Some 20 to 30 years ago, every U.S. oil company ran its own in-house fuel card operation. Today, most outsource those operations. That trend has only just begun in Europe, where most businesses still operate their card programs internally.
For third-party fuel card providers, Europe represents much larger growth potential than does the U.S., as it has 50 percent more commercial vehicles on its roads. Getting companies to switch from operating their own card programs to an outsourced arrangement, however, won’t be a quick, simple process.
In Europe, the trend is where the U.S. was two decades ago, but it’s changing, as more companies are at least looking to outsource their now-internally operated fuel card programs, Steve Elder, Wex senior vice president and chief financial officer, said during a presentation at a recent Deutsche Bank Technology Conference.
Thus far in Europe, there essentially are only two fuel card contracts in place, at the event. One involves Wex acquiring ExxonMobil’s European fuel card business, and the other involves Fleetcor’s deal with Shell to gradually take on much of its European card operations
“Other than that, the oil companies basically do it in house,” Elder said.
Interest in pursuing outsourced card contracts began five or six years ago, when “many, many oil companies” came out and started asking questions about what would it look like to outsource,” Elder said. “A couple have made that decision, (and) we would expect over time that more and more of them will, especially once they see the success of the couple that have made the decision to do it.”
As Elder explained, Europe overall has about 60 million commercial vehicles, compared with about 41 million in the U.S. But the make-up of the businesses is relatively same. “You’re talking about big businesses and small businesses, and the predominance of vehicles are in small businesses,” he said.
But the services they receive for their commercial fuel card payments is a bit different, Elder added. In the U.S., there are four or five different “universal networks,” such one Wex operates that as a closed-loop network supported by more than 90% of the nation’s fueling locations, he said.
Slow migration process
“Across Europe, it’s really dominated by the oil companies; there are no pan-European universal networks out there,” Elder said. “So the opportunity in the short-term is really to work with the oil companies to process their portfolios on their behalf and bring some scale to them by processing for multiple oil companies.”
And while the European market represents opportunity for international expansion of processors’ fuel card operations, the reality is that it will not be a quick process, Elder said. “I do think it will take a long time,” he said. “The oil companies don’t move very rapidly when they are making these decisions, so it will take some time.”
Both Fleetcor and Wex are battling it out in Europe for fuel card market share.
On May 1, FleetCor acquired Shell’s small and midsize (SME) enterprise fuel card portfolio in Germany in a deal that could lead to more work with Shell over time. The company also signed a European framework agreement with Shell that outlines a broader expansion plan covering the potential acquisition of part of the oil company’s fuel card portfolios in up to 12 additional markets in continental Europe, including France, Poland and the Netherlands.
Wex, which completed its acquisition of ExxonMobil’s European card portfolio in July, continues to go through the migration process, which includes the conversion of ExxonMobil’s portfolio to Wex’s system. That won’t be a quick transition, however, as the company expects the conversion to begin in 2015 and to be completed in 2016.
How the U.S. fuel card market shapes up
In the U.S., Wex says it has about a 15 percent market share in a market that has only 40 percent penetration in outsourced fuel card contracts where third parties provide enhanced data capture and purchase controls at the point of sale, Elder said.
“If you stratify that 41 million commercial vehicles, the majority of them are in smaller fleets, (with) less than 25 vehicles in that fleet,” he said. “So they’re small businesses, and they don’t necessarily think of themselves as fleets. That’s where most of that open opportunity is, (which is) in those small businesses.”
At the larger end the marketplace, where a company has several hundred or many thousand vehicles in their portfolio, the more penetrated outsourced fuel card processing is. “To the point where I’d say if you have got, say, 500 vehicles in your fleet or more, you’ve been called on by WEX, you’ve been called on by our competitors,” Elder said. “And it’s highly, highly likely that you’ve got one of the programs in place today.”