How much growth are you currently seeing in the commercial cards market?
The market is growing at a compound annual growth rate of about 7%. A lot of this growth is from digitisation and simplified users’ experiences, plus the constant growth in businesses accepting card payments – underpinning commercial cards is 60 years of experience, real-time data flow, 24/7 reliability and a global network.
In terms of where the growth is focused, virtual cards are our fastest growing product for customers. Virtual cards use the same network as the ones in your pocket, but they are effectively a tokenised number that looks and feels like a credit card and can be used in exactly the same way – but with a series of additional controls that can be set around it. For example:
A card that is going be used for a new product launch event can be locked down so it can only be used for certain types of transactions, such as lighting, engineering and exhibition space. It could also have a fixed budget for the event.
We can interface with other systems and a business using a virtual card solution can generate card details over API link. A great example of using this is with an e-procurement catalogue loaded with goods and services offered by our clients’ own suppliers. Our client may have their own internal approval processes and, at the point of payment, the e-procurement tool connects with HSBC via API, checks for approval and generates tokenised card details with set parameters; populating the details within the portal to process the payment – all fully automated.
Another driver is business-to-business (B2B) procurement. We’re increasingly seeing cards being used by businesses to pay suppliers – and there are a number of benefits to both parties in doing that, including cash flow improvements, increased security and controls and access to rich transaction data, including what has been purchased, from which type of supplier, when, and by whom.
And a third driver is mobile wallets, whereby you can have cards loaded onto your mobile wallet and pick the right card for your purchase. We’re investing in our mobile app which will allow things like taking a photo of an expense receipt, coding it on the fly and automating steps in the expense process.
Is growth mostly coming from people who haven’t had a card scheme before, or from customers with existing schemes who are looking to take advantage of these new opportunities?
It’s a good mix of both. The UK is the biggest commercial cards market in Europe, but we’re currently issuing cards across continental Europe in nine currencies. Some of these markets have historically been less cards-focused, but this is rapidly changing.
Most of our customers stay with us a long time. Some growth happens organically as the programme gets further embraced within the organisation, but one of the keys to the success of a card programme is the ongoing consultation we provide.
Why do your clients typically use commercial cards?
If a customer doesn’t have a commercial cards programme today, the only real choice for an individual who is travelling on business is to use their own card – which provides zero information to the company and little control over what they buy at the time of purchase, where they stayed and who they flew with. And of course, it’s a cash-based expense which is open to some risk and significant inefficiency driven by the complexity of expense management and reconciliation when using this approach for a large community of travelling employees.
With a cards programme, treasury can see exactly how much expense is coming out at any time, planned in advance because it is centralised on a cards programme. On the procurement side, you can complete the purchase on order or on invoice, yet the business pays later – and if you buy something that doesn’t materialise into a delivery of goods or services, you are protected from that and get an immediate credit – just like when you use a personal credit card.
Historically HSBC has focused on corporates, but we are increasingly doing more business in the public sector space, which often has edicts to pay suppliers within a set period of time. In Europe, for example, there are initiatives to pay small businesses in days rather than weeks or months. That’s a tough ask if you’re receiving a paper invoice that needs to be sent to the right people, get the appropriate coding and be approved before it is put on a payment run system and settled. Compare that to paying by card at the point of transaction – the supplier knows it is paid immediately, gets the cash in their account within a day or two and our customer can still benefit from up to 56 days before funds are debited from their account.
Other uses include lodge cards or central travel accounts. If you book your travel through the registered travel agent, your flight will be centrally billed to your own cost centre and matched with the invoice details including: who travelled, who approved the travel, when it was booked and what class of travel it was, before being posted straight to the general ledger.
And to give a further example, our fuel cards can be used to log each trip as business mileage or personal mileage, with HMRC approved VAT reporting included. Many new vehicles now capture data analytics – so we’ve done some work integrating with a fintech which can collect data directly from connected vehicles and automatically validate associate details of a trip when it has been made.
How does the use of commercial cards benefit suppliers?
Early or guaranteed payment is a major benefit. I think it wouldn’t be remiss to say that some large organisations can take a while to pay, because getting the invoice and approvals from the right people at the right time can be difficult. That causes a real headache for small businesses in terms of the cost of chasing up payments and effectively being out of pocket for a period of time.
A great example would be media companies and marketing agencies where people have outlays for advertising and copywriters, and then bill their client for the work. If the organisation takes a long time to pay because of their own inefficiencies, this can have a material impact on a smaller business. So, accepting card payments upfront and getting that money the next business day is extremely attractive.
There are also costs and risks involved in handling cash – you have to reconcile it, count it, package it up and bank it. If everything is done by card, these issues are avoided. Also suppliers can benefit from information about their customers, as well as giving them a very automated way of doing their own accounting.
At the same time, accepting card payments can make it very easy for a buyer to do business with a particular supplier, compared to having to send purchase orders and requisitions back and forth. Once this is understood by both buyer and supplier, they typically promote card payments and see them as a robust alternative to more traditional payment methods.
