industry trends in commercial payments · 2018-04-01 · • not a silver bullet . card not...

Visa Confidential

Industry Trends in Commercial Payments

April 2015

Alan HubbellVisa Inc.Senior Account ExecutiveCommercial Specialized Sales

Visa Confidential2

Agenda

Visa at a glance

Commercial Payments Trends

Fraud/Risk Mitigation

RPMG Research Study Findings

Visa Confidential3

Visa at-a-glanceVisa is the world’s largest electronic payments network and provider of tailored payment solutions; driving business growth by streamlining procure-to-pay processes, while delivering enhanced control, transparency, and insight

2.3 billionVisa cards1 (as of June 30, 2014)

14,300Financial institution clients1

98 billionTotal transactions2

Visa settles the majority of volume from public sector credit card programs, and has relationships with most issuers competing for public sector business.3

• 83% of GSA is Visa-branded4

• 41 of 49 states are Visa-branded• 76 prepaid programs in 40 states

$7.4 trillionTotal volume2

38 millionAcceptance locations

175Currencies Processed

Note: Figures are rounded, exclude Visa Europe and are as of September 30, 2013 unless otherwise noted; figures from 4Q13 operational performance data except number of financial institutions and ATMs. Source: 1Based on payments volume, total volume, number of transactions and number of cards in circulation; 2Includes payments and cash transactions; 32014 U.S. Commercial Card Market Update, Mercator Advisory Group; 4GSA website, 2013

Visa Confidential4

Payment Trends

Visa Confidential5

Common Payment Types Example: Business-to-Business (B2B)

Traditional Checks Wire TransfersACH

(Automated ClearingHouse)

Purchasing Card & Payables

• Most common form of B2B payments, but highest cost to process

• Suppliers will often permit 45–60 daypayment terms

• Check payments take 3–5 days to settle, increasing a supplier’s DSOs

• Generally offer same-day settlement for the buyer and supplier

• High transaction fees to send and receive

• Typically reserved for large dollar or international transactions, since for smaller, reoccurring transaction the high cost can be prohibitive

• Utilizes an electronic network via a daily batch process with a 1–2 day settlement delay

• Standardized payment files with limited remittance information

• Can be easily integrated into AP systems

• Most widely used card payment product for procurement of goods by various channels

• Can replace the traditional PO / invoice / approval process

• May have embedded controls to help ensure compliance

Source: First Annapolis primary research.

Visa Confidential6 Visa Public

Commercial Consumption ExpenditureMeasures Business-To-Business and Government-To-Business spending

• Commercial Consumption Expenditure (CCE) is an index that measures the global commercial payment opportunity

• Created by Visa in 2004 to provide a standardized metric across geographies by which commercial opportunities could be evaluated

• Modeling and analysis performed by a 3rd party, Economist Intelligence Unit (EIU), for independent, validated results

• CCE results are reported in arrears and announced annually in the fall

Visa Confidential7

24%

19%

50%

7%

Global CCE 4% 5-Year CAGR

1 Source: "Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, September 2013. Global CCE index data sources include Bureau of Economic Analysis (BEA), U.S. Census Bureau, Organization for Economic Cooperation and Development (OECD), Structural Analysis (STAN) Database, EuroStat Database, General Government Accounts from the National Accounts of OECD Countries, United Nations Statistics Division National Accounts Main Aggregates Database, EIU proprietary databases, government data and EIU model estimates where government data was unavailable. Large contracted defense spending not included in CCE index. Page 5. Note: Figures updated September 2013.2 Source: "Electronic Payments & Remittance Data: Pain Points and Solutions," Federal Reserve Banks of Minneapolis and Chicago (December 2012). Page 6. (n=654 AR, treasury, AP, purchasing, procurement, & accounting professionals)

U.S. B2B Payments MixThe total opportunity is large as measured by Commercial Consumption Expenditure (CCE) but card acceptance has very low penetration (~3% in U.S.)

