June 14, 2018
Kris Carrera, FIS | Business Line Executive, Credit
With commercial cards outpacing the growth of consumer cards, they represent an important revenue stream for banks that offer treasury services. However, margins are slipping because the primary value proposition offered to institutions for commercial cards is based on the rebate amount issuers are willing to provide.
Given the highly competitive commercial card market, issuers must advance the value proposition beyond rebate offers. If not, they face losing the business to larger issuers with greater scale and deeper pockets.
The commercial card market has become increasingly competitive as large issuers have bought up market share through volume rebates. While the interchange fees for commercial card products represent a significant money maker for issuers, volume rebates – often ranging from about 100-150 basis points (BPS) – result in compressed margins.
Issuers also compete by offering extended grace periods, typically from 25 to 40 days, which helps customers with their cash flow, but at the issuer’s expense.
Concurrently, issuers are expanding their target market pool down to small businesses – defined as between four and nine employees – to help these customers reduce their back-office responsibilities.
Expanding the market, extending friendly terms and offering rebates represent short-term strategies. At the point when the viable market becomes saturated, issuers that compete solely on price will find themselves at a competitive disadvantage and plagued by increasingly thinning margins.
The remedy to reversing a downward trend requires innovation and messaging that speaks to solving pain points for users. A common pain point for travelers surfaced in a recent survey of corporate card users conducted by Capital One. The survey found that fewer than one-half of users have a traveler-friendly mobile application to enable transaction management and remote expense submission.
Meeting the needs of companies and their employees, and then basing messaging on those benefits fortify and differentiate current price-based value propositions. Examples include:
• Innovative card tools for self-managing purchases are critical for corporate travelers to track their transactions. They also can set controls with mobile apps that enable them to turn cards off, if misplaced or stolen, and turn cards back on when found.
• Administrators have 24/7 ability to raise a credit limit or lift restrictions on a card in real time if an employee’s card is declined. With real-time, always-available responses, travelers won’t find themselves stranded until the bank opens.
• Commercial cards allow companies a transparent view of where, what and how their employees are spending. Companies can determine if enough employees are frequenting the same hotel and restaurants chains to quality for vendor discounts. And, they can easily weed out rogue spenders.
• Reporting tools break spending into categories that enable accounting to apply different allowable deduction percentages to expenses and gain efficiency at tax time.
Commercial card products provide a valuable revenue stream for banks and help customers manage their spending. However, issuers need to assess their current value proposition. Is your messaging based solely upon what rebate your bank is offering? If so, think about additional benefits currently available – and others in the pipeline – to fortify and differentiate your value proposition.
As we face margin compression in commercial cards due to rebates, now is the time to act.
Business Line Executive, Credit
With over 25 years of international payments experience, Kris was responsible for the launch of the first successful cobranded card program. A leader in risk-based pricing and target marketing using predictive data analytics, she specializes in merchant services, credit cards and home equity. Kris has received Best Travel Card, Best Cobranded Card and Best Private-Label Program awards.