Contributed Article: Abn Amro
According to a survey of 1,200 large and mid-sized companies conducted by RPMG Associates1, on average, 11% of employees use card programs. The savviest payments managers are now expanding their card programs to drive increased usage—sometimes using prepaid cards, one-card or global solutions—to ensure they gain maximum efficiencies.
The Value of Prepaid Cards in the Corporate Space
Prepaid cards are one of the newest tools for taking cash and checks out of the corporate system. Especially in industries where there is a high turnover of staff or a transient (typically unbanked) workforce, prepaid salary cards are proving to be a secure, cost-effective, convenient way to ensure both permanent and temporary employees are paid without delay.
In Europe, crew members of airlines, shipping and passenger cruise lines use prepaid cards to withdraw their pay from ATMs, in local currency, when they arrive at different locations. With prepaid cards, employees enjoy not only convenience, but also increased security; unlike cash, the card can easily be replaced if lost. The companies also benefit—from reduced costs and risk, and improved reconciliation.
In the United States, prepaid cards are used in the healthcare industry for medicare payments, and by insurance companies, for a wide range of benefit payments.
Many governments worldwide are issuing prepaid cards to distribute pension and social security payments. Prepaid cards are well-designed for infrequent, irregular payments—to pay vendors who provide service periodically, for example. The airlines are starting to issue prepaid cards to customers in compensation for delayed or cancelled flights and lost luggage. Other companies are mitigating losses incurred due to the misuse of T&E card programs. By giving infrequent travelers prepaid cards (with a pre-set balance), companies reduce the risk of internal and external fraud, and the associated losses.
Prepaid cards are also providing corporate staff with convenient access to department and project budgets. For example, a company can issue prepaid cards to consultants to control project expenses, eliminate the need for reimbursement, and track expenditures.
Prepaid cards are beginning to assume an important place in the payment manager’s tool kit and adoption is likely to increase among both large and middle market companies as the card’s flexibility in meeting a wide range of business needs, and ability to reduce risk and costs while increasing control are better understood.
But when does it make sense to use traditional corporate card solutions rather than prepaid cards? The objectives and the types of card solutions required depend on the size and scope of the business.
Multinational Corporations: Deriving Value on a Global Level
The key drivers for multinationals are global oversight and increased control. The trends toward centralization, technology standardization and ERP integration—and the need to achieve both transparency and greater efficiencies—are causing multinationals to adopt global card programs. With a global program, administered via a web-based system that provides consolidated reporting, multinational corporations can establish global controls and ensure compliance with spending policies and limits worldwide. They can also leverage purchasing activities globally to negotiate pricing discounts. Companies can group detailed transaction information by division, department or employee, and effect settlement at regional or national levels. Audit trails facilitate compliance with Sarbanes-Oxley and other regulations. These types of controls are not available on prepaid cards.
Companies can reap additional working capital benefits using corporate cards by being mindful of opportunities to leverage their days payable outstanding—making bigger purchases early in the procurement cycle and delaying the disbursement of funds for those purchases for up to 45 days. Companies can also free up working capital, making one payment to the bank monthly rather than numerous payments to multiple suppliers.
If a corporation’s objective is to achieve even greater efficiencies and centralized administration, a single, multicard solution—for T&E, purchasing and fleet expenses—provides the benefits of consolidated processing, administration and reporting.
The Middle Market and the Exodus from Cash
In the US and Western Europe small and mid-sized companies are already using the same types of sophisticated card solutions multinational corporations are using. In Central and Eastern Europe, however, the use of cash is still prevalent. As in many developing countries, companies typically pay their workers in cash which requires the costly, time-consuming daily or weekly delivery and distribution of cash by guards and staff. Prepaid cards, which can be issued swiftly without credit checks or address verification, offer a way for companies to streamline the payment process, reduce risk and costs, simplify reconciliation and increase convenience for both employers and employees.
Small and middle market companies that do business in a single domestic market or even in multiple markets usually need more basic functionality – coverage in a local currency and a local service number. Typically these companies use a single “business card” for all of their expenses. If most of its employees are unbanked, the company may elect to use a prepaid card for payroll, and a business card for business expenses.
While in the U.S. and Western Europe business cards are credit cards, in Central and Eastern Europe, the business card is a debit card2—the instrument of choice in the region. With a business (debit) card, companies benefit from the same controls, reporting, and efficiencies as companies that use credit cards do and employees enjoy the same conveniences.
Implications for 2006 and Beyond
Regardless of a company’s geographic footprint, industry, or annual revenues, the potential to increase efficiencies, reduce costs, increase controls and free up working capital through an expanded use of card solutions is enormous.
For multinationals, the opportunities are to explore the use of prepaid cards and to achieve greater efficiencies by adopting one-card or global solutions.
For small and mid-sized companies, basic card solutions that today provide convenience and control locally will tomorrow easily accommodate their expansion into new markets. They will also provide the central oversight and control needed to remain competitive in an increasingly connected, single, global economy.
USING A ONE-CARD SOLUTION TO ACHIEVE MAXIMUM EFFICIENCIES AND CONTROL WORLDWIDE
A global leader in healthcare product manufacturing.
The company maintained a corporate purchasing card program along with two separate processes for purchasing and travel and entertainment reimbursement. The program failed to provide any significant control over employee spending, float benefits or consolidated spend information.
The ABN AMRO Solution
Using a one-card solution for travel and entertainment, fleet and purchasing, the company achieved maximum process efficiencies, improved funds float, and increased controls over spending.
The company can set limits by cardholder, transaction amount and maximum number of daily transactions. It can also restrict purchase authorizations by department, employee or vendor type.
Using the Bank’s web-based system, the company generates comprehensive, detailed employee spending reports. Systems are integrated so Accounts Payable no longer has to key transactions from multiple paper statements into the accounting system.
With a single, consolidated, global view of spending, the company can now analyze spending trends and negotiate discounts and preferred payment terms with providers.
The average cost per transaction without a corporate card is $91.13; with a corporate card it is $21.79.3
The average purchase cycle time without a card program is 11.2 days; with a card program it is 2.9 days.4
Using multiple card programs, a US-based multinational reduced costs for transactions processed by AP from $35.00 to $7.00 per transaction.5
1: 2003 RPMG Consulting Survey of 1200 large and mid-sized companies.
2: ePaymentsnews Network 2005. The debit card is the most widely held type of payment card in Central & Eastern Europe representing 88% of all cards issued. In Western Europe, debit cards represent 51% of all cards issued.
3: 2003 RPMG Consulting Survey of 1200 large and mid-sized companies.
4: 2003 RPMG Consulting Survey of 1200 large and mid-sized companies.
5: ABN AMRO client case study.