Television investment-advice-giver Jim Cramer recently told his CNBC audience that he just discovered fleet card companies and loves them. “The fleet card business may be the hottest business that you’ve never heard of,” he said.
Most of his segment involved his heaping praise upon Fleetcor and Wex, especially Fleetcor. “They are tremendous prospects,” he said.
After explaining the basics of fleet cards, touting the efficiencies to B2B business such as the average annual fuel cost reductions of 15 percent from Fleetcor, he talked about the why the business model of all fleet card companies makes so much sense.
“Fleetcor and Wex go up to a chain of gas stations and say ‘Hey. You accept our fleet cards and give our customers a discount and we’ll help direct a ton of traffic your way.’ Everybody wins and, more importantly, the fleet card issuers make money from both sides,” Cramer said. “They charge vehicle fleet operators a subscription as well as transaction fees and they also get a piece of the transaction revenue from the gas station partners whenever anyone uses one of their cards to pay for fuel. That is a terrific business model.”
The whole fleet card market will top $1.5 trillion worldwide and is rising, he said. But the investor angle is that the fleet card market is “incredibly fragmented and underpenetrated, which is where the opportunity comes in.”
For example, he pointed to the largest player, Fleetcor, only controlling 3 percent of worldwide fleet card revenue. “That still makes them three times the size of the next largest competitor, Wex,” he said. Fleetcor also touts one million commercial accounts in 24 countries and “exclusive longterm contracts with more than 800 oil companies,” including Chevron, BP, Shell and ARCO. They also are the only card that currently supports chip and PIN “thanks to an exclusive deal with Visa.” Clearly, other fleet cards can use EMV, so the exclusivity is more of a marketing arrangement.
He then adds that Fleetcor has another advantage in the way it is expanding.
“The best thing about Fleetcor is that it is not just a card issuer. In many ways, it has more in common with a private equity firm or an investment banker. Fleetcor specializes in finding undermanaged businesses with lucrative customer relationships and then acquiring them and quickly turning them around,” Cramer said. “Since 2002, the company has made 60 types of acquisitions. They have turned the takeover process into a science. In every single one of these deals, Fleetcor managed to double the profitability of the newly-bought business within two years. Incredible track record.”
Good to know that someone outside B2B payments has discovered the magic of fleet cards.