Analysis: commercial cards, clear lines and communication
Kyle Ferguson, Fraedom: commercial cards present a wealth of opportunity
There is no question that the commercial card sector is growing strongly. According to Research and Markets, the US commercial card market in particular is outstripping other B2B payment types. Between 2013 and 2015 it posted an average CAGR of 9% and this is expected to continue for some time.
For banks and banking services providers, this presents a huge opportunity to grow revenues while improving customer experience – a vital component in customer retention and increased lifetime value.
But it’s not enough to be simply handing out more plastic and generating more fees. Commercial cards need to deliver compelling business advantages to users to move them on from standard payment methods such as cheques, purchase orders and invoicing.
Looking to the private banking sector we can see where introducing value added services, delivered via technology, have cemented customer relationships. In Latin America, a region that has huge diversity when it comes to consumer banking, the use of payments technology and spend management has become critical to customer experience.
In an interview with CMO.com, business marketing manager of Itau Unibanco, noted: “We saw the opportunity to strengthen relations with our customers via mobile banking and highly accessible channels that enable fully secure provision of products and services for the most varied user profiles.”
In the B2B environment, using technology to strengthen relations is no exception. The research Fraedom conducted in conjunction with PayTech Consulting discovered that even early iterations of commercial card technology are already driving strong returns for banking providers.
- Spend per account (SPA)
A measure of health of the card account, higher SPA means greater client satisfaction. Technology that gives visibility and control over spend generates higher levels of trust with banking partners.
- Operational costs
Variable costs account for around 40 basis points, e.g. five to ten for stationery and customer support, five to 15 for data management. Cutting out paper statements, introducing more self-service options cuts down on time and cost for both client and bank. It’s a clear mutual benefit that is easy to communicate.
- Client retention
High retention substantially reduces costs and increases the net present value (NPV) of accounts booked. Attrition can be as high as 20% for small business card accounts. Positive experiences reduce clients’ appetite for change.
There is also the question of client inertia to overcome. For many, they will find their current payment solutions adequate to their needs. These proof points will go a long way to demonstrate how future payments can deliver real benefits in terms of employee time saved, security of transaction and administrative efficiency.
Crucially, for banks in discussion with their clients about implementing commercial card technologies, the fact that everyone’s norms are different must be central to discussions. In encouraging the adoption of any new technology, its benefits must be communicated in ways relevant to the client’s business needs.
In conclusion, Fraedom CEO Kyle Ferguson says: “There is a wealth of opportunity in the use of commercial cards to grow overall card spend, increase transaction values even from an industry-wide perspective and cut operational costs dramatically.
“However, none of this can be achieved without an understanding of the individual organisations’ challenges, clear lines of communication, and an appreciation of how to use the data that card management systems generate to deliver true, value-added services.”
To find out more about the benefits of commercial card technologies, download the Fraedom and PayTech white paper here.
