Furthermore, the EU also encompasses a wide variety of tax regimes, employment and data protection legislation and business practices – all of which have implications for the inclusion of the region in a global commercial card programme.

Tax

While payment systems in the EU are becoming harmonised, the same cannot be said of tax regimes. Despite the longstanding intent of the EU to deliver tax harmonisation, this still appears to be a long way off. Wide variations still exist in value added tax (VAT) and other tax rates, to say nothing of reporting deadlines, documentation, etc.

This often makes it necessary for US companies to engage third-party tax specialists to deal with these issues due to the amount of infrastructure and resources that are required to properly navigate tax issues.

Business practices

Local business practices and culture can often have a major impact on the efficiency of a global card programme unless planned for in advance. For instance, in certain countries (such as Italy and Sweden) cardholders use their corporate cards for personal as well as business spending. A card programme rolled out without regard for this practice would quickly run into accounting data issues, as retail personal transactions would be mixed with business ones, distorting the ability to use the information for supplier spend analysis. Prevention requires the institution of a company policy which clearly mandates and enforces that corporate cards are strictly for business use alone.

The inverse also applies, where in some countries employees often ignore their corporate card in favour of personal cards. This creates data access issues, as required information is distributed across both corporate and personal card statements. Again, this can be addressed by instituting and enforcing a corporate policy that only corporate cards be used for business expenses and that expenses incurred on personal cards will not be refunded unless there are exceptional circumstances.

Card reward schemes

Card reward schemes are another practice common in the US, but decreasing in availability in the EU. In the EU, many companies see reward schemes as creating inequity among employees, a potential benefit-in-kind tax risk, or encouraging a distortion in cardholder spending. Companies planning to establish card programmes in the EU may find rewards aren’t available. When recruiting locally, this is unlikely to prove a major issue, but where US employees (who will expect reward schemes) are being relocated to the EU this can be dealt with by careful advance briefing to reinforce the point that a card programme is for business use.

Purchase cards

The thriving marketplace for purchase cards that exists in the US doesn’t exist elsewhere. While there are enough purchase card-enabled merchants in the UK for many companies to have a workable purchase card programme, this doesn’t apply anywhere else in the EU.

While some commercial card issuers are investing in efforts to expand the number of conventional purchase card enabled merchants, others are focusing on developing single use commercial card solutions. These solutions are based on card issuers providing a card number for a purchase transaction, rather than physical plastic, which is a well established practice in the US.

Employment law

Employment law in some European countries raises a different set of issues. For example, in Belgium and Switzerland, employees cannot be held legally liable for any expenses associated with their employment. Therefore in these countries the corporation is effectively obliged to issue cards on the basis that the employer is completely responsible for settlement. This means that the individual liability model used by card issuers is legally unenforceable in these countries.

For US corporations accustomed to the individual liability model, adjusting to the increasingly popular corporate liability model will probably require some changes to their card issuance policy in the EU. The likely result will be tighter controls on which personnel are allocated a corporate card, lower user credit limits than might apply in the US and tighter monitoring of spending activity. Another consideration is the role played in certain EU countries of workers’ councils, which operate like company-specific unions. In some countries the issuance of a new corporate card programme to employees can technically count as a change in their terms of employment. Therefore, the logical course of action in countries such as Germany is to place a proposal to initiate a card scheme before the local workers’ council in advance.

Data protection

It is normal practice for a card programme provider to seek cardholder consent relating to their personal data when implementing a new programme. However, the data in that programme will also obviously be used by the employer in order to track and account for expenditure. Under EU data protection law, transactions on a corporate card are defined as personal to the card holder.

This raises the question of whether or not the employer also needs to obtain separate data protection consent from employees. In our experience, US companies planning to roll a global card programme into the EU typically take specialised professional data protection advice for each country implementation.

Card acceptance

Many US companies incorrectly assume that the distribution of merchant acceptance across Visa, MasterCard and other cards in the EU will be similar to the US. This is not the case; distribution patterns vary considerably. It is therefore wise to check this distribution against likely employee travel and spend patterns.

A further complication is that merchants accepting some cards commonplace in the US tend to be concentrated in major conurbations such as Paris or Frankfurt. Outside these cities, acceptance of these cards becomes much less common. This can easily give rise to situations where employees find themselves having to use their personal cards for business expenses, thereby defeating the purpose of having a corporate card to improve management information.

Chip and PIN

A further cultural point to be aware of in the EU is the growing adoption of Chip and PIN technology (as opposed to magnetic strip and signature conventions popular in the US). Under MasterCard and Visa rules, merchants still have to accept the card with just a signature if the user does not have a PIN. Unfortunately, in practice many will not actually do this. In other situations – such as purchasing fuel from an automated unattended fuel pump – the option of paying by signature is obviously unavailable.

This also increases the likelihood of occasional PIN users writing down their PINs, which raises liability issues in the case of fraud. If a PIN is compromised or simply forgotten, it is logistically challenging to issue a new PIN to the user while they are travelling. These potential problems can be pre-empted by providing educational material on these topics to employees new to EU transaction processes.

Card conventions

US companies acquiring European business units and incorporating them into a global card programme also need to be aware of how cards are issued and used in certain countries. In some instances, the success of a global card programme will make it necessary to alter procedures. For example in Germany, air travel expenses are sometimes paid with central booking account cards (lodge accounts) with a travel agent. Employees are left to pick up and reclaim incidental expenses on their personal cards and, therefore, commercial cards are less frequently issued to employees in Germany, and where they are issued, limits are lower.

This model raises control issues in that a third party has to confirm and allocate the major expenses incurred on behalf of each employee; there is no direct audit trail from an employee making a booking and payment on their own account. Using a central lodge account also disrupts management information in that two data streams have to be managed. One option for addressing this situation is for the acquirer to conduct a detailed review of all the available models for billing and payment, consulting different teams within the company, and to then choose one model to apply EU-wide.

Conclusion

The above list of considerations may appear daunting, but in practice can all be readily managed by a combination of planning, corporate policy and employee.

Indeed, a maxim when rolling out a global card programme into the EU or elsewhere is that forewarned is forearmed. The right global programme provider will be able to offer the appropriate assistance regarding potential local issues before any implementation gets underway, because it will have prior experience of assisting other corporations with their EU card roll out. While seeking independent professional advice will always be the most appropriate route, a suitably qualified card programme provider will be able to assist in smoothing and accelerating the process of incorporating the EU into a global card programme.

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