Commercial cards are tricky.
Their use is hardly ubiquitous across categories of B2B payments. While they may be instrumental in helping companies manage cash when their employees travel for work, commercial cards aren't the top payment rail of choice for suppliers, so companies often pay invoices another way.
They are also in flux thanks to regulation. Recent analysis from Buying Business Travel said PSD2 regulations in Europe, for instance, may make using a commercial card less user-friendly for the purpose of greater security. Interchange fee regulations, too, are changing, with various jurisdictions considering whether commercial cards should fall under new rules that cap how much card companies can charge.
With these market shifts in mind, issuing banks have to consider the best way to offer commercial card products, said a new report from expense management company Fraedom. Its white paper, "Powering up the value of commercial cards for your bank and your clients," underwritten by PayTech analysts, examines how banks can boost ROI on their commercial cards while heightening value for end users.
Key to this, Fraedom says, is understanding which metrics to measure when banks turn to assessing their commercial card offerings.
FIs need to look at spend per account, average value transaction, operational costs and profitability for a full picture of their commercial card performance. They need to also assess delinquency rates, client retention, end-user cardholder compliance and client perception of the banking relationship.
Some of these metrics are easily pinpointed — others, not so much.
According to PayTech, there are also benchmark points against which banks can compare their performances. For instance, analysts said, a "healthy" spend per account sits around $6,100 (compared to about $3,300 for consumer cards). But depending on how the commercial card is used, these figures vary greatly. They're likely to land in the millions of dollars when used as purchasing and procurement cards. Further, the report said, these figures also vary on the industry. The oil sector, for instance, often sees individual employee spend cards with SPAs exceeding $22,000.
Certain industries may be more lucrative for banks. PayTech analysis found, for instance, that as many as 80 percent of employees in the FI and financial consultant space have a commercial card for T&E purposes, the most out of any industry analyzed, surpassing the energy and chemicals space as well as consumer and health care. The financial space also sees the highest SPA per year, according to the data.
With this in mind, banks must assess SPA stats with card product and industry factored in.
Increasing SPA can be difficult, but Fraedom and PayTech noted that increasing spending limits is a straightforward way to boost the metric. The report also cited research from RRMG Research, which found that supplier acceptance of commercial cards is also a key factor behind increased spend on the card products — 16 percent of survey respondents said they would increase spend by as much as 100 percent on their commercial cards if suppliers could easily accept the payment method.
Fraedom and PayTech are advising banks to take a deep look at the data — and warn FIs that the data could be misleading.
The companies note that a typical average transaction value (ATV) for cards used for T&E purposes is about $177 and, for B2B payment purposes, can be between $332 and $33,000. And while transaction value is linked to greater profitability for the issuing bank, higher numbers aren't always good.
"If your ATV for T&E for your clients is significantly greater ... this implies that your clients are not using your cards for lower value transactions and are just using it for air travel or hotels," the report said. "This may suggest compliance issues."
Each metric identified by PayTech and Fraedom must be individual-assessed — but it's not easy. According to PayTech, fewer than 9 percent of commercial card end users are able to successfully build a report to track delinquency rates, for example. Analysts note there is a lack of available data on this issue, though analytics technology is helping to fill that gap.
Amid all of these data points, what's critical for a bank to remain successful in the commercial card realm is to make sure their clients are actually using the product.
Keeping businesses as clients — and ongoing users of commercial cards — is another key indicator of a bank's performance in this area. According to PayTech research, 40 percent of companies said their bank could have done more to keep them as a customer. More than three-quarters of primary commercial cardholders stop using their card about four months before they ultimately cancel it, with about 40 percent of them saying they stopped using the card because they changed business banks.
"Using data and technology to provide service enhancements, improved customer experience and added value products sets issuers apart from the competition," Fraedom and PayTech concluded.
"It is clear that there is a wealth of opportunity in the use of commercial cards to grow overall spend, increase transaction values even from an industry-wide perspective and cut operational costs dramatically," the companies added. "However, none of this can be achieved without an understanding of individual organizations' challenges, clear lines of communication and an appreciation of how to use the data card management systems generate to deliver true, value-added services."