Purchasing molds more powerful tools
Card providers enhance their products in response to buyer demand
By Susan Avery -- Purchasing, 6/3/2004 6:00:00 AM
Purchasing operations are taking a new look at purchasing cards. For the past 20 years or so, buyers have used purchasing cards as a payment tool for low dollar indirect goods and services, i.e., mainly some maintenance, repair and operations (MRO) items and office supplies, requisitioned by employees within the company. The cards promised to streamline internal processes and help reduce costs of purchasing transactions.
For the most part, the cards have served their purpose well. While some purchasing operations have had some misgivings about controlling use of the card and adequacy of monthly spend data, many programs created in the 1980s and 1990s are, by many accounts, thriving. Buyers have expanded these programs by adding cardholders, spending categories and suppliers.
Executives at card companies interviewed for this story believe the industry now is at a crossroads, with some established card programs poised for unprecedented growth. Purchasing operations have become comfortable using the cards, they say, and are starting to reap the benefits of the e-procurement systems they installed at the beginning of the decade; they are ready to use the cards for goods and services beyond MRO. At the same time, technology has evolved to the point that card companies, oftentimes in partnerships with other software providers, now have the capability to offer purchasing operations additional controls and data reporting functionality they require to begin using the cards in new and innovative ways.
Poised for growth
Many long-time purchasing card programs have potential for strong growth in the coming years, according to Chris Pieroth, senior vice president, Product and Marketing, U.S. Bank Corporate Payment Systems, issuer of Visa Purchasing cards.
From his post, Pieroth views the purchasing marketplace as a payment continuum. On one end are low-dollar discrete purchases; on the other are high-dollar, more strategic purchases. Historically, purchasing card programs have been positioned at the low-dollar end of the continuum. "We are starting to see purchasing cards being used further up the continuum," he says. "In some cases, a card is not being used to settle the transaction. Instead, buyers are using an account with additional controls to pay for the purchases." The controls limit spending to specific commodities or suppliers. As such, buyers are looking to card companies and issuers for increased capability to reconcile transactions back to orders now being placed by a centralized purchasing operation that may not take delivery of the item rather than a requsitioner that typically does. They're also looking for more data on card spending.
At the same time, some suppliers are resistant to paying a discount rate to the card companies for accepting the cards as payment.
To help resolve these issues, Pieroth points out that U.S. Bank offers its customers Visa Commerce, a service that provides buyers and suppliers with new levels of control and flexibility when making or receiving payments. Visa Commerce allows buyers to determine when to initiate electronic payment, including deferring settlement of the payment based on pre-established terms with suppliers.
U.S. Bank also provides customers with a procurement account, which establishes a robust set of business rules (for audit and approval processes) for settling additional transactions electronically. The closed loop system provides functions such as prepayment audit (the system automatically validates transactions against the terms of a negotiated contract.)
As Pieroth sees it, program administrators are increasingly interested in using purchasing cards with e-procurement systems for higher-dollar items. U.S. Bank offers customers a hosted e-procurement system. An order placed for items in the online catalog moves directly to the bank's electronic access system as a card transaction which is automatically reconciled to the order. It provides purchasing operations with much coveted line item detail for reporting purposes.
Strategic sourcing
Likewise, David Cramer, senior vice president, Commercial Sales and Integrated Solutions, Visa USA, sees purchasing card programs going through a natural product evolution. "Purchasing cards have proven to be very effective for low-dollar transactions," he says. "I think most companies with successful card programs are capturing about 30% of transactions under $2,000. Of companies that have moved beyond this spending limit, about 8% are capturing transactions of $2,000 to $10,000."
As Cramer sees it, purchasing operations have become comfortable with the controls they've put in place surrounding use of the cards. Such controls reduce or eliminate card misuse. As a result, buyers are starting to expand their programs to include higher dollar transactions. "The mindset has changed from, 'What can we put on the card?' to 'Why are we not putting this on the card?' he says.
Purchasing card program goals have changed as well. Initially, purchasing operations implemented card programs to streamline internal processes and reduce costs. "They've met these goals without a shadow of doubt," says Cramer. "Now, they're looking to source strategically using the cards."
At the $2,000 to $10,000 range, he is witnessing two trends among purchasing operations: Card program administrators want Level III data (line item detail, such as quantities, product codes and descriptions, freight, etc.) provided by the supplier through the point of sale (POS) system and/or card integration as a payment vehicle with an e-procurement system.
