It's been a little more than a year since Swedish bank SEB's cards unit completed its acquisition of AirPlus from the Lufthansa Group, and the bank is following through on its promise to buoy that acquisition to become a broader player in the European corporate travel market, with eyes on expansion in North America as well. Last month, SEB announced that its Eurocard brand was taking the AirPlus name, part of a "broader ambition to become the leading corporate payment provider across Europe with an international reach," according to Mads Krumhardt Enggren, who was leading SEB's cards unit and became AirPlus International's CEO upon completion of the acquisition. At the same time, AirPlus has been fine tuning its global strategy, exiting markets in Asia and Latin America to hone that focus. Krumhardt Enggren spoke recently to BTN executive editor Michael B. Baker about that strategy, as well as the company's technology strategy with a new IT platform and looming benefits—and challenges—from advancements in AI. An edited transcript follows.
BTN: What was the strategy behind the AirPlus acquisition?
Mads Krumhardt Enggren: Before, even though the Eurocard value proposition was not as visible in your part of the world, it was and still is a very strong value proposition in the Nordic region. Over time, we managed in the Nordic region to outcompete the global players like Amex and Citi, so they are more or less not present in the region, but the Nordic region is a small region. Either we had to grow and expand, and the only way we know this can be done in a very efficient and in the pace we'd like was through acquisitions, or we would sell the business. Even though we were big in the region, the investment requirement in order to keep up with the global competitors, the business size in the Nordics was not big enough to keep on the investment level. Hereby, we needed more scale. Looking at the landscape, the AirPlus fit was just phenomenal. We dominated the Nordic regions; AirPlus dominated especially Central Europe. Combining the two companies had very little cannibalization. It's two niche organizations focusing only on payments. A lot of other players, they, at least for the banks, have the payment as a part of cash management or other areas. The strength of the two companies was slightly different. The DNA of AirPlus was built around the company card [lodge account], while for SEB and Eurocard, it was built around the card. Combining those two skill sets creates a unique composition, both from the employee point of view but also from the value proposition. Both companies had strong capabilities with virtual cards, which is not new but it's an add-on to the traditional product lines. In reality, when we looked at the industrial logic, it was a clear-cut case. We tried to do this earlier, but Lufthansa was not keen on selling the AirPlus business in the past.
BTN: Is there anything lost from it no longer being an airline-owned business?
Krumhardt Enggren: In the early days, it was a strong driver in having really in-depth knowledge on what are the drivers in the industry of travel-related payments. If you look at today's world, it's not typical for an airline to own a payment company, and the business has been regulated a lot since the start of AirPlus. It's also lots of registral requirements, on [know your customer], on capital requirements and credit risks. Here, we can announce some of the benefits of a bank that has a better understanding of the industry and is better capitalized than the airline. For Lufthansa, AirPlus for many, many years was a very successful company contributing with profit, and that's why they didn't want to let it go and also why we had to go all the way to Covid where they had some financial issues before selling the asset. But from an industrial point of view, it doesn't really make sense for an airline to own a payment company.
BTN: AirPlus has made the decision to exit some of its markets. What was the reasoning there?
Krumhardt Enggren: Overall, when you look at the global market, it is clear that it is over time very difficult for the industry to stay within the regulatory environment if you scatter your business globally. It's become even more difficult in the last five to 10 years. The regulatory tsunami has been all over us. When we looked at the AirPlus footprint, it was quite clear that more or less 90 percent-plus of the business was situated in Europe and North America, and those are two regions that are more or less operating within one regulatory framework. With a framework, you can work within all of the EU countries, and the same to some extent applies to North America. That was "pre" the current political situation. It was before there was a slight hiccup with the NAFTA agreement with Canada and Mexico, but we are still very positive around the North American region. It's a huge market, and it's a market where you can operate fairly limited on language—English and Spanish, which are in the European markets as well. When you look at [Asia/Pacific], it's a quilt of regulatory environments and languages. At the same time, the political landscape is moving over time. When we initiated the transaction, China was perhaps a more tricky market. Now it's a bit more in again in Europe. What we decided on was when we talked with clients, we wanted to commit to the long [haul], and we can't commit to all of the APAC countries due to political risks, the limited business and the investment required and the regulatory environment. The decision was we would rather go out to the customers and say for the markets where we operate and commit to operate, you can commit to us for the long haul. This is where we are investing our money, and this is where we want to make a difference. We believe that some of the regional players in APAC are a better fit to do that, because they can commit to you in the long run and will adapt to the regulatory requirements in those markets. The decision was tough on us and our clients, but it is about us investing and committing to the investment over time to offer our clients the best value propositions where we operate.
