Corporate cards were first introduced in the early 1990s as a means for organisations to manage employee purchases by pre-authorising them for specific vendors and/or product types, restricting purchases based on contract and transaction types, and giving companies the ability to set daily, weekly and monthly limits and controls. Perhaps most importantly for cost-conscious procurement departments, the corporate card solution offered substantially more control than corporate credit cards while lowering transaction costs. Surveys have suggested that transaction costs can be reduced by as much as 90% compared to traditional accounts payable processes.
While specific data on corporate card usage in Asia is not readily available, market participants claim that their use is growing, primarily as a way of interacting more efficiently with large quantities of low-spend suppliers for travel, entertainment, supplies and other miscellaneous, relatively small-ticket items. Government and other public entities are also using the cards as a means of managing expenses. Visa estimates the value of potential ‘cardable’ payments in the Asia Pacific region at $12 trillion, with China accounting for $7 trillion of that figure and India a further $1.1 trillion.
According to the company, in the near-term, mature markets such as Australia also represent a significant opportunity for growth, although it also acknowledges that moving payments to cards will require banks and card issuers to develop new, compelling propositions that lead to suppliers preferring card payments over other payment methods.
Diverse backdrop
Since card providers have to comply with local regulations in each market, corporate card solutions vary from country to country – many countries do not permit cross-border issuance of cards, for instance. So which corporates are actually using cards today – and whereabouts in the Asia Pacific region?
Citi’s initial set of clients in every geography where it launched a business were subsidiaries of global companies headquartered in North America or EMEA, who were looking for cards that could be used by their growing workforce in Asia. However, as the market matured over the last decade, it has seen increased use of card solutions by local companies as well as growing interest from the public sector, explains Deven Somaya, Director, Regional Wholesale Cards Head Asia Pacific at Citi. “In terms of market maturity, Australia is probably the most developed market in the region and both federal and state governments are heavy users of corporate cards. Other mature markets are New Zealand, Singapore and Hong Kong.”
He refers to three key factors that encourage subsidiaries of multinational companies to use corporate cards, the first of which is having visibility into the programme in terms of measurement and control, enabling them to manage their costs and expenses more effectively.
Secondly, increased control of where the company’s money is spent. If someone is using petty cash to make payments, those payments can be made to anyone, whereas the card product digitises the transaction and this process enables systemic controls such as merchant blocks and transaction limits to be put in place. Post factor reporting provides a further layer of visibility and the control aspect of self-auditing.
Thirdly, because the transaction is digitised, it can be passed on by the bank to the client in an electronic format which feeds into various systems and saves a lot of manual entry of data, allowing expense management systems to capture data from the individual and enter an ERP system with additional pieces of information attached.
“Various research reports refer to the reduced costs of processing transactions made with corporate cards,” says Somaya, adding that multinational companies are increasingly globalising their functions, for example managing procurement globally rather than at regional or even national level. “We are seeing a growing number of shared service centres emerging across Asia which are taking a proactive role in managing indirect spend, whether that is on travel or procurement. Local companies are following suit – while the majority of their expenditure is obviously within the region, they are seeing benefits to using the shared services model.”
In the public sector, he describes a ‘bandwagon’ effect where administrations in South-East Asia are constantly looking at what their neighbours are doing in an attempt to adopt best practice. From a public sentiment perspective, providing increased transparency to the tax payer on how their money is spent is appealing to administrations that have made a commitment to reducing corruption.
Growth markets
According to Somaya, “clients are typically looking for a local solution in each market, but the ability to access consistent reporting and online tools and centralise data remains consistent across all the markets where we provide card services.”
When assessing markets with growth potential, Somaya mentions three countries in particular. “India has experienced considerable growth in corporate card usage, initially for travel but increasingly for procurement also. China is an untapped market in terms of the number of multinational and local companies who could potentially use corporate cards, while Indonesia is another country with a growing number of businesses and rapid economic expansion.”
Beyond those countries, there are areas where Citi is seeing a centralisation of specific industries – for instance, Thailand is a major hub for online travel agencies, which inevitably generates a considerable volume of card payments. “Companies across Asia are committed to improving the efficiency of their payment solutions and high volume; low value transactions are ideally suited to corporate cards,” Somaya concludes.
