Commercial card adoption is on the rise among European corporates eager to embrace opportunities for faster, electronic payments with the added bonus of rewards and incentives from card issuers.
Yet as companies take a much more stringent look at their finances to prevent any excess spending, firms find that the card programs their financial institutions offer don't always provide the added features they need — namely, custom spend controls that prevent employees from making unauthorized purchases.
For traditional financial service providers, card products have solved for payments friction for a variety of users and use-cases. For corporates, however, the payments problem doesn't start and end at the point of transaction.
As Payhawk Co-founder and CEO Hristo Borisov explained, the challenge in business spend can begin after a payment is complete.
For small businesses, being able to make sure that an employee is able to not only physically make the payment, but that they have been authorized to do so, are not over-spending, and can capture transaction data for accounting and reconciliation purposes, makes the post-transaction process a headache.
"Sometimes, the problem starts the moment a small business actually pays," he told PYMNTS in a recent interview. "There is a big lifecycle for an expense for small businesses. They not only have to deal with the part of having to get a corporate card, but what happens after they pay? This is where the problem starts and where a lot of the banks' ad issuers currently don't do anything to help with those processes."
This challenge has given rise to a slew of third-party FinTechs looking to help businesses manage their spending, but offering an alternative to traditional banks isn't always the most effective solution.
Commercial Cards' Open Banking Opportunity
One of the biggest hurdles in the commercial card arena is not only in offering value-added functionality like expense management but enabling businesses to use those tools without having to switch their banks, said Borisov.
This guided Payhawk's market strategy, with the company positioning itself not as a neo bank, but as a software provider that coexists with corporate users' existing bank accounts. Open banking and PSD2 regulations enable the company to work with local solutions in various markets around the eurozone to enable the company to connect to businesses' existing bank and credit card account data, enabling firms to keep their current banks but move funds to a Payhawk virtual wallet that's linked to Payhawk commercial card tools.
"It offers a much more flexible, integrated experience because of open banking regulations in place in Europe," noted Borisov. "For organizations, switching conventional banks can be quite challenging — they're using a huge amount of services from their existing banks."
This strategy means Payhawk can tackle another major pain point that prevents corporates from adopting commercial cards.
According to Borisov, as more businesses hire remote employees and contract workers across borders, they struggle to issue those professionals company cards because they don't have a bank account in the same market as that worker. Not only can issuing corporate cards to these remote workers provide enhanced visibility into what employees are spending company money on, but it can also be an important tool in making those remote professionals feel they are a part of the team. For Payhawk, this is a key focal point of investment as it looks to enable businesses to issue cards to employees across the Euro economic area.
Expanding The Value Prop
Elevating the commercial card with spend controls is key to enabling businesses to cut down on unauthorized or excess spend when employees work on a company project or take a business trip. But the value proposition for the commercial card can go further, with Borisov identifying invoice payments and accounts payable as a greenfield opportunity for card adoption growth.
Yet card acceptance is not guaranteed in every payment scenario, especially when paying B2B suppliers.
Mixing payment rails can be an effective way of overcoming this obstacle, said Borisov, who provided PYMNTS an exclusive look into Payhawk's upcoming service, which will allow corporates to make Single Euro Payments Area (SEPA) payments via their company cards. In addition to automated data extraction for invoice processing, payment approval and reconciliation purposes, Borisov noted that this tool can enable businesses to wield the benefits of making payments with company cards, while their suppliers can benefit from faster payments and an easier collections process.
"There are a lot of small invoices here and there, and the process for paying them can sometimes take 45, 60 days," he said. "Why should the process of an employee swiping a card be instant, while the process of paying an invoice take 45 or 60 days?"
As commercial card adoption continues to expand across Europe, there will be additional opportunities for value-added functionality, particularly as open banking and PSD2 find new ways to overcome corporate payments friction. Borisov highlighted the opportunities to develop solutions on top of banks' existing commercial card offerings as capabilities to connect existing bank accounts expand.
And despite limited adoption of corporate cards today, he noted that the market growth opportunity is significant — and perhaps much higher than people realize.
"When we go to an existing small or medium-sized business, we usually issue five to 10 times more cards than they have in-use today," he said, noting that businesses are eager to adopt corporate cards, yet struggle to overcome the hurdles to obtaining, issuing and managing a high volume of cards within a single enterprise. "We were thinking CFOs prefer the cash reimbursement process [of employee expenses] because they're more in control. But every CFO is telling us they would like all of their payments to be card payments."