MasterCard, Travelocity Debut Midmarket Tool

MasterCard last week launched a suite of T&E payment and expense tools targeting midmarket clients, leveraging a newly formed partnership with Travelocity Business. MasterCard joins American Express in aggressively pursuing solutions for the unique needs of the midsize segment, including pre-set rates.

MasterCard's midmarket offerings revolve around its MultiCard—a one-card payment program that covers T&E expenses, everyday spending and fleet expenses—with such value-added components as ingrained discounts, Web-based setup capabilities, travel booking and expense reporting.

Through the partnership with Travelocity Business, MasterCard is offering midmarket clients discounted setup fees for the online travel agency, as well as "exclusive savings of up to 84 percent on traditional service fees and up to 26 percent in average airline costs," MasterCard said in a statement.

Doreen Amano, MasterCard vice president of global product development, said MasterCard selected Travelocity as a partner because the agency offers a customizable solution through which customers can set and monitor travel policies and other parameters.

The program also includes set discounts with such vendors as Airborne Express, Hyatt Hotels and Office Depot. MasterCard will continue to add T&E and other vendors, Amano said. MasterCard's approach is "holistic, because it's not just a payment solution. What we bring to the table offers a broad perspective where payment is only one component," she added.

Since launching the MultiCard program last year, "which has had the greatest receptivity in the midmarket," Amano said, MasterCard claimed it has doubled the number of issuers that offer the solution to midsize companies.

MasterCard's largest issuer, GE Corporate Payment Services, as well as other such issuers as Bank One, JPMorgan Chase and Wells Fargo, among others, are offering the new solution.

Set rates and discounts for a variety of spend categories also are at the heart of Amex's offerings. Since many companies in the midmarket segment do not have large travel volumes to leverage for discounts, the payment networks are taking on the role of contract negotiator on their behalf.

Some vendors and consultants offered the conventional wisdom that the approach works to the advantage of both client and vendor, giving companies discounts while driving volume to preferred vendors.

Also viewing the midmarket as an under-penetrated segment—one the payment industry is banking on for growth opportunity that exceeds the saturated large market—American Express this year officially launched its Savings at Work program, which offers discounts for midmarket companies in several areas of everyday spending. While the program started with discounted arrangements with such non-T&E vendors as AT&T Wireless, Dell, FedEx and Staples, Amex this summer expanded the program to incorporate discounted rates with travel vendors.

In July, Amex announced a partnership with American Airlines to issue co-branded cards to midmarket companies. Companies can use the card to receive rebates as high as 10 percent on up to $1 million in AA air expenditures. Other airlines since have followed with similar co-branded options for the market, including Air Canada, Qantas and Air France

At the National Business Travel Association's annual convention in Dallas this August, American Express announced Avis, Budget and Starwood as additional partners in its Savings at Work program. Anré Williams, senior vice president and general manager of the middle market for American Express, told BTN that "American Express negotiates the savings on the behalf of the client," which, in some cases, means discounts as high as 25 percent with preferred vendors.

Visa has not taken the same approach as Amex and MasterCard as it forgoes pre-negotiated discounts and market-specific offerings. "Visa has long recognized that middle market clients have many of the same needs as both our traditional business card clients and our larger commercial card clients," said David Cramer, Visa U.S.A. senior vice president of commercial sales. "The cookie cutter approach to any market minimizes the choices prospective clients have—look at the range of options available in consumer card today—so we continue to offer the full suite of Visa Commercial Solutions to the marketplace."

However, Visa and its issuers are remaining vigilant in assessing competitive offerings.

U.S. Bank—the largest issuer of Visa commercial cards—said, "We are reengineering how we attack that market."

U.S. Bank last week brought up Joe Zappa from within the organization to head its midmarket initiatives. Zappa called the midmarket one of the fastest growing segments and one on which U.S. Bank will put a strong focus. The bank issuer is in the midst of product evaluation, with the goal of offering a comprehensive solution early next year. "We want to leverage merchant relationships and merchant-acquiring programs to create strategic programs for clients," Zappa said.

JPMorgan Chase—an issuer of both Visa and MasterCard—also aims to expand its midmarket presence. While the issuer already has a dedicated sales force directly targeting this segment, the bank is seeking to add to its existing force.

"The small to midmarket is a very attractive segment of the card market, which certainly isn't as mature as the large market," said consultant Dave Hillman of D. Hillman and Associates. "On the other hand, it's much more difficult to target. The smaller the company, the more they behave like consumers and look for the benefits that a consumer would look at."



Ripe But Undefined

Just as the midmarket has remained somewhat untapped, it is also largely undefined. While MasterCard defines the segment as companies with annual sales between $10 million and $250 million, American Express places companies with annual revenues between $10 million and $1 billion into the segment.

Visa's Cramer added that not every company within the broad segment fits the same profile or has the same needs. Those on the smaller end, he said, have needs similar to small businesses, while those on the larger end behave much more like their large-market counterparts.

Another source echoed this sentiment, saying that while some of the pre-negotiated discounts that are at the heart of some programs would be valuable to midmarket companies on the small side of the spectrum, larger midmarket companies most likely would be able to leverage discounts better than those provided.

However, regardless of which yardstick vendors use to define the market and which needs they believe should be addressed, they all agreed on the ripeness of opportunity the segment provides for potential customers. Citing a recent study by Barlow Research, MasterCard said the U.S. middle market comprises more than 100,000 companies.

Amex estimated that more than half of those companies it defines as being in the midmarket are still without a corporate card program. "These companies are allowing employees to use whatever payment vehicle they think makes sense, and they're reimbursing them," Amex's Williams said. "In some cases, they're giving cash advances, which is certainly not a best practice."

Such companies as Neenah, Wis.-based printing, packaging and mailing company Outlook Group Corp. still are using personal plastic coupled with reimbursements, while other midmarket companies are rolling out corporate card programs. New York-based Taro Pharmaceuticals is among several companies in the midst of launching such a program.

Even for those companies that do have a corporate card in place, vendors said the card program might not fit the size of the company.

"If you look at the market, there's a lot of focus on small business and a lot of focus on large market," MasterCard's Amano said. "So many midsize organizations have probably been using a card that's small-business-oriented or large-market-oriented. In the past few years, there's been significant momentum in regard to focus in this segment."