The Commercial Cards market continues to grow briskly, particularly because Commercial Cards are a powerful digital payment solution that create opportunities to optimise both working capital, as well as implement efficient automated processesLewis Sun, HSBC Regional Head of Product, Asia Pacific, explains to Treasury Today
How much growth are you currently seeing in the Commercial Cards market?
The Commercial Card market had a strong year of growth in 2019, and despite the economic disruption caused by COVID-19 we still see real interest from companies in utilising card payments in 2020.
With many employees working from home, employees are using their cards less for travel and entertainment-related expenses. In changed operating conditions, digital payment solutions like Commercial Cards have been a real benefit for businesses to overcome cash-flow challenges via efficient practices and cost savings, helping to manage and optimise working capital.
As a result, we’re seeing significant growth in digital B2B procurement. In particular, we have noticed that companies are using Commercial Cards more to pay suppliers. This presents a number of benefits to both buyer and seller – such as cash flow improvements, increased security and controls and access to rich transaction data. Our online management and reporting platform, Smart Data, includes information on what has been purchased, from which type of supplier, when, and by whom.
Is growth mostly coming from people who haven’t had a card programme before, or from customers with existing programmes who are looking to take advantage of these new digitisation opportunities?
It’s a good mix of both. We’re currently issuing cards in 44 currencies globally, which includes Asia. Some of these Asian 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 Commercial Cards gets further embraced within the organisation, but one of the keys to success is the ongoing consultation we provide to our customers.
Why do your customers typically use Commercial Cards?
If a customer doesn’t have a Commercial Cards programme, often, the only real choice for an individual is to use their own personal card – which provides limited information to the company and little control over what they buy at the time of purchase, where they stayed, or 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 employees.
There is a growing realisation that Commercial Cards are more than a tool to pay for travel and entertainment. They can also play an important role in procurement. When a company uses a Commercial Card to make a purchase, the supplier is paid in a few days. This improves relationships with suppliers, which can lead to better pricing discussions in the future which could create savings that can be felt across the company.
Commercial Cards also help improve a company’s working capital position. By taking advantage of interest-free credit, the company has up to 54 days to settle the payment on their card account. During this period, a treasury can use the funds that would have been tied up in a traditional payment as working capital that is put to use in other parts of the business. At the same time, Commercial Cards are an efficient digital payment platform, resulting in cheaper processing costs than traditional payments that are reliant on manual processes. The money saved on time and labour also contributes to a company’s working capital.
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 some Asian countries, 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 and circulate for approval before it is input on a payment system and settled. Compare that to paying by a Commercial Card at the point of transaction – the supplier knows it is paid swiftly, gets the cash in their account faster and our customer can still benefit from up to 54 days working capital optimisation before funds are debited from their account.
In addition to the digitised payment process, a treasury can use a Commercial Card programme to insightfully see exactly how much expense is coming out at any time via access by our online management and reporting platform, Smart Data. This digital platform can also help them plan ahead because all data is centralised.
How does the use of Commercial Cards benefit suppliers?
Early or guaranteed payment is a major benefit for cards customers and suppliers. 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 customer 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 Commercial Card payments upfront and getting that money within the next couple of business days 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 a Commercial Card, these issues are avoided. Also suppliers can benefit from information about their customers, as well as giving them a automated way of doing their own accounting.
How can different stakeholders within the business, such as treasury, finance and HR, leverage the digital benefits of Commercial Cards?
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 and on our online platform Smart Data – is very attractive to a treasurer. Besides digital benefits, our Commercial Cards also allow different local currencies to reduce the exposure to foreign exchange fees.
From a finance, CFO and accounts payable perspective, a Commercial Card can bring a lot of process efficiency, and in turn cost savings, as well as increasing visibility and control by turning everything digital. Our front-end card management tool Smart Data captures all this data, allows standardised or customised reporting, and provides a real-time view of card expenditure. If you can compare how much you are spending with different suppliers, this can help with negotiation – which then comes into play with procurement.
Then there’s programme administrators e.g. HR. By restricting an employee card use to approved suppliers that are within the spending policy of that company, accidental or intentional card misuse and risk is can be reduced, There’s also an element of safeguarding. With a Commercial Card you know where it’s being used via the online management and reporting platform, Smart Data – so that in itself is helpful.
With so many stakeholders, it’s important to get everyone around the table. When we receive an RFP or a proposal 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 Commercial Cards. So I think stakeholder engagement is absolutely critical at the very earliest part of the process.
What factors are typically driving the adoption of Commercial Cards payments?
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 Commercial Cards 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 platform, Smart Data, is really helping with expense visibility, reporting and control.
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.
We are integrated with different Enterprise Resource Planning (ERP) system or Expense Management System (EMS), and can take a customer’s invoice data, broken down by line item, and share that through Smart Data. So there’s an opportunity for customers 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 Commercial Card means they could potentially spend on something you don’t want them to. But we can clearly show that Commercial Cards enable administrators to apply controls, such as applying limits and adjust up or down as needed online.
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 47 markets our customers 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 customers in making the best use of Commercial Cards?
We have card account managers who are experts in our customers’ businesses. Their job is to work with customers who have large Commercial Cards programmes and improve or grow those programmes. We provide an account manager who works with those customers, with an individual point of contact who understands that customer’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 account managers 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 Commercial Cards payments that are made to card accepting suppliers. Then there are traditional payments, such as cheques. As the trend towards digitisation continues, we will see more demand for the convenience and cash flow benefits that come from making B2B payments via Commercial Cards.
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 Commercial 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.
If you consider these future developments coupled with the existing benefits of a Commercial Card programme, it is hard to imagine cards not playing a greater role in business payments transformation going forward. The way that the COVID-19 pandemic has made working capital a key strategic consideration for many companies will likely accelerate the adoption of cards in the full range of business expenses – from transport and logistics, to domestic travel, all the way up to paying major suppliers. In addition, the cost savings that can be made from automated processes and greater visibility on spending are particularly attractive at the moment.
Finally, we focus a lot on user experience in the Commercial Cards world, and this will continue to drive development and digitisation. The easier we make life for the CFO, procurement, HR and the cardholders, the more they will use the product and embrace this digitised B2B payments journey.
To find out more about HSBC’s Commercial Cards programme or to apply for a Commercial Card, please contact your HSBC relationship manager.
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