LAC6%

CEMEA8%

USA19%

Canada2%

Europe26%

Asia Pacific

39%

2013 Global CCE Distribution1

100% = $119.8T

ACH26%

Other3%

Card3%

Check60%

Do not know

8%

2013 U.S. B2B Payment Mix2

U.S. CCE = $23.1T

Small Business<$25M

Medium Business$25-500M

Large Business>$500M

Government

Visa Confidential8

• Anti-fraud and security measures continue to be top-of-mind for companies, even with fraud rates on the decline

• Purchasing and Prepaid are primary drivers of U.S. product growth

• Traditional Corporate Card volumes will benefit from strong business travel levels

• Mobile innovation and reporting/auditing tools will be two key options for growth outside of classic card benefits

• Green and Eco-business Initiatives are at the forefront of successful product strategies

• U.S. Markets show greatest opportunity, but Emerging Markets will play a key role in growth

• U.S. Commercial Card Growth is Greater than Small Business and volume growth will be led by Visa

Large and Middle Market Trends

$94

$206

$0

$100

$200

$300

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Corporate Purchasing and Fleet

U.S. Commercial Payment Card Purchase Volume by Type 2007 -

2016

$Billion USD

Source: Packaged Facts, December 2012

Visa Confidential9

Commercial cards are expected to grow $90B over the next 2 years with purchasing cards representing 87% of this jump. Virtual cards are the engine driving the P-card increase.

Asia Pacific35%

0

50

100

150

200

250

300

350

400

450

500

2010 2011 2012 2013 2014 2015

Source: 2013 US Commercial Card Update – Mercator Advisory Group

T&E (5% CAGR 2012-2015)

P-Card (16% CAGR 2012-2015)

$ B

illio

ns

141173

201233

26331194

103110

117123

129

Totals: $234 B $276 B $311 B $350 B $392 B $440 B0%

20%

40%

60%

80%

2005 2007 2009 2011 2014f

Percent of organizations using EAP1

accounts

Middle MarketLarge MarketFortune 500Government and Not-for-profit

(1) EAP = Electronic Accounts Payable and represents virtual accounts of all flavors that run on card rails.Source: 2012 RPMG Electronic Accounts Payable Benchmark Survey Results; n=4,375 survey respondents.

U.S. Growth Driven by Purchasing Cards

10

Supplier Initiated Payments• A traditional card-based payment process where a virtual card account is

provided to the supplier.• The supplier would manually enter the information into a point of sale

terminal or through online software.

Buyer Initiated Payments• A type of B2B credit card transaction that requires no action by the

supplier.• No point of sale terminals, other hardware or software is required to

receive payment. The supplier receives the payment as a direct deposit into its bank account along with an electronic notification of the deposit.

Payment Types

11

Single Use AccountAn account will be communicated to supplier with each payment instruction

• Initial pool of accounts• Proxy number submitted in payment instruction• After use account is returned to pool but is unavailable for set period

Lodged Account• Fixed Limit: permanently lodged account where limit does not change• Adjustable Limit: permanently lodged ghost account where credit limit

equals outstanding payment instructions. One to one relationship account # to supplier

Tokenization• A Visa generated account that allows an unlimited number of pseudo

accounts settling to a (processor generated) primary account

Account Types

Visa Confidential12

Top Benefits of Transitioning to Electronic Payments(Percent of Organizations)

1%

16%

20%

24%

24%

27%

37%

39%

46%

57%

0% 10% 20% 30% 40% 50% 60%

Other

Ability to take payment discounts

Reduction in days sales outstanding

Straight-through processing to A/P or A/R

Better supplier/customer relations

Working capital improvement

More efficient reconciliation

Fraud control

Improved cash forecasting

Cost savings

Source: 2013 Association for Financial Professionals Electronic Payments Survey. Findings are based on 484 responses to a 34 – question survey provided to AFP corporate practitioner members and prospects with titles of cash manager, director, analyst, and assistant treasurer.

Visa Confidential13

Benefit Versus Cost Across the Organization

Clients have run any kind of study around cost of Payment**<40% 0% Clients have run any kind of study

Around Benefit/Value of Payment**

** PTCO European Client Research 2014

Cost of Payment

Benefit of Payment

Visa Confidential14

Fraud Awareness, Prevention and Mitigation

Visa Confidential15

Fraud, Abuse, & Misuse: Definitions

Fraud – The theft card information by fraudsters

Abuse – Intentionally or unintentionally violating policies and procedures for personal gain

Misuse – Intentionally or unintentionally violating policies and procedures for work related gain

Account takeover (information change)

Mail thefts Counterfeit cards Lost/Stolen cards Mail order/telephone order

Skimming Database Hacking Franchise Software Hacking Sniffing Phishing

Visa Confidential16

A layered approachBuild and enhance stakeholder trust in Visa as the most secure way to pay and be paid

Our Strategy

Trust andPartnership

ADVANCEExecute risk strategies for emerging products and channels

PREVENTMinimize fraud in the payment

system

PROTECTProtect

vulnerable account data

RESPONDMonitor and

manage eventsthat occur

!

