Amid a still-recovering economy, Sykes Enterprises, a
provider of outsourced customer service and technical support, recently had to
prepay business travel expenses for some employees with less than favorable
credit.
"In this economy, many of the 1,100 employees [who
travel for Sykes] either don't have credit limits or are not credit-worthy to
get credit cards," explained Alan Mazzola, director of global finance and
travel services for Sykes, which has about 48,000 employees. "So we faced
the challenge of having to prepay [rental] cars and hotels."
Sykes is one of about 145 U.S. companies that has its own
Airlines Reporting Corp.-accredited Corporate Travel Department, according to
ARC, meaning it can book its own air, hotel and rental car reservations just
like a travel management company. Prepaying for car rentals wasn't a major
challenge because Sykes set up a direct billing account with a car rental
chain. Prepaying for hotels, however, was more difficult, as corporations can't
simply set up direct billing accounts with particular hotel companies, only
with individual hotels that often are franchised, according to Mazzola.
Moreover, prepaying for a hotel usually entails faxing or
emailing a copy of the credit card, an ID card and a hotel reservation form, a
process that poses several potential problems. Faxes can be lost, misplaced or
not logged correctly, resulting in a lost reservation. There's also the
opportunity for fraud if the credit card information is stolen. Also, Mazzola
noted that each hotel chain uses a different form for such transactions, rather
than a standard document. But by far the biggest pain point Mazzola felt with
this method was the reconciliation process at the end of each month.
"I may have six or seven pages of credit card charges,
and I have to identify who they're for and call each individual hotel to get a
copy of the receipt for the accounting department and then pay the bank,"
Mazzola said. "It's a very lengthy process."
In July, however, the nightmare began to ebb. Sykes
implemented U.S. Bank's virtual payment solution, Travel VirtualPay. First launched as a pilot in May 2012, the solution integrates with the Sabre
global distribution system and payment company Conferma to generate single-use
virtual account numbers at the point of booking. U.S. Bank travel product
manager Mary Miklethun said Travel VirtualPay currently is available only for
hotel transactions, but future enhancements will include the ability to pay for
air tickets and car rentals.
"It would take about two full working days out of my
month to reconcile all credit card charges—it was an absolute nightmare,"
Mazzola recalled, "so having a product like [Travel VirtualPay] come into
play was a godsend."
Virtually Evolving
Sykes' situation is not unique. Many travel managers seeking
solutions to better reconcile charges and increase efficiency and security are
opting for virtual card products at rapidly increasing rates, claimed several
payment industry executives. The demand has prompted card providers and new
players to step up their virtual offerings.
The term "virtual card" often is used
interchangeably to describe multiple products. Some classify any cardless
electronic payment that utilizes traditional card infrastructure as a virtual
card. In that sense, central travel accounts, lodge, ghost and some procurement
cards would meet those criteria. Others (including this report) reserve the
term for processes in which cardless, one-time-use 16-digit numbers
automatically are created and electronically routed to merchants for the
purpose of making a purchase—like "writing an electronic check with added
security," said JPMorgan Chase managing director and product executive of
global commercial card Lisa Steury.
Virtual cards typically integrate with a company's accounts
payable and travel booking systems. Security measures include the ability to
limit the amount users can charge, the merchants they can use and when and
where they can use it. Virtual cards also can more easily collect and integrate
data from online booking systems than can central travel accounts or lodge
cards, said Henry Ijams, managing director of electronic payment consultancy
PayStream Advisors.
AirPlus, JPMorgan Chase, American Express and Citi began
offering such solutions in 2006, 2007, 2008 and 2009, respectively. Through its
inControl suite, MasterCard has provided clients the ability to generate
single-use account numbers since 2009 when it acquired Ireland-based payment
company Orbiscom. Additionally, MasterCard in October announced it is piloting its own virtual card number technology and aims for a full global release
in early 2014. AirPlus and payment provider CSI launched mobile virtual
card products this year, with AirPlus planning to bring its Mobile AIDA virtual
card solution to the United States by January 2014. Issuer Bank of
Montreal also plans to offer a virtual card solution sometime next year. Visa
in October signed a deal with Conferma to provide Visa's European
issuing banks technology to dispense virtual card numbers. UATP can offer a
single-use 16-digit virtual card through a partnership with eNett
According to several suppliers, uptake has been quick.
