Tightening credit availability as a result of the global financial crisis could hinder corporate travel and entertainment card negotiations, particularly for small and midmarket companies looking to implement new programs. Simultaneously, the crisis could bring new opportunities for buyers, with consolidation giving some bank players new strength in the market, the potential for banks to focus more on the corporate credit side of their business and new opportunities with alternatives to traditional corporate cards.
The economic meltdown is building banks' reluctance to extend credit to corporations and other banks, said David Hillman, principal of Deerfield, Ill.-based Consulting Strategies. While companies with mature or large-volume accounts will be insulated, companies looking to start card programs might find the environment challenging.
"The bank's internal review board might want to hold back on all new lending relationships and credit relationships and only deal with those companies that are high-dealing clients," Hillman said. "There's only so much credit they could extend."
Joanne Robinson, principal of data analysis and research firm Commercial Payments International, said banks are clamping down on credit lines, even lowering limits in some cases. Banks also will give stricter new lines and policies for small enterprises.
Additionally, card issuers will be reviewing terms of current agreements for spots of vulnerability when they come up for renewal. "Any place the issuer has a fear or concern about a company, liability, the size of line and so forth will be up for renegotiation," Robinson said.
Jay Cary, vice president of marketing for American Express, said existing accounts should notice little change and that new customers would be treated the same as they would in any economic environment. The financial difficulties the companies might be facing, however, could hurt their credit and therefore make them seem higher-risk, he said.
A strategy in the current economy might be to shift away from corporate T&E cards with individual liability, particularly as employees with less-than-stellar credit ratings would have more difficulty in procuring their own cards, Robinson said. "With corporate liability, it will be easier to get the credit," she said.
American Express currently has more than half its base using some form of corporate liability, Cary said. "It's not something we're looking to actively grow, but we consider corporate liability a best practice," he said.
The current credit market also makes a stronger case for payment alternatives, analysts said. Ralph Kaiser, president and CEO of the Universal Air Travel Plan, said he expects his network to grow, particularly as companies look to move to centrally managed accounts to get better control over their travel spending. "If corporations are worried about spend, they can know where their charges are going," Kaiser said. "Companies are being more prudent in tightening belts."
Corporate card programs also could see a benefit from the credit crunch. With corporate credit a much lower risk than consumer credit—corporate cards generally are paid off every month rather than carrying a balance—issuers and networks could begin to allocate more resources to the corporate side of their business.
An example is American Express' recent announcement of cost-cutting measures, including the reduction of its workforce by 10 percent
(BTNonline, Oct. 30). Of note in the announcement was that the company indicated a desire to invest where there are strategic opportunities, Commercial Payments International's Robinson said.
The key will be selecting investments that bring the most profitability, American Express' Cary said. "We certainly do not want investment to stop in the commercial card business," he said.
In general, corporate card issuers and networks will not want to stall commercial-side innovation, Robinson said, adding, "The fear in the industry is that if investment and innovation stops, they'll have to play catch-up in a few years."
Even before the financial crisis reached full boil this fall, the payment industry was experiencing the heat of merger and acquisition activity, most notably American Express' acquisition of GE Money's Corporate Payment Services and Discover Financial Services' purchase of Diners Club International from Citigroup
(BTNonline, April 28). In general, such activity results in the removal of a player from the market, but more recent activity could give a few banks more prominence in the corporate payment sphere. Wells Fargo, for example, plans to acquire Wachovia, which has a base of corporate and government customers.
"Wells Fargo is a strong second-tier player and is going to be acquiring a lot of new clients," Consulting Strategies' Hillman said. "This makes them a strong national player in banking and could boost their position."
Across the Atlantic, U.K. bank Lloyds TSB's planned takeover of competitor HBOS could produce a similar effect, Robinson said.
In terms of rebates, the bigger impact could be not from the credit crunch itself but from legislative action spurred by it. While the U.S. government has been reticent to regulate interchange fees, a primary source of revenue that feeds corporate card rebates
(BTNonline, Aug. 15, 2005), it's once again a possibility with a new economic situation and governmental makeup.
U.S. companies currently enjoy some of the highest rebates in the world. Any change to interchange will affect ability to pay those rebates, Robinson said. Issuers also might look at other ways to replace any lost revenue that could directly impact travel buyers.
"They provide a lot of value, like data aggregation and analysis, and they might be looking to get that value back from companies," Robinson said.
Conversely, it's also possible that card suppliers could increase interchange fees for additional revenue to supplant losses in the bad economy. While that could mean higher rebate opportunities, merchants also might have to find ways to reclaim that lost income through higher costs or diminished service. Airlines in particular have had credit card costs on their radar in recent years.
"Corporations might get an additional benefit, but it hurts the merchants who have to accept the card," UATP's Kaiser said. "When companies face higher costs, it affects their employees and their customers.