Visa Confidential17

Lost and Stolen RE

AL-

TIM

E PR

EDIC

TIV

E A

NA

LYTI

CS

Counterfeit

Fighting Fraud With Layers of Security

Chip• Creates a unique cryptogram

for each transaction

• Not a silver bullet

Card Not Present EN

CRYP

TIO

N

PIN• Fraudster must know PIN for

card to work at a point of sale

• Static data set

Tokenization• Tokens replaces account number

with unique digital token

• If payment token is used as theaccount number, it will be identifiedas stolen and rejected

83%

of f

raud

in t

he

US

Source: Visa Fraud Reporting System (FRS) and Enterprise Data Warehouse (EDW); CY 2013; U.S. domestic Visa debit and credit

Visa Confidential18

Tokenization

Mobile

Key entered, Card on File

NFC + Tokenization

• Token replaces static account numbers for use in specific domains

• Token may use EMV rails– EMV cryptography for card

authentication and transaction security

– NFC payment enabled

Card Not Present

Key entered or Card on File

• Token replaces static PAN for use in specific domains

• Enables refined risk management

Tokenization

Visa Confidential19

Visa U.S. EMV roadmap

Technology Innovation

Program (TIP)

Acquirer Chip POS

Processing Mandate

POS Liability Shift

U.S. domestic and cross-border

Acquirer Chip ATM Processing1

Mandate

AFD Liability Shift

ATM Liability Shift

U.S. domestic and cross border

October 2012 April 2013 October 2015 October 2017

Note: POS = point of sale; AFD = automated fuel dispenser 1Requirement for third-party processors only

Visa Confidential20

Historical Fraud TrendsGlobal fraud rates decreased dramatically over the last two decades due to continued investments in technology

Source: Visa TC40 Fraud Reporting

Visa Confidential21

RPMG Research StudyKey Findings

22

Purchasing Card Spending in North America (in billions $)

$1 $1 $3 $8 $11 $17 $28

$40 $57

$80 $89 $98 $110

$123 $137

$149 $161

$176 $196

$217

$245 $267

$293

$318

$347

$377

$-

$50

$100

$150

$200

$250

$300

$350

$400

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Actual

Expected

Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

23

Purchasing Card Volume Growth

Across all respondents, the percentage growth in 2011-2013 (27%) was higher than the previous six years.

18%

22%

27%

2007-2009 2009-2011 2011-2013


24

Achieving High Performance

Organizational policy, internal processes, and program controls are fundamental components of the

architecture of a Best Practice program.

Process

ControlPolicy


25

Policy Best Practice Areas

Leading organizations adopt best practices in five key card policy areas.

Resource Commitment

Management SupportMandateAllowable

Purchases

Card Distribution


26

Ensure optimal card distribution

Regularly evaluate policies related to allowable spend categories and update as needed

Mandate card use for all eligible categories of purchases

Foster ongoing senior management support of the purchasing card program

Implement rewards related to purchasing card program performance

Policy: Client Checklist of Best Practices


27

Control Best Practice Areas

Leading organizations adopt best practices in three control related areas.

Card Issuance

Data MiningSpending Limits


28

Revisit transaction and monthly spend limits to ensure maximum utility from the card program

Conduct regular data mining to ensure effective control and compliance

Evaluate and optimize card issuance criteria

Control: Client Checklist of Best Practices


29

Process Best Practice Areas

Leading organizations implement best practice processes to optimize purchasing card use and use p-cards as an

innovative tool to improve business processes

Integration

OptimizationInnovation

Cost Savings


30

Quantify and track purchasing card program cost savings.

Implement an electronic accounts payable (EAP) solution to augment the purchasing card program

Implement a virtual card solution to augment the purchasing card program

Conduct regular spend analyses and policy and procedure reviews to ensure program optimization

Integrate and automate card program data in the ERP system

Process: Client Checklist of Best Practices


Visa Confidential

Thank You

industry trends in commercial payments · 2018-04-01 · • not a silver bullet . card not...

Documents