The late, great, traditional corporate card - US Bank

---

The late, great, traditional corporate card How virtual and mobile technology are changing business travel and the way we pay for it

1

Introduction The end of the traditional corporate card era is looming. The way that organizations source, pay for, and reimburse business travel has changed more in the past five years than the previous several decades combined. While the emergence of the internet revolutionized how organizations book employees’ travel, the fast pace of innovation in payments and mobile technology will cause a paradigm shift in the way that individual business travelers pay for their own travel booking and on-the-road, out-of-pocket expenses. From booking to buying to expensing to reporting, business travel is about to become a seamless virtual experience that is both more secure and more efficient. This ebook, written by Chrome River and U.S. Bank, looks at the current trends and potential impact to corporate card usage, what drawbacks the system presents, as well as the why and what of virtual accounts, and what future capabilities might lie ahead to see how they could dramatically streamline business travel.

2

Contents 1. Corporate cards today • Corporate card • P-card • One card 2. An imperfect solution • Managing infrequent travelers • Expense management and reconciliation • Lost or stolen employee cards • Evolving business travel environment 3. H  ow do virtual accounts work today and how they might help in the future? 4. Benefits • Mobile travelers • Improved control • Enhanced reconciliation and visibility capabilities • Reduced risk and fraud exposure • Other benefits 5. Future developments

3

Corporate cards today Corporate credit cards have been in existence for more than 60 years, and for much of their life have remained broadly the same, in both form and function. Physical cards still dominate in this environment. In fact, it’s estimated that 20 million corporate cards are currently in circulation in the U.S. alone.1 There are many types of cards that organizations provide employees depending on their role and spending requirements. However, the three most common are:

Corporate card A corporate card is used to pay for travel and entertainment expenses incurred on behalf of the organization. An organization can bear all of the liability for payments or the liability can be shared between the organization and individual employees. The cards can be used at any location.

P-card A procurement card/purchasing card (commonly known as a “p-card”), is used for B2B purchases. Some cards can be used with a pre-defined set of vendors or certain types

of locations, such as office supply stores or preferred suppliers. These cards are the most restrictive for employees in terms of where and how they can be used, and are typically used for business, as opposed to individual purchases.

One-card A one card can be used the same way as a corporate card, but the organization can implement spending and vendor restrictions. These cards are effectively a hybrid of p-cards and corporate cards.

In addition to these card types, many organizations will have “ghost cards,” which allow all of an organization’s bookings to be made through a single, central card (often held by a corporate travel agency or travel management company). While the corporate payment industry is in the early stages of virtual card use — mainly with specific sectors, such as travel agencies — the shift is still very much in its infancy. Only an estimated six percent of companies surveyed in 2016 apply single-use virtual accounts for transient travel, with a further 20 percent anticipating to do so by the end of 2018.2

1 Sources: Nilson Report, American Express 2 Source: GBTA Foundation

4

An imperfect solution Given the ubiquity of corporate cards in their current format, what is the need to move to virtual accounts for business travel? The answer is that although physical or “walking” cards offer a good solution for travel purchases, it is still an imperfect solution. Walking cards present several challenges both for business travelers and the organizations for which they work. Some of these challenges include:

Expense management and reconciliation

Managing infrequent travelers While many organizations have a core group of road warriors who travel frequently, a majority will probably take just 1-2 trips per year, maybe to a conference or training. In addition, many large companies employ contractors or freelancers who submit expenses for reimbursement, as well as interviewees who require reimbursement for travel expenses. Providing and managing physical cards across the entire organization, as well as short-term staff and contractors, can lead to major logistical headaches.

With traditional central travel accounts, reconciling spend, such as hotel bookings and flight purchases, can be difficult. It can be time consuming to allocate purchases to individual employees. The knock-on effect impacts an organizations’ ability to reconcile card spend, pay bills in a timely manner, and manage expenses.

Lost or stolen employee cards Physical cards can be lost, stolen or otherwise compromised (e.g., the number can be skimmed at gas stations or restaurants). In addition to the financial challenges posed by illegal usage, employees also face the hassle of cancelled and reissued cards. Depending on the traveler’s location, re-issuance can take anywhere from 1-5 days, which can cause a major inconvenience.

5

Evolving business travel environment The key drivers for change haven’t been exclusively negative. The rapid change of booking and payments across the travel ecosystem, combined with the increased capability for mobile payments, has provided further impetus for banks and card issuers to enhance virtual payment capabilities. Taxis have given way to services like Uber and Lyft, Airbnb has become an increasingly large player in the corporate lodging space, and food delivery services including Grubhub, Uber Eats and Postmates have become increasingly popular. Likewise, physical cards are becoming increasingly less used for day-to-day, out-of-pocket spend. Instead, the vendors’ own iPhone and Android apps linked directly to payment cards are replacing physical cards. In addition, a growing number of point of sale (POS) card readers have near field communications (NFC) capabilities, allowing them to accept payments with latest-generation mobile phones with stored mobile wallet data.

