We all know paper checks are the bane of payments existence, at least in terms of friction. Think of the steps involved, from entering the data via computer, to printing out the checks, to folding them, stuffing them in an envelope, affixing a stamp (and paying for the stamp) and sending the mail out. Then, there’s the lag between the recipient getting the proverbial check in the mail and, oh yes, remembering to haul it down to the bank to be cashed.
For travel management and a host of other transaction types, friction becomes an even tougher nut to crack as payments stretch across borders and currencies, between travelers (individuals and corporate road warriors) and online travel companies.
In the latest installment of The Matchmaker Is In Series, MPD Founder David Evans and PYMNTS’ Karen Webster sat down (virtually speaking) with Jim Pratt, senior vice president and general manager of virtual payments at WEX, to discuss the past, present and future of cross-border payments as they travel alongside travelers, via virtual cards, and where the match can be made to bring corporates and B2B transactions beyond checks and even plastic.
Webster noted that WEX has expanded beyond its marquee fleet management solutions to embrace verticals including health care and travel, with the latter vertical being well-served by virtual cards. The WEX virtual card, said Pratt, traces its genesis to the beginning of the millennium (yes, the hoary days of 2000), with an initial focus on online travel agency (OTA) markets and clients such as Expedia, Orbitz and Travelocity.
“At this point in time,” he said, “almost everybody — and certainly all millennials — use these companies to book travel … [those companies could] scale fairly rapidly in terms of acquiring customers on the demand side and then aggregating hotel accommodations on the supply side.”
“What was difficult for them and what they were not able to scale well,” he continued, “were payments, and specifically cross-border payments. When you think about travel, it is probably the original cross-border payment industry. A travel agent in New York needs to make payments to hotels in Sri Lanka or Melbourne, Australia, or anywhere in the world, or vice versa.”
The OTAs, said Pratt, asked WEX to help with simplifying and securing cross-border payments, while maintaining scalability. For WEX, he said, the answer lay with leveraging Mastercard’s and Visa’s networks and their attendant “huge global footprints.”
“Merchants just know how to use those cards. They know how to process them” across hardware and software.
The difficulty with that ubiquity, said Pratt, lies in transactions with cards “that are not face to face,” with transactions done, for example, over the phone, online or via fax, making “it difficult to track who gets hold of card numbers and what they might be used for.” That, of course, opens the door to fraud and especially cyberfraud, concerns that stretch back to 2000 and have snowballed exponentially in terms of incidence and complexity.
For WEX, said Pratt, the answer came way back when, and still does, in the form of creating a 16-digit card number “in real time” with a transaction bracketed by credit limits. In one example, with a firm paying a hotel $250, said Pratt, that remains the credit limit on the card. And there are other controls the firm can put in place, he said, surrounding the type of merchant, to name just one parameter.
The card number — which Pratt said is assembled through a random number generator — is sent to the merchant and is processed just like any other card-based transaction. With a nod toward Evans’ query on number generation, Pratt maintained that “there is a way to generate card numbers where the plastic [card] is never created … You never intend for it to actually exist in the physical world. It’s only going to exist in the virtual world,” even as WEX functions as an authorized issuer of cards through WEX Bank, which, in turn, issues the numbers.
Once the transaction happens, he said, that’s it. “Even if you get a hold of that credit card number,” he added, “you’ll get a decline” with any subsequent attempt to run it due to the single-use nature of the card. Scalability is such that payments extend across 200 countries and, conceivably, tens of millions of transactions.
The lines have been blurring between travelers using the virtual cards, said Pratt — where initially the ones using Expedia, et al. had been consumers — but with ease of use, corporate adoption has grown as well. “All of the online travel companies,” said Pratt, “have begun to service first small businesses and then even middle-sized businesses.”
Larger OTAs, he said, have created divisions that are specifically focused on business clients. An inflection point came years ago, said Pratt, when hotel chains were “literally cold calling” WEX to get travel companies signed up to have virtual payments capabilities.
And, nowadays, he said: “If imitation is the sincerest form of flattery … six or seven years ago, some of the other banks began to come out with single-use cards and virtual cards. At this point in time, that whole virtual card concept is a standard part of many banks’ offerings.”
As for getting corporates on board, said the executive, there are two models. In one case, there is the corporate using travel management companies to do the booking for them, and in those instances, payments must be made globally, with an eye on simplicity and security. Corporates also typically want more information about transactions than do consumers, contended Pratt, extending beyond dates, merchant names and total amounts spent.
Along with the growth in demand for corporate travel booking services, WEX has had to scale with a focus on accommodating the needs for firms to transact in different local currencies (the platform now embraces nearly two dozen currencies globally). In addition, he said: “The regulatory environment [for financial services] can vary quite a bit and even in countries that are open from a regulatory standpoint and want to encourage innovation … Still, because it is about moving money, they are very careful about what you can do and what you can’t do.”
In other areas, such as in Singapore, he said, without the legacy infrastructure issues that are widespread and in place in the West, mobile payments have made significant inroads.
And mobile payments are also getting a closer look by the government in India, he said, offering another example, where huge amounts of cash have been taken out of circulation. Mobile wallets, he said, represent ways to leverage “more traditional business-to-business, cross-border payments … not so much the traveler physically present at a hotel or restaurant or paying a taxicab, but really, a business paying on behalf of that traveler, for an airline ticket, or hotel room, or those types of things.” In this way, tokenization (and the digital wallet itself) add safety and security to the transaction.
Other verticals: Hundreds of millions of dollars in health care payments done in the form of a check — and inefficiently at best. Pratt noted that the explanation of payments, in a long-winded paper copy mailed to providers and patients, can be truncated via electronic payments. Another vertical being explored by the company includes private aviation, where everything from jet fuel to cargo can be paid for virtually and across currencies.
A matchmaker pow-wow would be incomplete without the matchmaker making a match, finding a find and naming an inspiration. For WEX, said Pratt, admiration is cast Amazon’s way. The retailing giant, he said, has been “brilliant” in building around the customer experience, so much so that the payment itself comes almost as an afterthought during the process of finding just what one wants and when it will be delivered. WEX, he said, has a similar goal, with as seamless a payment experience in place (yes, virtually), regardless of market.