Recent research by consulting firm RBR shows that there were 42 million commercial cards in issue in the 15 largest markets in Europe at the end of 2012, up 9% since 2010. Despite their numbers, commercial cards make up only 4% of the card base in the countries surveyed, suggesting considerable potential for future issuance. However, RBR forecasts the number of cards to rise at a modest 4% per year between 2012 and 2018 as the impact of major drivers such as the need for businesses to control expenditure and monitor spending by employees and departments is mitigated by increased regulation and continued concerns over the economy. Growth is largely expected to come from the bank and T&E sectors, while the fuel card sector in several countries is predicted to contract.
Debit and prepaid sectors set to grow
As much as 71% of commercial cards are charge cards, as most businesses prefer to pay off their balances once a month, says RBR, addign nevertheless, this proportion looks set to decline as many of these are fuel cards which are shrinking in number.
“Debit and prepaid commercial cards, which currently represent 19% and 1% of the sector respectively, are expected to become more common, as businesses regard them as a means to reduce costs and control employee spending,” RBR said.
Private label fuel cards are the most widely issued commercial cards, although they have a lower share of the volume and value because of their limited acceptance network and their tendency to be used for relatively low-value transactions compared to other commercial cards, according to the research. Among the international schemes, Visa (including Visa Electron) is the largest, accounting for 32% of commercial cards in the countries surveyed. MasterCard (including Maestro) follows with 19%. Although Visa is the largest international card scheme overall, MasterCard commercial cards outnumber those of Visa in nine of the 15 countries. American Express is the largest commercial T&E scheme with 7% of the sector. It serves many multinationals, which value the standardised process of issuing in multiple countries. The remainder is made up of Diners Club and domestic commercial bank cards While pricing and fees are important considerations for issuers in every country when selecting commercial card schemes, other factors vary from country to country. For example,in Belgium, the amount of financial support for marketing isa key consideration, while in Germany, it matters more that a scheme offers the scope to select product features.
Key drivers of commercial card issuance include the increasing need for businesses to control expenditure, and the operational efficiency gains from the reporting available with such cards. In fact, reporting capability is becoming increasingly sophisticated.Commercial card issuers offer a wide range of card usage reports, such as monthly and annual statements and, increasingly, electronic files to help businesses budget and control spending. These may include a breakdown of spending by merchant sector and country. Issuers may provide separate statements for individual cards and in aggregate for departments or for all cards held by a company. Typically the information is available online and can be rendered as a customised report.
Despite the high potential for commercial cards, there are a number of factors holding back the development of the sector, including established business practices, lack of promotion by issuers, continued concern over the economy and the possible impact of the proposed European Commission regulation on interchange fees on commercial cards, says the study. “Although this proposal in its current form will not affect commercial cards, there is concern that it may extend to these at a later stage. Furthermore, the proposed regulation will only permit ‘honour all cards’ rules if all cards are subject to the same regulated interchange fees. This may adversely impact commercial card acceptance as such cards are subject to different rates of interchange from consumer cards.”
The report also said the key to increasing the penetration of commercial cards is to demonstrate the extra value that these cards can bring to business operations – but promoting this in a climate of reduced budgets and imminent regulation will be a challenge. It may therefore be several years before commercial cards realise more of their potential.