6

How do virtual accounts work today and how they might help in the future?

How virtual accounts simplify travel payments today Organizations currently use virtual accounts to pay for planned airline, lodging and rental car expenses of infrequent travelers who don’t have corporate travel cards. For “cardless” travelers, a corporate travel manager or travel agency issues a unique virtual account number in an approved amount to the travel provider. The travel provider processes the account number at the time of service, just like a traditional corporate travel card number. Capturing these outlying travel expenses extends the value of an organization’s corporate card program in several ways. It simplifies reconciliation by automatically matching booking and payment data. It also improves adherence with travel policies by controlling purchase decisions at the corporate level. In addition, it increases expense reporting accuracy while reducing fraud risk.

7

How virtual accounts might help in the future While virtual accounts have been providing unique benefits for over a decade, their full potential has not been realized. The following scenarios describe new capabilities and benefits that could become real given current technology trends. These enhanced virtual accounts each have unique benefits and could be defined three ways: 1. as an extension to a traditional corporate card, 2. as a per-trip virtual account, 3. as a transactional replacement.

Extension to a traditional corporate card An extension to the traditional corporate card could allow existing cardholders to request and add accounts as needed for purchases beyond their limits. For example, a business traveler loses their luggage, and they can’t purchase clothing/sundries because their card doesn’t allow retail purchases. Company policy allows for spending up to $100 on clothes and sundries in such situations. The traveler would request and receive a virtual account enabled for retail with the $100 limit, and the justification would remain with the transaction.

Per-trip virtual account A per-trip virtual account could be issued directly to the traveler, with pre-set authorization controls and credit limits for each account. These would be issued on a case-by-case basis for a specific business trip, either to an employee who seldom travels or an external contractor, neither of whom would be a good candidate for a permanent card. For example, a per-trip virtual account could allow an individual traveler the flexibility to purchase their own flights, lodging, rental cars and meals for a fixed duration. However, it wouldn’t allow purchases made at merchants outside of these profiles.

Transactional replacement Lastly, as a transactional replacement, single-use numbers could be requested by a traveler and generated for individual transactions. For example, the traveler would book their airfare and hotel through an integrated travel agency. At the airport, the traveler would use a travel app to pay for a taxi and lunch at the airport. With each transaction, the travel app would request a new account number and use it for that single purpose. This extension moves the expense reconciliation to the front and eliminates the month-end expense reconciliation headache for the traveler. For the company, this extension would ensure real time adherence to T&E policies. For example, if a traveler requests to buy dinner for himself and two colleagues for $183, the travel app would indicate that company policy allows for a maximum of $50 per person ($150 total). The traveler could then pay the difference themselves or request an override through the travel app.

Benefits The future of enhanced virtual accounts combined with mobile capabilities could have a wide range of benefits across an organization, ranging from end-user travelers to card administrators, expense administrators, and the broader financial team. These benefits can be broken down into four key areas: mobile travelers, improved control, enhanced reconciliation and visibility capabilities, and reduced risk and fraud exposure.

Mobile travelers For business travelers, one of the biggest benefits would be the flexibility of corporate payments available to a much wider group than with walking cards, thus reducing the need to use personal cards to pay for out-of-pocket business travel items. Integrating mobile wallets and virtual accounts would deliver a straightforward and worry-free user experience. Of course, all purchases must be submitted on a personal expense report, regardless of whether they are made on a personal or virtual account. Mobile alerts would make it easy to track spend in real time, and expenses could similarly be submitted in real time. The entire process, from purchase to expense line item creation to expense report submission could easily be done from a mobile device, without the need to collect physical receipts. Improved security would also be a major improvement for travelers. There are no physical cards that could be lost or stolen and reused. In the event that the traveler’s mobile phone is lost or stolen, all account data is encrypted on the phone so it is difficult to steal.

9

Improved control Control is one of the key areas where virtual accounts are an improvement over traditional physical cards. Virtual accounts can be issued or updated in real time, anywhere in the world, so there is no need to worry about issuing new or replacement cards to employees. Virtual accounts also provide an unparalleled ability for employers to control where and when purchases could be made. This would not only reduce fraud, but it would also help travelers adhere to travel expense policies more effectively — especially when combined with an expense management solution’s business-rule based policy enforcement capabilities, which automatically enforce limits on the amount that can be submitted for reimbursement. Employer control could also be improved by virtual accounts’ smart integration with online booking, expense management and financial systems, which combine to streamline the entire process, speed up card payments and minimize the potential for interest or other bank fees. Upon a virtual account’s use, expense reports could easily be created by simply taking a photo of a receipt and emailing it (or an electronic receipt) to the expense provider. The data would then be extracted via OCR or data parsing and an expense line item would be automatically created. This could then be submitted and approved online — entirely through mobile devices if both the traveler and approver are on the road.