“In the past, travel management and procurement tended to be managed by different parts of the organisation, but we are seeing increasing consolidation of these functions internally. There is obvious value in using a single provider for all payment services in terms of being able to negotiate more favourable rates.”
A corporate perspective
The majority of AirPlus International’s clients are subsidiaries of multinational companies whose head offices are located in Europe or the US, although it is also targeting local customers, particularly in mainland China where it works with global Chinese brands. A number of public sector departments in mainland China also use its services. “In addition to Hong Kong and mainland China, our products are available in Malaysia, Thailand, Indonesia, Philippines, Korea, Japan, Australia, Singapore and India,” says Michiel Verhaagen, Executive Vice President Sales, AirPlus International. “The growth of economies across Asia Pacific means there is considerable scope for future growth in commercial card services,” he believes.
That said, he accepts that many local companies do not fully appreciate the benefits of a commercial cards programme yet. Nevertheless, he is confident that educational initiatives implemented by the various global travel associations is increasing awareness among businesses in the region. “These initiatives have helped to inform these businesses about the benefits of efficient payment and reconciliation process in business travel expenses management and the tools available, including commercial cards. Multinational companies tend to have expense management systems in place, but many local companies have yet to implement similar systems,” he says.
Who is using cards?
All kinds of companies sign up for corporate card programmes, from big business to small business and across a range of sectors including professional services, mining and resources and manufacturing – in fact, any company that wants to better understand and manage its expenses stands to benefit from having a corporate card programme. That is the view of Geoff Begg, Vice President, Global Corporate Card, American Express Japan and Asia Pacific, who says multinationals are looking for a card programme which enables them to manage expenses locally, regionally and globally.
“There is strong demand in all countries across the region, although India and China in particular are growing rapidly with the formation and growth of new companies. Some of the larger, more established countries are expanding from traditional travel and entertainment-type corporate cards to commercial cards,” notes Begg. He adds that corporate cards are used for all types of travel and entertainment spend from the traditional airline, hotel and restaurant expenses to general retail spend, utilities and even government and insurance spend.
Companies across Asia are committed to improving the efficiency of their payment solutions and high volume; low value transactions are ideally suited to corporate cards.
Deven Somaya, Director, Regional Wholesale Cards Head Asia Pacific, Citi
“Companies are moving away from per diem payments to employees to corporate cards for greater visibility and control. There is huge growth potential for corporate cards in Asia Pacific as the migration continues away from costly paper based invoicing to fast, efficient electronic payments on corporate cards.”
Asian companies with heads of finance or procurement who have worked in North America, Europe or Australia seek out corporate cards as they see them as a simple and proven way to improve bottom line results, says Marj Demmer, General Manager of Cards and Payments at ANZ. “Clients are looking for cards that can be used throughout the world with high rates of acceptance and low or no surcharges. International acceptance is important for business travel, but also when procuring from international suppliers. The more the card can be used, the bigger the working capital, visibility and efficiency gains for the client.”
While observing that demand in India is growing rapidly as companies seek greater oversight and control of business expenses, he also acknowledges that card acceptance rates hold back some mature markets such as Japan, where ‘cash is king’. “Leading corporate card providers work with travel management companies to bill travel bookings on ‘virtual cards’, providing enhanced data on staff travel (destinations, travel class, fare type). In mature markets, we are seeing more business-to-business payments shifting from cheque or bank transfers to card.”
In the more developed markets, Demmer expects to see a major shift towards more business-to-business and international payments being made by card. “Treasurers and CFOs will lead this push as they seek to improve the working capital position of their businesses and leverage strategic supplier relationships.”
Meanwhile, Ralph Kaiser, President and CEO UATP says that in China, large international corporations may have some corporate cards but the adoption rate is still low, although use of a corporate card for air travel is increasing. “There is limited usage in emerging markets (which for the purposes of this article include Vietnam, Malaysia, Philippines, Thailand and Indonesia). Corporations contract directly with the vendor for services, or in some instances deal solely with the treasury management centre which must carry the cash float,” says Kaiser.