JPMorgan Chase's Steury cited more than 25 percent year-over-year charge volume
growth this year for the company's Single-Use Accounts virtual card solution.
AirPlus claimed the volume processed through AIDA—available in nine European
countries—in 2012 increased 144 percent from 2011, with hotel spend
representing 63 percent of all volume, while flights represented 21 percent.
Citing the increase in virtual card use, RPMG Research Corp.'s
2012 Purchasing Card Benchmark Survey included a new chapter specifically on "electronic
accounts payable." RPMG defined EAP as "non-plastic purchasing card
accounts used to pay for goods and services after an invoice has been received
for those goods or services," a category that includes "single-use or
a rotating pool of accounts," virtual or dynamic ghost accounts maintained
by either suppliers or buyers, and "straight-through" processing,
push payments and buyer-initiated transactions.
Using data from and analysis of more than 4,000 purchasing
card users in North America between November 2011 and February 2012, RPMG
determined that about 35 percent currently use EAP, 8.7 percent planned to
adopt EAP in the next year and another 12 percent planned to do so within three
years. "Thus, if planned EAP adoptions materialize, EAP use will rise from
34.9 percent in 2011 to 55.6 percent in 2014," according to the report.
The average monthly EAP spending is $1.1 million per organization.
Room For Growth
According to RPMG's report, virtual cards reduce the cost
and financial risk associated with checks, improve working capital by
increasing float, reduce the financial risk associated with plastic, and
improve the reconciliation process by matching data to the purchasing order.
Because of their one-time use capability, they are a good option for temporary
employees, recruits or employees with less than ideal credit, suppliers noted.
While the use of virtual cards is increasing globally, they
are not widely used in North America. "They've really only been adopted by
the large end of the market, because they require a technology investment
either directly or through a partnership to enable the use of virtual cards,"
said MasterCard group head of global T&E products and solutions Richard
Crum.
Additionally, virtual cards can prove inconvenient when
things don't go according to plan, Ijams said. The challenge, he said, is
finding a way for the issuing bank to contact the individual traveler if there
is a mechanical error, as the card is not tied to a specific person, only a
transaction.
Added BMO vice president of North America corporate cards
Steve Pedersen: "Virtual cards work really well on accounts payable, where
basically card-not-present is the norm, but on the travel side it's still not
as evolved because the retail community is not quite there. Where it is picking
up on the travel management part is on the reconciliation capability."
The Evolution Of
Virtual Cards
Virtual card products as they exist today are just "the
tip of the iceberg," Crum said. Integration between processes that
generate virtual cards and those related to travel booking and management needs
to be improved, he said.
"Today the process can be automated or semi-automated,
but that requires a change to the workflow or business process for an agency or
customer," Crum said. "Having the capability more easily embedded
into the travel reservation office or the mid-office, back office, quality
control and management process that agencies already use today is a critical
next step for widespread adoption."
Citi vice president and global business-to-business product
head within commercial cards Chris Chazin said there is "significant"
opportunity for virtual cards to have a "large impact" in the B-to-B
and T&E spaces. In the latter, he said "there is a push to better
incorporate these virtual card capabilities into the online tools that TMCs use
to handle bookings for their clients."
The next generation of virtual cards, according to American
Express vice president of business-to-business and central bill product
management Andrew Jamison, could include plastic as a way to "physically
issue a number to an employee and essentially give them a moving credit limit
based on their actual travel." The cards could be used for per diems given
to consultants, for example.
"It's very different from prepaid, because with prepaid
a corporation has to stump up the cash and load it onto a prepaid account,"
Jamison explained. "I'm talking still as a credit product for corporations
where you're able to influence the amount sent against a physical piece of
plastic and make it happen in a very dynamic fashion through single-use
technology."
This report
originally appeared in the November 2013 edition of Travel Procurement.