How can different stakeholders within the business, such as treasury, finance, and HR, leverage the benefits of a card programme?
What treasurers are really looking for is predictability in their cycle. The product or service they are selling may be seasonal, but when expenses are haphazard, that can cause a cash flow squeeze. So, knowing 30 or 60 days in advance what is coming out – because it’s all carded – is very attractive to a treasurer. With the ability to have a single card programme in many local currencies a business can also reduce the exposure to foreign exchange fees.
From a finance, CFO and accounts payable perspective, card programmes can bring a lot of process efficiency, and in turn cost savings, as well as increasing visibility and control by turning everything digital. We have a front-end card management tool called MiVision which captures all this data, allows reporting, and provides a real-time view of card expenditure. If you can compare how much you are spending with different London hotels, this can help with negotiation – which then comes into play with procurement.
Then there’s HR. By restricting a programme to suppliers that are within the policy of that company, it means that card can’t be used with certain providers, which can minimise potential risk in the organisation. There’s also an element of safeguarding here. With a card you know where it’s being used, which to some degree lets you know where your employees are – so that in itself is helpful.
With so many stakeholders, it’s important to get everyone around the table. When we receive an RFP that is led by one function in isolation – perhaps a procurement exercise – that typically doesn’t lend itself to the benefits everyone can get from a programme. So I think stakeholder engagement is absolutely critical at the very earliest part of the process.
What factors are typically driving the adoption of card payments?
On the fintech side, we work with companies that provide data analytics and a digital customer experience as part of our MiVision tool; all of which drive adoption and helps with speed of integration. Having a large bank integrating with a large corporate hasn’t always been the fastest of processes, so having these players in the middle is something that we warmly embrace.
Having real-time access to information and controls can also give the CFO more confidence. In the past, there may have been a perception that giving card programmes with large limits to employees could introduce possible risk of misuse – but in reality, it means showing that you can see everything that is happening at any given time. So I think our front-end reporting and card management tool is really helping with that.
Another thing we are working on is taking the friction out of card acceptance. Once the supplier and buyer have agreed that they are going to use a card programme for a particular settlement type, we can then use a third party to integrate with the supplier. So, upon authorisation from our system the supplier just gets the money in their account. That’s something we are very excited about.
Are there any other barriers to adoption that companies may need to overcome?
Card acceptance is one. Some companies may think their suppliers don’t accept cards. What we can do is analyse their accounts payable file to show which of their suppliers is card-accepting.
Supplier acceptance of cards is constantly growing – for example, some coffee shops and bars are now completely cashless, so the only way to use them is by paying with a card. But when cards aren’t accepted we can help with that as well. One of the things HSBC provides is a supplier onboarding programme, whereby we work with a partner who does an outreach programme with suppliers to get them signed up to accept card payments.
Likewise, we are integrated with Amazon Business and can take a client’s invoice data, broken down by line item, and share that through MiVision. Often clients will tell us they don’t buy anything from Amazon – but if we carry out an analysis with Amazon, we usually find that employees are actually using Amazon a lot, because it’s an efficient and easy service for them to use. So there’s an opportunity for clients to put in controls around that and collect the data they need.
There’s an older view that if employees are putting in a cash expense it can limit them, whereas giving them a card means they could potentially spend on something you don’t want them to. But we can clearly show that a card programme can be used to apply limits and adjust up or down as needed. For example, if employees are stuck in a particular location due to an airline strike or hurricane, you can help them by increasing their card limit in real-time through our web or mobile service.
Another consideration is that large companies may be looking for centralised programmes, covering multiple countries and currencies in a consistent way. With HSBC now issuing in 43 countries our clients can have the same experience; data and reporting all centralised in one place for their employees and subsidiaries around the world.
How else does HSBC support clients in making the best use of commercial cards?
We have card account managers who are experts in our clients’ businesses. Their job is to work with clients who have large cards programmes and improve or grow those programmes. We provide an industry expert who works with those clients, with an individual point of contact who understands that client’s business, runs initiatives and campaigns and shares best practice.
For example, a company might have a mandated cards programme, but find that there are still a lot of cash expenses coming through – our experts can help to analyse that data and identify the best approach to achieve greater policy compliance.
How do you see this market developing over the coming years?
I think we will continue to see a convergence of payment types. Today you have card payments that are made to card accepting suppliers. Then there are traditional payments, such as BACS and Faster Payments.
I think with the continuing development of fintech, and the ability to bring AI into the mix, it will be increasingly possible to look at the customer’s cash position and make recommendations on payment types. For example, if the company is a bit low on cash and is coming to a reporting period, they could choose to make more payments via the cards programme. I think we will see that kind of intelligent use of cards programmes, even as the physical card increasingly disappears from the mix, with customers using cards to influence their own cash positions.
Finally, we focus a lot on user experience in the cards world, and this will continue to drive development. The easier we make life for the CFO, procurement, HR and the end user, the more they will embrace and use the product.