Clients in developed markets such as Singapore and Hong Kong use international corporate cards that are widely accepted, while in the case of Japan or perhaps Korea, they may be using a domestic product that has limited usage overseas, he adds. “There is an upside in some markets, mainly China and India where domestic corporations are large and successful and are in need of a corporate card solution. In emerging markets, there might be some need but awareness is an issue. Furthermore, the undeveloped infrastructure and high risk of dealing in these markets makes it daunting for networks to issue corporate cards. It has been seen that rates would need to be set at high levels, making international corporate cards uncompetitive compared with direct invoicing or even local bank card solutions.”
According to Kaiser, in China and emerging markets, corporate cards are used almost exclusively with some component of travel. “Infrastructure limitations are part of the issue; the other is the demand to use it for procurement. However, we believe there is large growth potential for corporate cards in major markets like India and China in the short term. The opportunity for growth in emerging markets is also significant, albeit on more of a mid to long range outlook. Growth will be focused on the travel segment – it remains to be seen whether corporate cards can build a product for other segments in Asia, or if purchasing cards may become a factor in the future.”
A card for all sectors
Kees Kwakernaak, Head of Commercial Cards Asia Pacific, Bank of America Merrill Lynch describes commercial cards as a largely industry-agnostic business. “Simply put, the benefits of travel and entertainment and procurement cards are applicable to all our customers, across all industries. For a number of years we have seen the most robust demand from multinational clients but more recently, local corporates have shown a growing interest in adopting card based solutions. Whilst there are differences across the various markets, the requirement for efficiency, transparency and streamlined processes is universal, which should serve as a sustainable incubator for card adoption in the medium term.”
The growth of economies across Asia Pacific means there is considerable scope for future growth in commercial card services.
Michiel Verhaagen, Executive Vice President Sales, AirPlus International
Demand drivers are fairly consistent, as clients are unilaterally looking at streamlining their procure-to-pay processes to save on cost and to extend payment terms, he continues. “We see strong uptake in traditional travel and entertainment cards where employees are using their commercial cards to book travel, pay for taxis and general on-the-road expenses. Increasingly, we are also seeing a defined trend whereby clients are using cards in conjunction with central travel accounts. This product is an efficient way for clients to pay for their employees’ travel.”
The potential for ongoing growth in the Asian corporate card market is undeniable, according to Kwakernaak. “Banks in this space have seen a long period of double digit growth in commercial card spend in this region and in our view this will continue for many more years to come. The migration away from alternative payments options (including paper based payments) will continue.”
An obvious growth area for corporate cards is in their use as a payment mechanism for line-of-business or supply chain expenses. The 2014 First Data report ‘Digitalising B2B Payments to Streamline Supply Chains in Asia’ refers to increased use of commercial cards in Singapore for strategic procurement, with increased control and reporting options driving adoption. The firm is seeing increasing demand towards strategic procurement programmes for accounts payable automation and receivable financing for large distribution supply chains. The extent to which clients look for national or regional corporate cards rather than cards that can be used anywhere in the world depends on the business needs for which the programme is rolled out, explains Naveen Gupta, Regional Director Consumer & Commercial Payments, First Data Asia Pacific.
International acceptance is important for business travel, but also when procuring from international suppliers. The more the card can be used, the bigger the working capital, visibility and efficiency gains for the client.
Marj Demmer, General Manager of Cards and Payments, ANZ
“For employee travel and entertainment expenses, corporates expect the card could be used anywhere in the world but with suitable controls. However, for large procurement programmes or receivable financing, it is expected that usage of cards has a limited ecosystem to avoid unwanted fraud and keep costs below an acceptable threshold.”
He describes corporate cards as an excellent instrument for short-term financing and payment execution. “We expect demand in established markets such as Australia and New Zealand to continue to increase and we are also seeing increasing demand for corporate card solutions in emerging markets such as India and China. We project growth for these markets to reach up to 30-40% in the next 12 months.”
First Data also believes that the potential ability for commercial cards to transform business-to-business commercial transactions from manual, paper based transactions to more efficient automated processes is an opportunity to boost business productivity, reduce costs and strengthen commercial partnerships across Asia’s supply chain.
Despite all the advantages of automated electronic payments, too few companies are utilising digital payment solutions, Gupta concludes. “The reason for the slow uptake of electronic payments is difficult to pinpoint, although we believe that it is partly attributable to the perceived complexity of migrating so many supplier relationships from paper to electronic systems.” But as more and more leading corporate treasuries embrace corporate cards, hopefully the myths around the complexity of such programmes can be dispelled.
