That the Asia/Pacific region remains a perpetually
burgeoning opportunity for business travel has become a bit of a cliché.
However, opening new markets and gaining adoption for commercial card products
and expense management systems has proven anything but easy. Extensive and
diverse regulations in countries across the region make it especially
challenging to introduce solutions to help businesses manage their travel
spend. And, as many have learned, what works in one country will not
necessarily work in another.
"It's a very vast and varied region," said Citi
Asia Pacific head of commercial cards Deven Somaya.
Though the United Nations predicts "subpar growth"
in 2014 for the Asia/Pacific economy—compared with an average of 8.4 percent
growth during 2002-2007, before the global economic recession—that still would
represents a projected 5.6 percent year-over-year economic expansion, up from
an estimated 5.2 percent growth for 2013. That forecast is higher than the
International Monetary Fund's 2014 global GDP growth forecast of 3.7 percent.
"It's the fastest-growing part of my business,"
said MasterCard group head of global T&E products and solutions Richard
Crum. "It's growing tremendously fast and across different parts of the
region, not just in China and India."
Similarly, Somaya said he's seen in the last three years "tremendous
focus" on and "latent demand" for corporate cards in the region.
Citi in 2005 entered Australia, Japan, Malaysia, Hong Kong and Singapore. It
now operates in 13 Asia/Pacific markets.
During the past five years, multinationals in North America
and Europe typically have sought global card solutions, while Asia-based
multinationals pursued in-country or in-region solutions, said Kevin Phalen,
head of global card and comprehensive payables for global transaction services
for Bank of America Merrill Lynch. However, since the second half of 2013, that
trend has changed, he said, and "it was evident [Asian multinationals]
were looking for global solutions."
In addition to local banks, AirPlus, American Express, UATP
and Visa in varying degrees have a presence in the region—primarily but not
exclusively through partnerships. Bank of America in 2011 began providing
commercial card solutions in the same markets Citi first entered, as well as
China, India, New Zealand, the Philippines, South Korea and Taiwan, Phalen
said. Local networks have also sprouted, including China Union Pay, Bill99 and
RuPay.
Expense management firms also see opportunities. SAP for the
past 20 years has operated in the region, offering enterprise resource planning
and cloud expense management solutions. Concur also offers Asia/Pacific expense
management, travel booking and invoicing services. While some companies in
markets like Australia and Singapore are more advanced in managing their
business travel expenses, many in China and India still are in the early
stages.
The Regulatory
Environment
Despite significant differences among Asia/Pacific
countries, several have one common factor: strict regulations, though they too
vary by country. "The commercial card business in Asia is pretty much
governed by consumer credit card regulations," Somaya said.
For example, some countries, including India and Singapore,
require banks to send users text or email alerts notifying them of fraud alerts
or large purchases. Singapore, meanwhile, recently introduced a resolution to
disable overseas access to ATMs, Somaya said.
"[The regulations] are meant for protecting the
consumer, but a corporate card is meant to enable and facilitate smooth
functioning when traveling overseas," Somaya said. "You don't
necessarily want to send an SMS to the bank every time you're traveling to
enable cash access."
China is the most regulated and protectionist market in the
region, according to card networks and banks. "China is very skeptical
about U.S.-branded cards," said SAP chief product owner of financials and
travel management Hendrik Vordenbaeumen. Similarly, AirPlus executive director
of Asia/Pacific Christian Gall said China has a "very nationalistic"
view with a distrust of and "strong resistance" toward European and
American players.
Although China is slowly relaxing regulation, Gall said
regulators are "taking their time and will make sure their local players
are well-positioned first."
Advanced Markets
Australia is one of the "most sophisticated"
Asia/Pacific markets regarding payments infrastructure support as well as
demand for more sophisticated products like virtual cards, according to Somaya.
Beginning in August, the country solely will use chip-and-PIN cards, banks and
credit card networks announced in January.
