Growth in the commercial card industry is being driven by more than the push for supplier acceptance in accounts receivable. With innovations introducing virtual card technology and data analytics into the fold, the commercial card space is positioning itself to address some of the emerging challenges of business payments in accounts payable and beyond.
An example of the conjunction of commercial card innovation and shifting corporate payment trends can be found in the evolving workforce. Payroll company ADP recently estimated that as much as 80 percent of U.S. companies currently employ an independent contractor, with analysts predicting that figure to climb even higher. A rise in freelancers, gig workers and remote employees isn't just changing how these professionals are compensated, but imposing changes on companies' expense management processes as well.
Virtual cards in particular have stepped in to address expense management and employee spend friction, giving another boost to commercial card adoption, according to Andrew Jamison, CEO of Extend, a digital credit card distribution platform that partners with banks and FinTechs so they can provide virtual card capabilities to their own customers.
"The workforce is evolving," Jamison told PYMNTS. "There are more freelancers and decentralized decision-makers, where traditional commercial cards cannot play the role [they] used to play anymore."
He pointed to some of the biggest challenges of commercial cards — including fixed credit lines and the burden of administrative management — that make the tool less flexible in the employee spend use case. Further stifling adoption is the risk of employee fraud, and the inability for managers to gain visibility into employee spend (or even who has company cards in their possession), when physical cards are used without integrated technologies to provide this insight.
Businesses often address these challenges by forcing employees to use personal funds for company expenses, for which they get reimbursed at a later date. However, some firms are beginning to view this as a move in the wrong direction, with the retroactive reimbursement strategy imposing additional costs related to the expense and reimbursement process, as well as dissatisfaction among employees and missed opportunities for companies to reap the rewards of card benefit programs.
Previous research from American Express found that nearly a third of corporate finance executives expect to increase their T&E budgets in the year ahead. While the trend is reflective of companies' broader expectations for growth and larger budgets, it's also likely to place even greater pressure on employee spend management efforts.
Rather than taking commercial cards out of the equation, enhancing the payment tool with technology can meet demand for greater control and visibility of employee spend.
Jamison noted that companies are beginning to feel more comfortable with embracing virtual cards, thanks to a range of factors. Since virtual cards have been in existence for more than a decade, they have a proven track record in the B2B payments arena, he said, pointing to companies like Google and Apple Pay that have provided trusted brand-name power to virtual cards, too. Additionally, consumer spending habits have moved in a direction conducive to digitizing the way companies pay.
Contactless payments and eCommerce "have made card swiping obsolete," he said, adding that most business purchase volume on cards today is card-not-present (CNP).
Virtual cards — and commercial cards overall — still have a long path ahead to gaining traction in business payments, whether in accounts payable or expense management. With a growing freelance and remote worker population in particular, companies are finding it difficult to include commercial cards in the employee spend management process because, as Jamison explained, cards can often only be issued to full-time employees.
"Traditional commercial cards are 'one size fits all,'" he continued. "An employee gets a commercial card with a fixed limit on a single piece of plastic. It is very cumbersome for a company to adjust a commercial card credit line when the needs of the employee change."
Adding more weight to these pain points is the fact that some companies are reluctant to embrace commercial cards in any capacity, thanks to the risk exposure that a credit line brings, said Jamison.
Virtual cards can address many of these challenges, including offering companies and their managers a way to provide remote employees with access to company funds, and enabling real-time adjustment to spending limits and rules. However, there is another innovation in the financial services space that Jamison said is having an effect on corporate card adoption: open banking.
Opening the data sharing floodgates not only means that companies like Extend can integrate their virtual card-issuing capabilities into other third-party apps and platforms, but the data from virtual card spend can be seamlessly integrated into existing systems for enhanced visibility into, and control over, spend.
"APIs and open [banking] initiatives are playing a large role in the growth of the commercial/virtual card space," said Jamison, adding that the trend "opens a tremendous opportunity for previously cautious banks that have very sticky client relationships, and an ability to maintain the control of the overall customer relationship."