By Steve Abrams
Worldwide, the harsh reality of the current economy has driven many companies to cut costs and re-examine every aspect of their operations. In the area of commercial payments, electronic payments address this new business reality by offering increased efficiency, cost-effectiveness and accountability.
In 2010 and beyond, demand for advanced payment solutions presents abundant challenges and opportunities for global commercial payment players. The outlook is equally robust for complementary non-card solutions — from advanced corporate travel services to new integrated technologies and software such as direct online booking tools with airlines.
Where We Are Today
A globalized economy means new and growing regional opportunities, but it also means more issuers and payment industry players will be eager to compete for a share of the market. As competition intensifies in developing markets, innovation will flourish, driving new advances in commercial payments. We're already seeing this with the recent introduction and increased penetration of corporate payment cards in regions such as Asia Pacific. The demand for commercial payments services in these emerging economies means increasing capabilities to develop customized solutions that fully realize the unique needs of these markets. These markets are quickly gaining on the advances being made in more mature regions by leveraging existing mobile and electronic procurement systems.
Meanwhile, government entities in developing markets looking to implement lessons from this most recent economic crisis will want to ensure greater oversight and transparency of spend. Electronic payment systems have the technology today to efficiently meet these stringent demands for reporting and compliance with local and national laws, along with eliminating redundant processes and delivering enhanced service to constituents.
Trends and Opportunities
Issuers and payments processors have a variety of avenues to reach new markets, develop new technologies and provide new capabilities for additional sectors in the future.
Because many of the key service providers in the marketplace are focusing on core business areas to improve profitability, strategic alliances with third parties will naturally follow. Often, these alliances require technology integration in order to fuse the partnership, and electronic payments providers will be in an enviable position to provide the service.
There are also great advances being made to serve frequent corporate travelers. Saving paper receipts and submitting them to a corporate finance department is no longer acceptable in today’s mobile society. Corporate card users need the ability to make payments, then provide accountability and reconcile their spend. As these users often have a mobile device, the payments sector is wise to increase its mobile offerings to match the lifestyle of these high-value users.
According to a 2009 Gartner report1, sales of smart phones in the first quarter of 2009 represented 13.5 percent of all cell phone sales, compared to 11 percent during the same period in 2008. The growth of hand-held devices is spurring new capabilities for corporate travelers. For example, users will be looking for real-time travel alerts integrated with their travel reservations, which will also link with real-time expense reporting.
Another development in the offering is in the area of capital expenditures. Check or ACH-based, big-ticket transactions will soon be captured through sophisticated integrated solutions, making them more economical for suppliers and buyers, and more efficient for companies and their financial institutions. One such example is MasterCard’s Payment Gateway, which offers an integrated, customizable approach for improving procurement efficiency.
In addition to these broader trends, opportunities exist in card segments as well, especially in fleet and small business. The global growth and demand for fleet cards is driving innovation in enhanced point-of-sale systems. While the United States and Canada already experience high penetration in this card segment, the United Kingdom and other European nations are looking for a ubiquitous fleet card system to enhance transparency within their companies, especially in the current economic environment. With capabilities for auto, marine and aviation industries, fleet offerings will experience great international growth in the years to come.
Finally, growth will continue in the small business segment. While the current economic climate has been challenging for this segment, small businesses are the lifeblood of the U.S. economy. According to federal government data, small businesses represent about 99.7 percent2 of all employer firms, and generate more than half of the country’s non-farm gross domestic product. In addition, small businesses currently use the Internet to gather information, run their business and purchase goods and services, increasing the opportunity to use card-based solutions. In fact, according to a 2008 Dove Consulting Study3, small businesses use credit cards for 17 percent of their spend, while an estimated 56 percent of all transactions can be put on a credit card.
Small business debit use also continues to grow, especially in this challenging economy, as business owners look for better control and expense tracking. In light of the important role small businesses play in the United States and around the world, delivering technologies and services to make them more cost-efficient and advance their payment programs is a key element to fostering economic growth and prosperity.
Looking Ahead
The current economy has presented challenges and opportunities in nearly equal measure for the global commercial payments industry, shining a spotlight on the benefits of electronic payments. MasterCard and other industry players will continue working with each other to ensure commercial organizations have the payment tools necessary to enhance customer loyalty while providing greater efficiency, rigor and control over spending and reporting. The new technologies and new markets that are being developed now will deliver enduring benefits to the commercial payments infrastructure in 2010 and beyond.
About the Author
Steve L. Abrams leads the development and management of MasterCard Worldwide’s global business-to-business programs, marketed through financial institutions to small, mid-size and large corporations, and public sector entities.
1 Gartner, “Dataquest Insight: Market Share for Mobile Devices 1Q09,” May 19, 2009
2 U.S. Dept. of Commerce, Bureau of the Census and International Trade Administration; U.S. Dept. of Labor, Bureau of Labor Statistics, 2007 3 Dove Consulting, “It’s All About the Barriers: Migrating Small Business Invoice Payments from Paper to Plastic,” 2008
3 Dove Consulting, “It’s All About the Barriers: Migrating Small Business Invoice Payments from Paper to Plastic,” 2008