Even as corporate card programs achieve dominance, travel managers could gain value and negotiating power with cost-conscious suppliers if they explore payment options outside the traditional card offerings, according to a panel of suppliers and buyers at the 2006 National Business Travel Association's International Convention & Exposition in Chicago.
Corporate card programs have reached about 80 percent penetration and are growing within small and midmarket companies, according to Business Travel News' 2006 Small and Midmarket Company Benchmarking Survey
(BTN, June 19). Vendors, however, are looking to avoid the high interchange fees they must pay with every credit card purchase, which has alternative payment suppliers looking to maneuver into some of the marketshare.
"In the States, credit cards are really king," said George Eubank, director of sales for instant-pay firm CheckFree Corp. "If you look at Europe, direct debit is just huge there, and you look at Asia/Pacific, credit cards are not that big. Here, credit cards are still going to be a strong majority of the payments, but it opens up new markets for us."
One payment alternative—Universal Air Travel Plan, a centrally billed payment processor designed for airfares—boasts volume growth and has snagged such high-profile users as Wal-Mart, said Scot Bealer, vice president of worldwide sales for UATP.
Movement on the retail side, however, could foreshadow an even larger sea change in corporate payments, said Alan Schultheis, director with global financial services firm Edgar, Dunn and Co. Travel suppliers likely will watch Wal-Mart, which has co-branded a card with Discover in an effort to cut processing costs.
"While no one knows except Wal-Mart what the deal is on the discount rate, what we do know is that it is extremely low, if it exists at all," Schultheis said. "So here is a very large retailer who has found a credit card company willing to share revenue when used elsewhere."
Airlines already have begun using this model, he said. Continental Airlines, for example, has a co-branded card with JPMorgan Chase, with which it offers savings and miles to consumers. American Express also has partnered with airlines and is pushing the cards toward midmarket clients, saying they can use the benefits in lieu of the large volume bigger companies can use for negotiated savings.
Increasingly, though, airlines are trying to push buyers from credit cards. Card suppliers and buyers agreed that carriers' next target for savings will be payment options, following their focus on distribution
(see story).Airlines, for example, have begun offering such payment options as the "bill me later" method, and British Airways and Ryanair have encouraged use of debit cards, which have lower transaction costs than credit cards. Airlines also have boosted acceptance of Web-based payment system PayPal.
Even if their company's payment program is mature, travel managers should not ignore any alternatives when evaluating their program, said Kevin Iwamoto, Hewlett-Packard's global airline, car, corporate card and ground commodity manager. Iwamoto added card program management to his job profile at the end of last year. "I would highly encourage you to look at all payment options, especially when you are going out to bid," Iwamoto advised travel managers. "There are some really great out-of-the-box things that are out there, and the key is how you are going to benefit from it on behalf of your company."
Those benefits inevitably will arise in negotiations, Iwamoto said. Using an alternative payment method automatically gives a company leverage at the negotiating table, he said. "If you're reducing their credit card merchant fee costs, which we all know is the next and last bastion and area of opportunity for the airlines to save money, then you should be non-negotiable when it comes to sharing in the incentives that the airlines are going to get," he said. "You should never, ever give that away."
The drawback, however, is that many of these payment methods are not yet feasible for a large corporation, because they lack the data-reporting capabilities of the major card companies. While UATP offers robust reporting, companies currently are unlikely to get much in the way of data from PayPal or debit cards.
Some international carriers, such as Qantas and Singapore Airlines, have begun tacking on fees for credit card transactions. Rules that prevent U.S. carriers from doing the same are unlikely to change, although CheckFree's Eubank said he wouldn't be surprised to see contractual language change to allow airlines to more actively promote alternative payment methods.
In the end, however, alternative payment providers could contribute to making major credit cards a more economical option for airlines, UATP's Bealer said. "When airlines are more proactive about using alternatives, the market forces will actually start to drive some of the other merchant fees down," he said. "The United States has the highest merchant fees, but the airlines are a little bit behind the curve, so it will be interesting to see what happens in the next two or three years."