Treasury Today Country Profiles in association with Citi

Appetite for commercial card programmes growing fast across APAC

Plant growth in stages

Demand for commercial card programmes across APAC is growing fast and set to continue doing so for the next few years, with supplier payments and B2B as key drivers.

With no sign of any let up in global growth of electronic payments, commercial cards programmes are riding hard in the e-payment slipstream, coming into their own. And nowhere in the world is the demand for them growing as fast as across APAC.

According to Citi’s Asia Pacific Commercial Cards Survey 2018, more and more businesses in the APAC region are giving the thumbs up to commercial card programmes as they move away from legacy payment tools and opt for the flexibility and cost efficiency offered by cards.

“Many corporates are expanding the use of commercial cards to alternative flows such as travel and entertainment (T&E) or procurement, while migrating from cheques and ACH payments,” says the survey, which polled 46 decision makers from 42 separate companies operating in the APAC region across a range of industries.

Citi found that APAC businesses increased their spend on commercial cards by 24% in 2017, with B2B spending soaring by nearly 50% over the year. Travel and expense management is easily the most common spend category for commercial cards, with 76% of those surveyed saying they have mandated the use of cards for that purpose.

The expanding use of commercial cards by corporates in the region is intimately linked to a growing focus on digitisation and technology. As business operations become more complex, corporates want solutions that are simple and digital to optimise the efficiencies that can be accrued, resulting in the growing demand for commercial cards.

More specifically, commercial card adoption across APAC is being largely driven by businesses’ demand for greater visibility into spend and cash flow, as well as the ability of tools to streamline financial controls and governance and promote efficiencies.

Bright outlook

Deven Somaya, Citi’s Head of Commercial Cards for Asia Pacific, Treasury & Trade Solutions, is upbeat about the outlook for card growth across APAC: “The commercial cards business across the region has been experiencing double-digit growth, with B2B volumes growing at a much faster clip than the traditional T&E.”

He expects supplier payments and, in particular, ecommerce B2B flows to be major drivers for further growth over the coming years: “We are seeing more and more Asia-to-Asia flows as companies buy within the region and this trend applies to both existing T&E programmes expanding into B2B or new to firm programmes originated from the emerging markets. APAC continues to be the growth engine where we now see more opportunities than ever.”

Somaya says corporates are keen on card solutions as they offer several benefits over legacy payment mechanisms. These include simplified payments processing and working capital and operational efficiencies. Commercial cards ensure greater visibility, providing companies a greater level of actionable data on their supplier payments. They also offer a higher level of compliance in corporate spending.

A cards-based payment platform is especially relevant to corporate treasurers, as a useful tool in assisting global expense management and cash flow while balancing companies’ liquidity and profitability. Ninety percent of the Citi survey respondents say their corporate treasuries are involved in making decisions regarding the choice of corporate card provider.

Further evidence of benefits of commercial cards for corporates is provided by 2017 RPMG Global Purchasing Card Benchmark Survey – Card Benefits Reported, Global. Respondents to the survey affirmed that purchasing cards have a notable impact on operational efficiency and cost. They reported administrative cost savings of US$62.30 per transaction and a 69% reduction in the time elapsed from the determination of employee need to the date goods are received, when compared to the traditional purchase order-driven acquisition process. Beyond administrative cost and time savings, a typical purchase card transaction provides 40 days of interest-free financing.

Nearly 90% of those surveyed by RPMG said that purchasing cards are “moderately” to “extremely” valuable with respect to simplifying the process for purchasing goods and services while 73% said the same with respect to reducing the number of petty cash accounts and cash advances in the organisation.

APAC payment landscape changing fast

More broadly with regards to APAC, Somaya observes that the payment landscape is going through rapid transformation across the region. Some of the common themes emerging as a result of this include a drive to cashless ecosystems; payments getting smaller in dollar value; and fragmentation of the payments space due to the emergence of local players and fintechs.

“Each of these developing themes has a big bearing on the commercial cards landscape and while threats exist, there is a great opportunity and potential for continued growth of cards too. The industry has evolved from plastic to virtual cards, supporting a highly efficient digital payment ecosystem.

“While a cards solution is not the answer to every payment need, it does greatly fit in with the emerging trends such as going cashless to reduce the carrying costs and associated concerns on security. The infrastructure associated with card solutions is also supportive of the trend towards smaller payments. Through contactless payments, meanwhile, the speed of transaction is also getting faster.”

While it might seem that fintechs present a real threat to card providers like Citi, Somaya is of the view that their presence creates partnership opportunities to solve traditionally challenging aspects of the payment ecosystem, for example the “the last mile challenge” of getting onboard merchants who don’t yet accept card payments.