Enhanced reconciliation and visibility capabilities Moving away from ghost and personal cards to single use virtual accounts could drastically improve an organization’s ability to reconcile purchases, and improve visibility over its travel spend. If card statements are directly imported into an organization’s expense management solution, it would become significantly easier to reconcile individual cardholder spending against expense submissions, eliminating the manual tick and tie process traditionally used to match up receipts against statements. Having all data centrally stored within the expense management solution would also make consolidated reporting more straightforward, allowing corporate travel managers to track budgets more effectively. In addition, centralized data would enable finance departments and business analysts to have more complete data sets for performing real-time analytics on corporate travel spend. This insight could be used to make smarter travel planning decisions, secure better negotiated rates with travel vendors, and minimize inefficient spending.

10

Reduced risk and fraud exposure A major drawback to physical cards is that they can be lost or stolen. With a virtual account, all account data is tokenized within the mobile phone, so a thief would not only have to steal the device but also know the passcode in order to access the data. Even in the unlikely event that a virtual account’s details are compromised by a third party, there are measures that could be taken to minimize potential fraud. Organizations could place tight spending restrictions on which vendors or merchant types can process accounts. For example, thieves would not be able to use the data if restrictions were placed on stores where goods can easily and quickly be resold, like electronics or clothing stores.

Other benefits There are ancillary benefits that organizations could achieve by channeling more spend through commercial payment programs. For example, the ability to extend payment terms by floating card balances could have a positive impact on cash flow, and higher spend volumes would also increase the value of rebates that an organization can receive.

11

Future outlook The pace of adoption for single-use virtual accounts, mobile payments and expense management automation is likely to increase rapidly over the coming years. In fact, it’s estimated that by 2021, 90 percent of all corporate card programs will incorporate a virtual account element, and 60 percent of corporate card payments will be made with virtual accounts. Total North American spend on virtual accounts is expected to grow from $73 billion in 2015 to $100 billion by 2019 — a 50 percent increase.3 As larger organizations adopt virtual account technology, there will likely be a tipping point in the next 2-3 years. One sign of this is that the U.S. General Service Administration (GSA) has mandated that the next generation of its SmartPay service, which encompasses purchase, travel, fleet and integrated card programs, must include virtual payment capabilities. The move alone will add several billions of dollars to the total spend given the GSA spent $8.1 billion on 43 million travel card transactions in 2016.4 It’s anticipated that more investment will continue, laying the groundwork for ever-lasting changes to the world of business for even faster, simpler payments. It will also help address key pain points and improve processes around travel expense management. Both the business traveler and the organization benefit, making virtual accounts the next logical phase in the expansion of corporate payments. For small to mid-size organizations and their travelers, the value of virtual payments lie in the timesaving user experience for on-the-go travel and expense management. Mobile-savvy travelers not only want to shop online or use a mobile boarding pass, they also want more streamlined mobile payment and expense management. Virtual payments will continue to make huge inroads as organizations see the value in greater control and protection. The more efficient payment, settlement and reconciliation processes are, the more effective virtual payments will be for managing the organization’s overall business travel. And with the emergence of digitalization, adherence to organization travel guidelines and growing requirements for speed, transparency, convenience, data security and smarter payments will have the utmost priority. For key industry players, any new and improved technologies will have to satisfy these essential quality criteria in order to retain the trust of customers and organizations alike.

3 Source: 2015 RPMG Electronic Accounts Payable Benchmark Survey 4 Source: U.S. General Service Administration

12

About Chrome River Chrome River Technologies, Inc. lets business flow for some of the world’s largest and most respected global organizations. Our highly-configurable cloud-based expense reporting and supplier invoice automation solutions deliver an elegant and intuitive user interface, which offer the same high quality experience on a smartphone, tablet or laptop. Our SaaS products provide a world-class business rules engine and technology infrastructure, combined with a completely agile solution that supports today’s changing business climate, and that CFOs, AP and travel managers, and employees will all love. To find out why Chrome River is trusted by more than 1 million users at over 600 organizations worldwide, contact us at 888.781.0088 or visit us at chromeriver.com.

chromeriver.com linkedin.com/company/chromeriver twitter.com/chromeriver facebook.com/chromeriver

About U.S. Bank Minneapolis-based U.S. Bancorp (NYSE: USB), with over $460 billion in assets as of June 30, 2017, is the parent company of U.S. Bank National Association, the fifth largest commercial bank in the United States. U.S. Bank operates 3,088 banking offices in 25 states and 4,826 ATMs and provides a comprehensive line of banking, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bank on the web at usbank.com.

usbpayment.com linkedin.com/company/us-bank (View Corporate Payment Systems — Showcase Page) twitter.com/usbankpayments

© 2017 U.S. Bank. All trademarks are the property of their respective owners. 17-0504-B CR-14500515 (10/17)