Businesses of all sizes and across numerous industries all want to be profitable, and a huge part of that process is by the companies making smart purchasing decisions. This is where purchasing cards (P-cards) can come in handy. These tools are a type of commercial card, similar to a basic consumer credit card. However, P-Cards allow companies to take advantage of the existing credit card infrastructures to make electronic payments for business expenses.
A recent Trade Financing Matters article explored this topic, and said that rebates earned for high volume card use and the convenience of swiping a card over carrying cash and processing a receipt are top reasons for increases in P-Card usage.
"The challenge P-Cards have is the business model is not able to deal with B2B transactions that can involve disputes and chargebacks, and also just the economics of cards,” the article said. “Suppliers do not want to pay 2 percent to 3 percent of invoice value when transactions start getting larger to justify the interchange model."
The news source cited data from RPMG Research Corporation, which said that annual P-Card spending is expected to increase to $290 billion by 2016 with an expected 8 percent to 10 percent compound annual growth rate (CAGR). Furthermore, the number of companies using virtual cards in 2014 is expected to increase 21 percent, as compared to 2012.
The Nielson Report recently released similar findings, stating that credit, debit, and prepaid general purpose–type consumer and commercial payment cards issued in the United States generated $4.530 trillion in purchases of goods and services in 2013, and increase of 7.8% from 2012.
But, why use P-Cards?
The National Association of Purchasing Card Professionals (NAPCP) explains on its website that when the payment method is switched from the traditional process to a P-Card process, efficiency savings range from 55 percent to 80 percent of the traditional process cost. Furthermore, according to NAPCP calculations, typical savings through P-Card usage are approximately $63 per transaction.
Essentially, the procure-to-pay process is streamlined. However, it is still essential for companies to ensure that their cards are secure. One way to go about this is to add EMV chips to commercial credit cards.
Earlier this month, PNC Bank and Huntington Bank announced that they planned to install the high-tech chips in their business credit cards.
"At PNC, the bank has had commercial credit cards with chips since 2011, but they didn’t require a PIN,” explained a Plain Dealer article. “So if the actual card was lost or stolen, it could still be used fraudulently in person. Now, the new cards require a PIN, meaning they offer more protection at terminals that require a PIN and more convenience at terminals without an attendant."
While it is not yet required for all banks to shift to the new card options, the news source reported that several major payment networks told U.S. retailers they had until October 2015 to be able to process chip cards. After that point, retailers would be liable should fraud take place.