Growth and Growing Pains in the Payment Cards Market
Payment cards are the fastest growing sector of the payment systems market. Debit card payments are growing faster globally than any other system. The coverage of the payment card schemes continues to grow – MasterCard and Visa now have over 25 million merchants around the world accepting their cards.
But the surging demand for payment cards is not without its problems as they have become a target for many different types of fraud. The Nilson Report newsletter, which publishes news and research on consumer payment systems, estimates that in 2006 the global fraud on all types of payment cards was US$4.8bn up nearly 13% on 2005. As a percentage of the sales on payment cards this is a very small share at only 0.048%, but as a total it is a vast amount and is being tackled in many different ways by the card schemes and the authorities around the world.
The payment card schemes are becoming increasingly commercial with the MasterCard and Visa payment card schemes being transformed from bank-owned member associations to commercial companies owned by shareholders. MasterCard went public in May 2006 and is now valued at US$22.5bn. Visa, which dominates the payment card business and is bigger than all the other payment card schemes combined, is planning to go public in early 2008. These new structures are increasing the innovation and competitiveness of both organisations.
This innovation is being driven by the increasing competition between all the different payment systems, e.g. ACHs and the payment card schemes are competing head-to-head for the same markets, by the vast range of new technologies becoming available, and by the convergence of systems and technologies.
Convergence of technologies is creating powerful new solutions. The development of contactless computer chips for payment cards that do not need to be swiped at the point-of-sale terminal are now being inserted into mobile phones so purchases can be made by just tapping the mobile phone near the terminal. This will create massive demand and increase the rate at which cheques are disappearing.
Five Trends in the Payment Cards Industry
Payment cards offer many different ways to improve the efficiency of making and collecting payments, to cut fraud and new ways of doing business. This week gtnews publishes five new articles covering the trends and developments in the payment card industry, including T&E fraud, the benefits of lodge cards, purchasing cards for higher-value transactions, using cards for VAT recovery and prepaid cards.
In his article Deterring Fraud with Tighter Controls and Enhanced Visibility, Gelco’s Jeff Cronin reviews the most effective mechanisms for identifying travel expense fraud and how organisations can improve awareness of and compliance with travel and entertainment (T&E) policies. He describes the various opportunities for fraud in T&E reimbursement schemes including fictitious expenses, and then how to identify and deter such fraud.
Lodge cards provide opportunities for companies to control and streamline travel spend. Corporates gain benefits from the improved travel data and control of having a central settlement account and consolidated invoices. These are covered in the article The Benefits of Lodge Card Solutions Uncovered, by Airplus’s Ruth Reinicke, in which she describes the development of the dedicated lodge card.
Almost half of all businesses now use p-cards for small one-off payments, but it is now possible to obtain the benefit of using p-cards for larger, recurring payments as well. In her article How to Step-up your Company’s Use of P-Cards for Higher-value Transactions, Sush Koka, of Paystream Advisors, reviews how professional buyers are increasing their use of p-cards for higher value payments.
VAT recovery on travel expenses and other purchases is a time consuming and expensive business and unless carried out efficiently is not cost-effective. The article Leverage Your Corporate Card Program to Optimize Your VAT Recovery by Leigh Bochocchio, at MasterCard, describes how payment cards can improve the overall efficiency of organisations. She reviews the costs and benefits of these processes, and then shows how payment card schemes are partnering with VAT recovery companies to significantly improve the efficiency of the VAT recovery process.
Use of prepaid cards is also growing as they provide a cost effective and efficient replacement for cash and cheque payments. They have been used widely in the US and are set to make a significant impact on UK corporates, particularly providing an alternative to paper-based payments in industries such agriculture, construction and even insurance. James Le Brocq, at Alliance & Leicester Commercial Bank, explores these issues in his article Prepaid Cards: a Payments Revolution.
A series of governments are now very worried about the idea of bitcoin and these currencies because customers would be able to make sustainable ongoing transactions and payments without having to ever introduce the use of a typical financial model or banking system. To combat this potential threat, several countries including major central banks like the Bank of England and the Bank of Israel will be launching their own version of a cryptocurrency. This could bring big advantages to customers.
In modern-day banking, transactions are still a laborious process—sending money across the globe involves time, effort and risk. Payments moving across borders are slow, as they typically hop from one correspondent bank to another, each sitting on the funds, ccollecting afloat for who-knows-how-long.
The UK’s Prompt Payment Code will have a significant impact on the relationship between large businesses and their suppliers. What does the Code mean for your business? And how can you navigate this change effectively?
Automated accounting promises to save business owners time and money and remove much of the tedium from routine tasks.