2014 Business Travel Survey: Payment Firms Turn Page On Tame 2013

The corporate payment sector's 2013 growth in the United States was lackluster, but issuers and card networks feel more optimistic about 2014. The Global Business Travel Association estimated total 2013 business travel activity grew 0.2 percent to 456 million person-trips compared with 2012, while spending grew 4.6 percent to $274 billion. Factors affecting business travel spending levels included a slow economic recovery and the U.S. federal government shutdown and austerity measures.

"If we look at the economies in North America, while they are recovering, it's more slow and steady rather than something more dramatic as everyone was hoping for," said BMO vice president of North American corporate card products, treasury and payment solutions Steve Pedersen.

[Please click here to view the digital edition of the 2014 Business Travel Survey, featuring all charted data, downloadable as a pdf.]

Banks, including BMO and Citibank, distinguished between public- and private-sector performance, with the public sector experiencing the worst of the effects as federal and some state governments continue to focus on cost containment and efficiency. The uncertainty of the U.S. federal government's sequestration spending cuts in particular hindered consumer and corporate confidence and thereby business travel spend, payment officials said.

"We're one of the largest providers [for the U.S. government's payment program], and that portion of the book faced challenges," said Citibank managing director and global head of commercial cards Manish Kohli. "But for the corporate portfolio—despite the weather—we did absolutely well."

Kohli said he's seen request-for-proposals activity during the past 12 months increase by "a factor of 100 percent" as companies look to transform and improve their existing travel programs. Compared with previous years, when some companies were consumed with other internal business priorities, firms now are taking the time to reexamine their programs and sometimes change legacy providers, Kohli explained.

"They're showing a real keenness to improve, and not just as a pricing exercise," Kohli added. "Companies are looking at card programs as avenues to drive more value in terms of process controls and centralization, [meaning] companies are now looking to run their card programs globally and with standard processes, rather than have them run country-by-country with different providers."

UATP in 2014 is set to have its "best year ever," according to vice president of marketing and communications Wendy Ward, and is on target to report more than $14 billion in charge volume this year, up from more than $13 billion in 2013. "People are coming out of their shells from the recession, and business travel is essential to maintaining client base and creating new [clients]," Ward said when asked to what UATP attributed the growth. "Events have also made a comeback and are probably fostering a good number of business travelers as well."

Likewise, Bank of America Merrill Lynch's charge volumes in 2013 were up "pretty significantly" due to new clients' card-use mandates and some existing clients' application of card products for "expanded uses," including meetings, according to BoAML head of global card and comprehensive payables for global transaction services Kevin Phalen.

The bank is not a major player in the public sector. "Our business is probably less affected by some of those [sequestration issues] than other issuers, so I'd say our knockdown effect from that has been relatively low," Phalen said. "Even though the weather presented intermittent issues, we're seeing—in the travel space alone—probably 30 percent growth year over year."

BoAML's investment technology upgrades seems to be paying off, Phalen said, as some bank clients during the past 18 months opted to use T&E commercial, procurement and one-cards for higher-value payments. The card products provide "good data and reconciliation," he added. "Because of the investments we made in technology, it gives [clients] better control and security, and as a result they're willing to utilize cards for higher-value purchases."

Data, Fraud And Security

Toward the end of 2013, a handful of high-profile data breaches—most prominently at U.S. retail giant Target—revealed vulnerabilities in the payment space. While the incidents primarily affected the consumer sector, several hotels were compromised, and hence T&E corporate cards likely were affected, industry experts in May told Business Travel News. The incidents raised questions around the security of the payment sector, including its methods for storing and protecting client data.

"The evolution of big data has meant that there's a new potential repository of information for fraudsters to tap into," said BMO's Pedersen. "The Target incident taught us that we have to be even more diligent on how to protect information."

While chip-and-PIN or EuroPay MasterCard Visa Technology (EMV) would not have protected cardholders from the online or "card-not-present" transactions featured in the recent incidents, issuers and networks said that after the breaches they've had more inquiries from clients about the embedded microchip authenticating solution, which is to become standard by October 2015. The fraud incidents also have encouraged banks to meet or advance their transition, as well as look for alternative fraud-prevention solutions for CNP transactions.

BoAML in April announced that all newly issued U.S. corporate T&E cards will have chip-and-PIN technology. BMO beginning in 2015 also will begin issuing chip-enabled corporate cards for renewed and replacement cards. Citibank already issues all new customers chip cards.