For its customers that have installed the SAP ERP (Enterprise Resource Planning) system, Visa has partnered with the software provider to integrate card spending data into certain SAP applications. The first iteration of this alliance is an expense reporting product. "For clients using SAP's expense reporting tool," Cramer says, "Visa's tool is a seamless solution. Adding card spending data to data generated by the SAP system, it's hard to tell where Visa stops and SAP begins."
Visa also offers AP (Accounts Payable) analysis tools which allow purchasing card program administrators to analyze AP files against a Visa merchant (supplier) profile to identify additional opportunities to use the cards. For higher-dollar transactions, Visa is working with its issuers and their clients to enroll strategic suppliers in its large-ticket discount program, which offers suppliers reduced fees for accepting the cards. In addition, the company's Visa Commerce tool allows for purchasing operations to negotiate transaction processing costs with suppliers.
E-procurement
American Express reports that its purchasing card business grew at double-digit rates in 2003 and the first quarter of 2004.
"Our customers are realizing real benefits from their online procurement systems," says Mac Schuessler, vice president, Corporate Purchasing Solutions Group, American Express, attributing part of the company's growth to increased use of the cards to pay for items purchased through e-procurement systems. "We've seen this segment of our business rise by 80% last year," he says. "It's now 10% of our total charge volume for the purchasing card. This confirms the belief and experience of early card adopters that the cards make sense for use in tandem with online procurement systems. Suppliers are already enrolled, data capture is set up and American Express is integrated into the financial system." American Express has partnered with Ariba to provide its clients who use the cards to settle transactions through Ariba's e-procurement system with Level III data (line item detail such as quantities, product codes and descriptions, freight, etc.)
At the same time, Schuessler says American Express is seeing an increase in use of its purchasing cards to settle transactions over $10,000. Many of these transactions, he says, are for computer hardware and software. "As customers use their e-procurement systems for such buys they realize the utility and ease with which they can use the cards as an extension of their purchasing system."
In response to growing demand from customers to expand card programs for use in other countries, American Express has created a client user group of 50 companies which use the American Express corporate and purchasing cards in 10 or more countries. At the sessions, attendees share best practices and discuss product development opportunities.
Through its partnership with Ketera Technologies, American Express offers customers a spend analysis workbench which uses AP (Accounts Payable) data to help purchasing operations grow their card programs. The tool provides purchasing operations with a comprehensive view of their indirect spend, helping to identify suppliers and products and services that may be "a good fit" for purchasing cards.
Another tool provided by American Express is Web-based CPC (Corporate Purchasing Card) reconciliation. With the online tool, card users can reconcile transactions and make adjustments to programs, such as changing cost centers.
The card company has enhanced its global reporting capabilities. It now provides 30 consolidated reports of both corporate card and purchasing card activity to users in more than 23 countries. This tool is available online.
"While the reconciliation tool is for the individual card holder, the reporting tool provides information across the aggregate," says Schuessler. American Express provides daily, weekly or monthly data feeds to its clients.
In 2003, American Express introduced its Corporate Defined Expense Program. Similar to a stored value card, this card does not have to be prefunded. Program administrators put spending limits on the cards assigned to specific projects (i.e., purchasing supplies for a sales and marketing project).
Increased integration
"You can no longer think about purchasing cards without considering the tool in the context of e-commerce and, more important, in the context of the overall ecosystem of an organization," says Philip J. Philliou, vice president, eCommerce and Emerging Technologies, MasterCard International. "We hear this loud and clear through requests for proposals we receive from purchasing operations. Buyers no longer see the cards as a tool to address a specific business problem or a way to pay for items. They want to know how the cards integrate with back office accounting systems and how their use impacts the supply base. There's a new appreciation for the big picture."
As such, Philliou sees more expansive use of the cards within large, private sector organizations and real utilization of the cards in the e-commerce environment.
MasterCard is positioning its products in response to the inquiries it's receiving from purchasing operations. For its customers that use the SAP ERP (enterprise resource planning) system, MasterCard SmartLink software integrates Corporate Purchasing Card data with data generated by the SAP system. Certified by SAP, MasterCard's system is completely automated. It passes Level III data (line item detail like quantities, product codes and descriptions, freight, etc.) generated at the time of the transaction to SAP. For purchasing operations that have installed Oracle and PeopleSoft ERP systems, MasterCard has initiatives underway for similar programs with these software providers as well.
