It’s Not Too Late to Become a Commercial Card Issuer

Kris Carrera
Business Line Executive, Credit
Posted on October 13, 2016

Corporate Credit Cards

Window of Opportunity to Re-evaluate Corporate Card Strategy

Have you considered the pros of becoming a commercial card issuer?  Commercial cards are certainly back in vogue. The industry buzz surrounding the resurgence in interest in full corporate card services is well founded and long overdue. The retail consumer card market is already well served, with many smaller banks and credit unions supporting smaller businesses and companies with a repackaged retail card service. So what’s next? It’s not too late to become a fully-fledged commercial card issuer.

There are a variety of reasons why banks are re-evaluating commercial cards. Some are banks that already offer consumer cards and want to extend into commercial. Others are banks that offer a small business card and launch commercial cards to gain business from larger corporations spending more on their cards. Some banks that are not yet in the cards business decide to start by issuing commercial cards because there is less risk in collections and recovery than consumer cards.

Corporate cards are a different animal

The logical next step from the consumer and small business world is a corporate card service. But offering a full-service commercial card proposition is not simply a matter of upgrading or rebadging a consumer card service. There isn’t just a single “corporate” card, there are many different product offerings falling under a commercial card service: classic corporate cards plus travel and entertainment cards, virtual cards, purchasing cards and fleet cards, each with their own processes and restrictions.

To justify the investment, banks need to build new clientele from scratch; accepting that there may be an existing treasury department offering corporate services. Infrastructure changes are inevitable with back-office system upgrades, and then there are the customer service infrastructure changes. Beyond technology, the underwriting for corporate cards is wholly different from retail, as is the collections process with changes to delinquency rules.

Many banks are understandably wary of entering into the commercial card market. Even with an efficient treasury department and established corporate customers (it may be unwise to try without this established base), the addition of card services is sometimes perceived as a step too far.

Strike while the iron’s hot

Increasingly, small and mid-sized banks are getting a piece of the commercial card action despite it being a market traditionally dominated by the larger national/global banks. Many CFOs of large corporations are looking to regional and community banks for card services at more advantageous rates; a “me to” service compared to the big name banks, but more conservatively priced. And the pressure is working.

For financial institutions with a genuine treasury or corporate portfolio, a commercial card service is a bright product that truly rounds out a treasury offering. But remember, a full-service commercial card offering that matches the services from the bigger banks implies supporting the many different card products: corporate, travel and entertainment, virtual, purchasing and fleet cards. Each card’s unique terms and conditions must be catered to individually. Many banks already have established treasury products for their corporate customers, but cards are rarely part of the mix; these FIs are missing out on one of the most lucrative aspects of treasury/corporate banking.

But help is at hand. The utilization of the many online card management systems, and the modern ethos of self-help, makes operating a commercial card program much easier and cheaper. Card applications are all completed through a website, the bank is never physically involved. If corporations are given tools to that encourage them to manage their own card program, the pressure is taken off banks’ back-office and call center systems. The advent of online card management services makes the commercial card market very interesting to smaller financial institutions.

Reaping and Rewarding

Commercial cards services are a large, underserved market for the community bank space, and a great revenue generator. Consumer cards make between 1.4 and 1.8 percent per transaction, depending with the rewards on offer, but commercial cards make closer to 2.6 percent. And remember, the average ticket price on commercial cards is much higher than retail cards. Many smaller banks currently well established in corporate cards are seeing double the revenue from their commercial compared to retail programs, despite having half the number of accounts.

Another strong difference between the retail and corporate worlds is that of generating loyalty. For the consumer, rewards are king. But when dealing with corporations, the loyalty scheme has to please the CFO rather than the cardholder, so corporate rebates are preferred to employees getting loyalty points and prizes. The rebates can be significant, usually 100 or 150 points refunded annually, and can therefore turn a cost center into a revenue stream; managing cards efficiently and maximizing corporate card usage generates profit.

Moving forward

Before embarking on a move into the commercial card space, banks must do their homework. Some have jumped too early without fully appreciating what it takes to succeed with the inevitable results. And it is worth looking beyond the provision of credit-based commercial card services; corporate prepaid and debit cards are an increasingly viable and attractive option depending on the sector. Credit services look set to remain the foundation of commercial card programs, but prepaid and debit cards, already well established in Europe, are differentiating and supplementary services to the main card program.

The time seems right; a perfect storm of corporations eager for more cost-effective card services with a technology wave that drastically reduces the barriers to entry. Once the decision has been made to prudently advance on a commercial card offering, as part of the treasury product line or solo, the potential value is enormous.

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Kris Carrera
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.