Card networks American Express, MasterCard and Visa in October joined forces to propose a global standard for online shopping meant to enhance security by using a digital "token," instead of personal account information entered by users to process a transaction. The organizations are working with other industry bodies, including banking and payment associations, The Clearing House, the PCI Security Standards Council and EMVCo to further the initiative. 

Virtual Cards

Another tool said to reduce fraud is a one-time-use virtual card. Travel managers can set virtual cards with exact charge amounts for particular vendors during a specified timeframe. Virtual cards can prove particularly useful for infrequent travelers—allowing firms to forego issuing a corporate card with hundreds of dollars in liability—and they also can make reconciliation easier, as all essential information, such as employee identification, vendor and spending amount, is transferred digitally.

While one-time use virtual cards have existed since 2006, companies around the world in recent years more widely have adopted them. BoAML provides the tool in 26 countries and has experienced "double-digit growth in North America and around the globe," according to Phalen. As firms try to use card products in "non-conventional ways," Citibank's Kohli said in the past year he's also noticed "more momentum" in the virtual cards and electronic payments space.

AirPlus, American Express, CSI and  JPMorgan Chase also provide virtual card solutions. MasterCard has provided single-use account numbers through its inControl suite since its 2009 acquisition of Ireland-based payment company Orbiscom, and last October began piloting its own virtual card technology. Visa in October 2013 signed with Conferma to provide Visa's European issuing banks the technology to dispense virtual card numbers. UATP can offer a single-use 16-digit virtual card through a partnership with eNett.

U.S. Bank provides virtual cards for lodging spend through a 2012 partnership with Conferma and Sabre, and soon will begin a project for air bookings, U.S. Bank Travel Payment Solutions vice president Mary Miklethun said. "The adoption [of virtual payment] in the market is indicative that [it is] growing and will continue to be an important trend both in terms of how corporate buyers manage their travel spend and also how different suppliers within the travel industry conduct payments between themselves," she said.

Mobile Advances

Issuers and networks have continued to enhance or develop mobile and online platforms, as clients have showed more interest in the products. U.S. Bank in the past 12 months has focused on its mobile offering and plans to launch this year a mobile application for corporate card clients that will be similar to personal online banking, while maintaining "robust security" to protect client data, Miklethun said. 

"[Corporate cardholders] will be able to manage their accounts the same way they manage personal accounts today, to see transaction history and sign up for alerts," Miklethun explained. "We've built out a robust roadmap to go over and above to deliver receipt capture, expense caps and the like."

MasterCard last year launched mobile wallet functionality called MasterPass, as well as a mobile application called Smart Data that allows Android, BlackBerry and iOS mobile device users to capture receipts by taking photos with their smartphones. The firm in February 2014 also acquired mobile wallet and on-device software and services provider C-SAM, which MasterCard group head of global T&E products and solutions Richard Crum said would help the payment network develop apps tailored for the T&E space.

Pedersen admitted BMO is "a little behind" the curve on the mobile front. However, the bank has developed a "major initiative" and is making "significant investments" to enhance its online and mobile presence, he said. "Our corporate payments capabilities on the mobile side will also be enhanced."

EU Regulations

In a surprise move, the European Union in March 2014 reversed a decision to include commercial cards from the European Union's proposed cap on interchange fees. The proposal affects four-party systems, including MasterCard and Visa, in which payment involves banks as well as the merchant and customer. The cap would reduce to 0.3 percent from 1.5 percent the typical interchange fee on MasterCard and Visa commercial credit cards.

"We feel strongly that the regulation should not include commercial cards for a number of reasons, not the least of which is the corporate and supplier have negotiated prices and have chosen to transact with commercial cards because they see value in this payment form," said Visa senior vice president of global commercial solutions Tad Fordyce.

In response, issuers and payment networks said they have been monitoring the situation and working to educate regulators on the value commercial cards bring to the sector in hopes of reversing the decision. They've also been preparing backup plans if the legislation goes forward as-is.

"There's still a lot of uncertainty on whether that will remain on the books, and even if it does, it's still another two to two-and-a-half years before it will be implemented," said Miklethun. "If it does take affect, it will impact pricing strategies in that region."

This report originally appeared in the May 26, 2014, edition of Business Travel News.