2008 Business Travel Survey: Spending Consolidation Boosts Card Suppliers

Issuers noted double-digit percentage year-over-year growth in corporate travel and entertainment transaction volumes in 2007. They saw increased efforts by corporations to consolidate spending onto cards, including global efforts by multinational companies, and continued growth of card use in the small and midsize markets. The recently contracting payment landscape, however, could bring additional challenges to payment negotiations this year.

Executives from the major payment networks credited increased spending by companies and more cards issued for the volume growth, with Bank of America's 37 percent the highest reported. Corporations dealt with increased travel expenses without decreasing activity, they said, and also more successfully pushed cards for more purchases.

"Companies have gotten more strategic in how they look at card distribution, and mandates have added to that," said Janet Zablock, head of Visa's U.S. Commercial Solutions Group. "We've also seen increased travel and increased hotel spending."

Networks reported greater acceptance of their cards, and a few spending categories that generally are difficult to push onto corporate cards became more receptive in 2007, according to Carol Batzli Barkley, senior vice president for U.S. Bank Corporate Payment Systems. Taxi drivers in Philadelphia and New York City, for example, began facing mandates to accept cards for payment, she said.

American Express, still the dominant player by far in terms of T&E volume share, reported a 14 percent increase in its volume in 2007. At the same time, its Global Network Services, which allowed American Express to begin partnering with banks for card issuance more than 10 years ago, grew its spending volume by 49 percent to $53 billion. It launched several new cards, including the China CITIC Bank card and two premium products—the Citi Chairman Card and the Bank of America Accolades American Express Card—bringing the total number of bank partners to 117.

Eduardo Vergara, senior vice president for global marketing and strategy at American Express Global Commercial Cards, said volume growth came more from card growth than increased spending. "Companies are being very careful with expenses," he said. "The biggest driver on our side is clearly new client acquisition."

That acquisition already has accelerated this year, when American Express this spring completed a $1.1 billion acquisition of GE Corporate Payment Services, the sixth-largest issuer of corporate cards. The entity—created by General Electric in 1992 to issue T&E cards to its own employees—used the MasterCard and Visa platforms for its clients, who now are being converted to the American Express platform. GE, its largest single client, already has signed a multiyear deal with American Express.

With the loss of a major issuer, buyers will have a little bit less leverage at the negotiating table, said Bob Langsfeld, a consultant with Incline Village, Nev.-based Corporate Solutions Group. "The marketplace has squeezed up," he said. "The pricing probably is not as advantageous, and the tools and opportunities of reporting and content haven't changed much, so the challenge of integrating the data from multiple sources into one reporting process remains."

The acquisition, however, would benefit American Express clients, said Vergara, particularly as Amex integrates GE's technology into its own product. "If you look, for example, at their payment technology, it just gives you a whole new set of controls around business-to-business spend," he said.

The GE acquisition is not the only major transaction in the payment sphere this year. Discover Financial Services, traditionally not a major player in the corporate card arena, purchased the Diners Club International network from Citigroup for $165 million, a move it says will broaden acceptance for both platforms.

The other two major networks also have undergone organizational changes. Visa in March became a public company through an initial public offering, following a restructuring in which it brought all of its international units, with the exception of Visa Europe, into a single company. Similarly, MasterCard Worldwide conducted its own IPO in 2006, meaning that, with Diners Club under Discover's umbrella, all the major card networks are now public companies.

Corporate Solutions Group's Langsfeld said this acquisition will have less impact on travel buyers. "Discover does get Diners into the mainstream, getting them coverage where they aren't taken," he said. "Still, Discover is more leisure-oriented, so I don't know that it is that relevant."

Networks and issuers also report that small and midsize companies remain ripe sources of client growth. While large-market card programs generally are mature, many smaller companies are just coming on board. "We've definitely seen, over the past three to five years, increased adoptions of solutions in that midsize segment," Visa's Zablock said.

American Express' Vergara said that midmarket growth was global. "What we were seeing last year actually has accelerated this year," he said

Vergara said American Express has focused on tailoring its products to midmarket customers. For example, its co-branded cards with such airline vendors as American Airlines, Air Canada, British Airways, KLM, Alitalia and India's Kingfisher Airlines, gives midmarket companies that don't have the air volume to negotiate significant discounts an opportunity for air savings. Additionally, American Express offers midmarket clients a program from which it can get rebates from a variety of partners, including car rental supplier Avis Budget Group.

Midmarket companies also focus on individual rewards, Vergara said. "They offer a lot of benefits to clients, giving a value proposition around savings control and compliance," he said.

Marcie Verdin, vice president of the large market segment for corporate payment solutions at MasterCard, said the midmarket focus continues to spread across all issuers. "A lot of the regional banks have taken an interest in aggressively growing this business," Verdin said. "A lot of new banks are just getting on board, and large banks have picked up on that, so big banks have midmarket sales."

Midmarket growth also coincides with the growth of both procurement cards and one-cards, which combine T&E functionality with procurement and fleet purchasing functions. "Our middle-market companies primarily are focused on using the one-card," said U.S. Bank's Barkley. "That tends to be a really good fit."

For smaller companies that don't have dedicated travel managers or departments, it remains a natural choice, Visa's Zablock said. "Given the limitation on resources, they find the benefit of having a card program, giving their sales folks open spending in T&E categories and their office staff purchasing capabilities," she said. "We've seen that increase probably continuing because there have really been ad hoc programs within that segment, but they have a stronger emphasis to streamline their cash."

Meetings spending was a particular focus for card vendors in 2007. American Express in September announced a partnership with meetings management technology company StarCite to create a Web-based portal for its card clients. Features include meeting spend data capture, online transaction investigation and sourcing capabilities.

"We've created an end-to-end solution that not only helps you plan but lets you reconcile and review meeting spend across the corporate card," Vergara said.

That trend continues into this year. In recent weeks, Visa also announced the launch of a meetings card and an alliance with meetings technology provider Arcaneo, now available from certain issuers in the United States and Canada. Issuers and vendors said meetings are one of the major untapped areas of spending consolidation in corporate travel.

"They've traditionally been paid by invoice and check, but we're seeing movement by companies to gain visibility and monitor that spend," Visa's Zablock said. "Larger companies are really leading this."

Corporate card suppliers in the last few years also have noted an increased interest from multinational companies in moving T&E spending onto a single card platform. Zablock said that accelerated in 2007.

"There's been a lot of talk about going global over the past three to five years, but now we're starting to see companies implement global solutions," she said. "They have found the benefit from their programs in the U.S. and want to similarly streamline their global processes."

Part of it is the same forces that drove U.S. card spending consolidation in recent years, she said. With Sarbanes-Oxley hitting its fifth anniversary in 2007, companies have had ample time to hone spending oversight domestically and now are looking to do so overseas, according to Zablock. Additionally, several countries have passed laws similar to Sarbanes-Oxley, she said.

American Express' Vergara said that consolidation effort has trickled down from Fortune 500 companies and now is being implemented by midmarket multinationals.

Though Corporate Solutions Group's Langsfeld said the card culture remains largely different in Europe, with central billing preferred, MasterCard's Verdin said she's seeing a shift.

"In Europe and Latin America, corporate cards are still for the top executives, but that's changing over time," Verdin said. "They're finding they can save more money by making their employees have a card, so that's driving a lot of the growth."

U.S. Bank's Barkley said multinational consolidation has become more feasible as it and about 40 other banks across the globe worked together to create data standards.

So that data is of use to corporations, payment networks continued to enhance their data reporting tools for corporations in 2007. American Express, for example, introduced two new enhanced tools: one specifically for midmarket clients, and another aimed at larger and global companies to show best practice reporting.

"Last year, we were very focused on how we turn data into insight for companies," Vergara said. "That enables you to see what your spend is, aggregate the view of your spend and track compliance and the value of your corporate card program."

Networks and issuers also are getting more enriched data to use in the reporting, MasterCard's Verdin said. More hotels are getting onto the electronic folio bandwagon, she said, and other vendor categories, such as car rental companies, also are supplying folio data through cards, so buyers can track such issues as whether their travelers are fueling their own cars or paying the premium price for vendor refueling.

"In the United States, a majority of our issuers are getting the data, and we now see the snowball effect of more and more getting it," she said.

Jennifer Petty, card product executive for Bank of America Global Product Solutions, said the bank's executive card also grew in popularity in 2007. The cards, which, for a fee, give travelers access to such privileges as airport lounge access, will proliferate in coming years, she said. "This trend will continue to grow as new entrants try to come into the market," she said. "You will see new partners and partnerships coming out."

Already this year, JPMorgan has launched gold and platinum tiers for its MasterCard and Visa T&E card products, featuring lounge access, luggage delivery services and a variety of insurance offerings. Analysts said the move was necessary to gain ground on other premium card issuers.

Issuers also said payment managers are exploring different user payment methods for corporate cards. Petty said she's seeing a greater interest in exploring revolving credit lines on corporate cards, allowing users to, much like a personal card, pay off a minimum balance.

"Today, the balance is paid in full, but that may not always be the best option," she said. "We're seeing some indication of that changing."