"Their requirements are more complex. They know what
they want and have experienced a card program with other providers," Somaya
said. "Typically, the local banks have very sophisticated solutions as
well."
Singapore also is a fairly mature and sophisticated market
regarding payment and managing business travel spend, according to Gall. The
country's credit card penetration is similar to that of the United States with
people often holding five or more credit cards and accustomed to rewards
programs. Local banks, such as DBS and United Overseas Bank, offer a strong
presence, Gall said. "It's a hyper-crowded space and very competitive,"
he added.
Nevertheless, these markets are not oversaturated, according
to Gall and Somaya. "Oversaturation would imply [credit cards] have become
a commoditized product and banks are taking business from each other and
leading to price wars. We're not there yet," Somaya said. "There's a
tremendous amount of untapped potential."
Similarly, expense management system adoption is high in
these countries and in New Zealand, according to Vordenbaeumen.
China And Hong Kong
Most Western companies operating in China are expanding, and
"cost control is not at the top of their agenda," according to Gall.
AirPlus International through a partnership with China Merchant Bank in 2008
became the first card network to offer corporate cards to businesses operating
in China. Through this "monopoly," as Gall described it, the firm's
2013 volume in China was €530 million (US$730 million), up from €1.8 million in
2008.
"Compared to the size of the China market, this is very
small," Gall said. "The Chinese are still learning to control travel
spend and how to use corporate cards, but of course they're developing quickly."
AirPlus admits it's only a matter of time before more
international banks enter the market. The race has already started. Unlike
AirPlus, which partnered with a local partner, Citi entered the market with its
own platforms and systems. The process took about three years from Citi's first
step of forming a locally incorporated entity to provide consumer debit cards
to eventually gaining a license to issue commercial cards in 2012. Citi issues
cards locally through China Union Pay and internationally through MasterCard
and Visa. It also offers dual billing currency in renminbi and U.S. dollars, as
well as data in local language. In addition to corporate cards, Citi offers a
procurement card and One Card product, which combines two or more commercial
card offerings, such as a p-card and a travel card.
Hong Kong poses a particular challenge, as its flag carrier,
Cathay Pacific, has refused to pay merchant fees for card-based bookings. The
fees instead are passed to the travel agency, which in turn passes them on to
corporate clients, according to Gall. While there has been some lobbying to
change this practice and bring down merchant fees, refusing to pay merchant
fees has become an accepted practice in the region.
"There's a fair amount of negotiation that goes on
between the company and travel agents to see who actually bears the cost,"
Somaya said.
Hence, cash remains king and invoicing is a common practice
when paying for flights in China and India.
India, Malaysia And The
Philippines
India's growing number of low-cost carriers has hindered
many companies accustomed to booking flights through travel agencies' centrally
billed products in their attempts to capture spend, as the LCCs are not
available for booking in global distribution systems, according to Somaya.
Consequently, business travelers are booking direct, further complicated by
Indian regulations that require consumers to hold one-time-use PIN numbers for
online transactions. "The GDSs are trying to get the low-cost carriers on
the network to simplify life," Somaya said.
Another challenge in countries like India and China, and to
some extent Thailand and Vietnam, is developing a suitable pricing model for
expense management systems, as local labor is so inexpensive, according to SAP's
Vordenbaeumen. While multinational companies operating in the region are
accustomed to existing pricing models, local corporations are not. Several
local businesses provide manual expense report processing services at prices
lower than established companies like SAP, although they don't typically offer
reporting capabilities.
"For example, the price [to process] an expense report
may be €3, but €3 is a day's work for an assistant in these countries,"
Vordenbaeumen said. To increase adoption, SAP said it partners with online
booking tools and competitors to offer bundled services.
In Malaysia and the Philippines, air tickets primarily are
paid for in cash with invoices filed manually. Because of this, collecting data
is challenging, Vordenbaeumen said, "but they're opening up under pressure
from multinational companies."
This report originally
appeared in the Feb. 3, 2014, edition of Business
Travel News.