Linking purchasing operations and suppliers together in a secure environment, the MasterCard e-P3 (Electronic Invoice Presentment and Payment) information management system enables buyers to take paper purchase orders (PO) and turn them into electronic POs which can be sent to any supplier. The supplier in turn sends electronic invoices back to the buyer. "e-P3 essentially allows the two parties to collaborate with one another, trading these documents back and forth, communicating with each other and ultimately settling the transaction using a MasterCard Corporate Purchasing Card," says Philliou.
MasterCard recently enhanced e-P3, guaranteeing users Level III data with every transaction irrespective of point of sale (POS) terminal. Typically, it's up to the supplier to provide the buyer with Level III data through software or POS terminal that captures the data. "In our system, it's entirely automatic," says Philliou. "It grabs the invoice data and matches it in a MasterCard data repository with the card transaction." There are no fees for supplier use of the system.
More automation
"Card issuers are continuing to develop ways to automate the accounting and reconciliation of purchasing card transactions," says Jonathan DuPriest, product manager, GE Corporate Payment Services, an issuer of the MasterCard Corporate Purchasing Card.
At the same time, GE Corporate Payment Services is enhancing its electronic settlement tools and refining its debit-based card products.
The latest release of GE's Strategic Account Management tool provides card program administrators with capability to automate up to 70% of purchasing card transactions. With Strategic Account Management, card transactions pass through the MasterCard network automatically through to the GE system to the customer's correct general ledger account.
Strategic Account Management sports self-service maintenance capability. With this feature, card administrators may make changes to card holder credit limits in real time. "Users are becoming more comfortable, and the tools are becoming more sophisticated," says DuPriest. "Every 90 days, we add a feature to our self-service module that makes it more user friendly and flexible."
The tool also has global capability that allows multinational companies to conduct in-depth queries of transactions. "We are looking to roll out global languages, while ensuring that we're meeting the needs of our global purchasing card customers with regards to value added tax and roll up of multiple countries into one common currency for reporting," he says. An example would be a multinational company with operations in the U.S., the U.K., France, Germany, Australia and Hong Kong aggregating all purchasing card transaction data from these countries into a single U.S. dollar-based report.
With the tool, card program administrators have capability to create reports on card spending by line item. For instance, they can see that a transaction with an office supplies provider is for paper, pens, pencils, and paper clips. They also have capability to assign accounting codes to each item.
The tool has query capabilities providing program administrators a view of most data that passes through the MasterCard network, such as shipping information, another aid in the reconciliation process.
In response to requests from customers for additional payment options or check replacement, GE offers a stored value debit card.
A stored value debit card differs from a credit card. With a credit card, the cardholder pays for the purchase after the transaction occurs. With a stored value debit card, the cardholder pays for the purchase at the time of the transaction. Stored value debit cards are used for specific projects, such as meeting planning. In the same vein, GE also offers stored value payroll cards.
The stored value debit card can be fully branded, with the MasterCard brand appearing on the card, allowing for signature purchases. Cards may also have ATM and PIN capability. "We can be as flexible as we need to be at limiting these capabilities," says Scott Johnson, product manager, GE Corporate Payment Services. "We can manage whatever type of restrictions or acceptance a company wants to put on the card."
Stored value debit cards are reloadable or non-reloadable (similar to retail gift cards). Reloadable cards can be loaded using an online tool.
Launched in 2002, the company's vPayment electronic settlement tool is currently used by multiple divisions of GE and some external clients. While suppliers won't recognize anything different about the product (it looks like a purchasing card), there are back end processes attached to the card that use patented technology to extract a unique identifier out of a procurement system independent to the MasterCard transaction record without anyone having to manually enter the unique identifier.
An e-procurement system from a company such as Ariba or ERP system typically generates a PO once a requisitioner fills his or her shopping cart. Using vPayment, GE's system automatically communicates with the e-procurement system and extracts the unique identifier and marries it with transaction data on the back end. The supplier simply enters the card number and expiration date. No additional data is necessary. At the back end the transaction with the married data then flows directly into the customer's general ledger account.
vPayment also automatically places dollar range and date range limits on a card number. This control prevents the supplier from running a transaction amount that's greater, say, by adding a shipping charge, than the limit placed on the card. The transaction would be declined. This feature helps enforce compliance to contract.
Typically vPayment transactions are significantly higher than those placed with traditional purchasing card products.
Now Playing:
