Real Time Payments and the Untapped Opportunity of Corporate Credit Cards


credit-cards-11-7-16.pngCorporate credit cards are already a great source of revenue for banks. And there’s a lot of room for growth, both in terms of interchange revenue and value that banks can provide to their business customers. If banks look at how their customers currently use corporate credit cards, they’ll find an untapped opportunity to expand their usage.

Using corporate credit cards for accounts payable (AP) has obvious benefits: Businesses can time their payments to vendors more precisely, take advantage of the working capital extension available through their credit line, and benefit from rewards and cash back programs. In addition, compared to checks—the most common way in which businesses make AP payments—credit cards have very low occurrences of fraud.

The use of corporate credit cards in AP should be an integral part of a business’s cash management strategy, but it is not. MineralTree recently conducted a survey to assess the current state of corporate credit card use in the accounts payable function and uncover reasons why more AP spend is not being moved to corporate cards. You can read the full survey report here.

Key Survey Findings
Over a two-week period in late summer 2016, almost 200 finance and AP professionals completed an online survey exploring the state of credit cards in their business. Some of the most significant findings of the report include:

  • More than one-third of respondents are not using corporate cards for vendor payments.
  • The reasons businesses give for not moving more AP spend to commercial credit cards is varied and plagued with misconceptions.
  • Impacting the bottom line is the number one benefit cited by respondents for moving more spend onto commercial credit cards.

The Shift in Accounts Payable
To truly understand the state of credit card use in AP, respondents were asked which types of payments were made on their corporate credit cards: travel and expense payments, vendor payments (AP), or both. Only 50 percent of respondents use cards for both. More than one-third of respondents only use their cards for travel and expenses.

The chart below shows the number of vendor payments made by businesses who exclusively use their card for travel and expenses. About 80 percent of respondents make 50 or more vendor payments every month. Businesses who make more than 50 payments per month can strongly benefit from AP and payment automation and the ability to easily pay their vendors with credit cards.

For those businesses already using cards, adding AP spend onto cards is relatively simple. Finance policies are in place and department heads know the process for submitting and recording expenses.

These businesses can easily expand their policy to include vendor payments and improve their AP process at the same time. Ultimately, this will increase the “card-able spend” and the finance team will add additional value to the business by bringing in significant rebates. At a modest 1 percent cash back, companies earn $10,000 for every $1 million in card spend. Banks should recognize this as a significant opportunity and start marketing cards for AP purposes. Offering complete, packaged cash management solutions that solve problems as business clients see them will encourage them to move AP spend onto cards. The banks who do this early will find an untapped opportunity for new revenue through merchant fees and use of the card’s credit line.

Max My Interest: Friend or Foe


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Max My Interest, or Max for short, offers a cash management app that enables individuals and businesses to earn additional interest on their checking and savings accounts. The advantage for consumers? Max does automatically what most people are too busy (or lazy) to do for themselves, which is to shop around for the best rate.

Customers do not have to change banks to use Max. They simply link the app to their current bank and create savings accounts at other institutions through the setup process. From there, Max automatically transfers funds as market rates change, always ensuring that the cash in their accounts is earning the maximum yield. Max charges 0.02 percent per quarter on the cash being optimized, for a total of 0.08 percent per year

THE GOOD:
In theory, this sounds great. Max allows users to save smartly and earn a higher rate of interest on cash deposits with minimal effort. Max works directly with the largest institutions, including the likes of Bank of America, Wells Fargo and Citigroup, and uses an algorithm that transfers money between banks automatically. Since Max only utilizes other banks’ savings accounts, customer funds are FDIC insured despite the fact that Max itself is not a bank.

According to the website, the average customer earns 0.70 percent to 0.90 percent more with Max than they do at traditional brick-and-mortar banks, which can be significant–particularly for high net worth clients, who Max estimates keep nearly a quarter of their portfolio in cash. In addition to individual accounts, Max offers services to wealth management professionals, and to businesses.

THE BAD:
Signing up isn’t exactly as easy as 1-2-3. A new user must create multiple savings accounts, one for each bank it wants to be able to transfer funds to, which is time consuming—although once that has been done, everything happens automatically thereafter. We are also leery of products that require the user to give a third party access to their existing bank account because that increases their security risk.

OUR VERDICT: FOE
This is a tough call. Although Max could be considered a potential friend for big banks or banks with high savings account rates, what it comes down to is this: Do they really want aggressive rate shoppers who are always chasing the highest possible yield, which is what Max will bring them. And if you do happen to be a bank that pays out a higher rate, don’t you still want a relationship with the consumer that includes more than just their deposits? If so, partnering with Max may not be the best way to maximize your interest.