BTN: Would you look to expand in other geographies besides Asia/Pacific?
Krumhardt Enggren: What we did was clearly stated: Europe and North America was our long-term commitment. We don’t have at this point in time any ambition to [reach] business outside of those markets. We do have gaps in our value proposition. When we look at the markets, we want to offer a consistent offer in all the markets. We are getting close in Europe, but we still have some gaps in the North American market, where we are mainly offering the lodge card. Over time, we want to offer the exact same value proposition we offer in Europe.
BTN: What is the status of AirPlus' IT transformation?
Krumhardt Enggren: On the lodge card, it is a very complicated product. If you want to have an advanced product, very few can offer advanced lodge accounts in the world. There are no standardized platforms you can buy. There are attempts from Mastercard and Visa to offer some basic features for banks, but the value proposition is not on par with the AirPlus offering. AirPlus had initiated a modernization project on the lodge account product back in 2019. In the transaction, it was a clear requirement that platform reached a state where we had proof of concept, and it was operating in the market. All of the clients were not migrated to that platform, but it's a fully modernized, cloud-based solution. We migrated the last clients during the summer, so all our clients are on this platform. We have the same issue in the Eurocard world, where we are on an old legacy platform that is standard in the industry. We looked at the opportunity to bypass that investment in Eurocard, which was part of the decision to acquire AirPlus. We'd still like to migrate some of the clients we have in the Nordics, but all of the AirPlus accounts are now on the new platform, and the ambition is to migrate the Eurocard clients to the same tech stack. It's been a massive effort for AirPlus over the last seven years, and I must admit I'm very glad I avoided the journey at Eurocard and that we can now tap onto a fully end-to-end-capable platform. Looking at my competitors, when they have to do this journey, it's going to be tough. It's fully integrated and very efficient for our customers to use, but it's combining a huge ecosystem of different providers of services combining into a highly sophisticated invoicing setup.
BTN: What does that mean from the customer standpoint?
Krumhardt Enggren: The typical benefits you get from migrating to a new tech stack is you get far more flexible in what you can do. We can better adapt to market requirements, offering new services to our clients, but we have to be realistic. When you have a legacy system you typically build very customized solutions that are not being replicated to our clients. You sacrifice something to get something else. We're sacrificing a few bespoke solutions to some clients because it's not commercially reasonable to do them, but what we enter into is a far more flexible solution where you can offer more services to a broader level of clients, and that's what you get by moving into a modernized world. You also get a better ability to stay complaint. A large part of our business is to stay in line with the regulatory requirements, and it's becoming more difficult when you are on a legacy platform. What that does to us, it reduces the workload or the capacity needed to do compliance-related work. It releases investment power in the future on what we can do for clients rather than just staying compliant. We can move investment from compliance into customer development. When you do the transitions, you don’t' see the major benefit day one. You see it in the coming years. It's an investment for the future.
BTN: With the two companies together now, what is the product roadmap?
Krumhardt Enggren: We are dedicated to our three main pillars: the lodge account, where we still are increasing the ecosystem of partners delivering data and financial transactions through the system. We truly believe that the automated process around central billing is highly efficient for the majority of clients, especially if you have strong integrations with the ERP systems. We do believe in the walking plastic, even though not everyone is in line with me, but they are fooled a bit about what is an individual payment instrument. It can be plastic, it can be a phone, or whatever, but there is a need to have an individual payment instrument for all of the employees, and you need to offer them a fully integrated solution which is also offering superior user interface toward the employee. We talk a lot about the company making sure the payment instrument they are offering the employees is under the control of the corporate, in order not to lose control of the data. It's about both the efficiency internally and the expense management reporting and the follow up on management information, what kind of empowerment can it do on both the supplier negotiations and how can we enforce corporate policies, avoid fraud internally so there's a lot of other reasons to have the payment tool under your own control, but it's also about the data risks, that you don't have leakage into a private-controlled payment instrument. On top of that we have the virtual card. That's only an aid in different payment scenarios that are a roadmap we have been on for the travel payment for decades, but it's expanding into other payment use cases. If you work with us in these use cases, including the travel-related payment, we will pick the infrastructure best fit for the purpose. You should never think about is it better to be about a card-based infrastructure, blockchain-based infrastructure or account-to-account-based infrastructure. That's our job. We create the connection, and we will stay on top of development in the industry and make sure we have full integration in order to have an efficient process.
BTN: Why has it been more difficult to market individual corporate cards in Central Europe?
Krumhardt Enggren: A lot of it is history, and also who pushed the market. I would say AirPlus successfully pushed the market in Central Europe, having better capabilities on the lodge account, claiming there's no need to have a corporate card. You can have it all on centrally billed account, and it successfully has been doing so for a long time, while in other regions, they were less sophisticated on the lodge account, so the lodge account was a supplement to the corporate card. It's also driven by the providers in the market. To some extent, when you look at the corporate cards and how they're used, whether they are pure private cards or private liability at least, it can be based on pure historical regions. In Sweden, we had a politician who did a fraud case on a corporate card in the '90s, and they never forgot that, so they pushed it all to private. In other countries where the unions were really strong, saying that there's no way you're going to push liability for corporate payments onto the individual. So, it really depends on each market, but what we're seeing now is a trend toward the corporates taking control of all the payments. Then, you can decide on how you want to manage the administration of invoicing. That can be the individual card or can be central, but we see a trend that you take control, and you don't allow this end-down to a private-controlled payment instrument. We want to be able to support our clients independent of their preferences. What we don't recommend is they allow private-control payment instruments, because you completely lose control of the data and you also end up in a situation, where today, I can create a digital receipt, or even a physical one, that you would not be able to see whether it's fraud case. There's no way you can control that since you don't control the original data of the payment, so there's no way you know whether there was a spend or not. That was, of course, more tricky 10 years ago, but today, it takes me 30 seconds, and I have something that looks really valid. The expense management systems are working in the same area, to ensure that through AI and the data flow of the payment that you can avoid those cases.
BTN: That's one challenge AI is presenting. What potential benefits does it present AirPlus?
Krumhardt Enggren: You can look at it from the obviously use cases, where we've seen some bold statements from [Swedish fintech company] Klarna in the market saying they can save on the entire customer service [function] more or less, the chat-related or even the spoken service. There's no doubt that we are also seeing a potential cost savings in the industry and also for an international company like ours, the ability to service clients in multiple languages, the cost of doing that is dramatically reduced. The way to support clients will be far better, and the opportunities to do it in their own language will increase. We also have a number of processes internally where we can become more efficiently through AI, both from operating the process and from doing development. In reality, a payment company is just a tech company. We don’t produce anything. Like for any other tech company, we have a huge potential by using AI in our development and thereby accelerating the development we can do toward clients. Then, an area that's important for us as an industry, is within the [anti-money-laundering] area. With money laundering, it's always a battle between us and the fraudsters, and the fraudsters will use AI, so we need to use AI in order to detect the fraud. Right now, it looks very promising that we can avoid a lot of fraud cases using AI, but on the other hand, it won't take that many months before the fraudsters find a way to challenge that new level of security we are implementing in the systems. Some of the savings we have, we will have to spend on securing our services, unfortunately.
BTN: But it sounds like the payment providers who don't invest in that will have problems.
Krumhardt Enggren: They will have problems, because they always go for the weakest link. If you don't stay on top of it, you will be a victim of the fraudsters. But it's not only that. It's an increased requirements from the regulators. There is a lot of political pressure, especially in Europe, both from the politicians and the regulators that we do our job to secure that we don't have a black economy, that fraudsters are not getting funding through the system. Even though that it could be a better business case, the pressure from the regulators and the politicians is too high. You risk huge fines, and there's also the bad media. If you get exposed in one of these cases, you lose a lot of credibility in the market as well, so you need to have a significant investment in this area for several reasons.
BTN: What drove the decision to rename Eurocard?
Krumhardt Enggren: If you are not a part of the Nordics, you would think the Eurocard disappeared years ago. It was absorbed by Mastercard, and finally they killed the brand, at least in all of the campaigns they did. It is still a very strong brand in the Nordic region, due to the fact that SMB kept the brand and worked with the brand toward especially the corporate market. It has a high value and high awareness in the market, and if you are corporate and are looking for a payment solution, you would automatically look at Eurocard. The same applies to AirPlus in Central Europe. So, we were left with a choice. We were clear from the beginning that we would not have a two-brand strategy, so we need to go with one of them, or a new one. The decision to go with AirPlus was based on the fact that AirPlus had a broader presence in Europe. There's also another angle to this, that Eurocard is not owned by SEB. It's owned by Mastercard. AirPlus is owned by us. From that point of view, it was an easier choice to go with AirPlus, but it was not only about that. It's also about the brand awareness, that especially in Central Europe, AirPlus is really strong, and we believe we can bring the same strength of AirPlus in the Nordic market. Competition-wise, we have less competition in the Nordic market, so the risk is also different. If we were to change the AirPlus brand in a more competitive landscape, this increases our risk that we might lose market share. In the Nordics, we are more or less a truly dominant issuer of corporate payment tools, especially in the large corporate sector, and we can explain to our customers why we are changing. It's simply more difficult to do that explanation in central Europe and North America. We want to go to that market as well. I know that the AirPlus is not as known in North America as it is in Central Europe, but the competition, the ownership and the markets where the brands are known in the different regions, the Nordics were simply stronger in Central Europe. We changed the look and feel of the brand, so it better matches the expectations from the old Eurocard. It is of course something we bring to the Eurocard customers. The look and feel should fit what they expect, and this is a compromise, that we are changing the look and feel of AirPlus, but we are keeping the brand and the promise to our customers.
BTN: You mentioned expanding into other payment use cases. What might that look like?
Krumhardt Enggren: Historically, we have been really good at making travel payments extremely efficient. We are looking at the opportunity to expand that into all other areas of payments. The payments that are already done by banks—that's typically supply chain financing—where they have solution in place, here we are seeing a huge market, probably estimated a number of times at least 10 times higher than travel payments. What we know is the corporates are having difficulties managing these payments, so the opportunity is huge, but it does require that you work together with partners. We will not be able to serve all the needs of corporates in order to make this efficient. This is the beauty of travel payments. We work with travel managers, travel companies, [travel management companies], the expense management industry, the ERP industry to create a super-efficient flow from the purchase until the booking in the ERP system. We are trying to do the same for the other payments, but it's far more scattered, and the reason we are not seeing the same pickup we would like to see, is that we were early on in the digitalization within travel payments, so we managed to get this implemented on the corporate side when the developed digital capabilities. In the meantime, on all of the other payments areas, they've ended up in home-grown solutions, so it's more difficult. We strongly believe there is a huge potential, together with the industry, to make a more efficient approach on the other payments, those that are not handled together with the bank under supply-chain finance. Here we are investing a into in our capabilities, and together with partners, currently on the virtual card infrastructure. It's a fully digital solution to manage payments for multiple suppliers but one counterpart being the payment provider. It costs you a lot to set up a new supplier in an ERP system. We bundle all of that into one counterpart, thereby reducing their effect dramatically in onboarding all of these suppliers. We see good growth numbers on this area, but from a low level. Over time, it should be able to outcompete the travel payments in some ways.