Mercator Blog

Fundamentals Remain Key, but Issuers Must Consider Alternative Approaches to Advance Virtual Card Use by Suppliers
Date: December 22, 2016
Steve Murphy
Director, Commercial and Enterprise Payments Advisory Service
Since the late 1990s, when commercial cards started expanding beyond the traditional use of corporate cards (T&E) into the procurement space using purchasing cards (P-cards), card-issuing financial institutions in the market have focused their attention on moving corporate clients away from paper checks and onto cards. The early focus was on replacing manually intensive purchase orders, paper invoices, and check-driven payables processes with spending on P-card accounts with plastic cards. The target was indirect spend, especially for low-value office needs usually identified as maintenance, repair, and operations (MRO). This early target spend gradually evolved into higher-value procurement, with expanded usage of “white plastic” lodged or ghost accounts. The latter are reusable card account numbers housed within either a merchant/supplier’s physical location or payments acceptance system.

The evolution of commercial cards continued with the introduction of electronic payables solutions in the early 2000s, which eventually incorporated card accounts into the offers. Since the Great Recession of 2008–2009, virtual cards—primarily single-use-accounts (SUA)—have quickly increased in usage and popularity among buyers. This adoption curve has been spurred by a combination of factors, including competitive pressures from issuing banks, which strive to increase the spending on their client card programs. To promote virtual cards acceptance as a broad-scale e-payables tool, the issuers fund implementation efforts that include both initial supplier enablement programs and ongoing optimization. But it continues to be challenging to gain across-the-board supplier acceptance of virtual cards, especially for higher value, direct spend payments.

Despite these and other efforts, P-card-enabled spending (traditional P-cards, ghost cards, and single-use-accounts) has only managed to gain less than 2% penetration of the overall estimated $24 trillion U.S. B2B noncash payments market. The industry is now at a crossroads and is continuing a multichannel effort to increase acceptance of card-based e-payments solutions in the face of intense technological change, varying regulatory environments, and new business approaches designed to eliminate paper as a B2B payables choice. In the report, Supplier Enablement of Cards in B2B E-Payments Requires Persistence, Data, and Technology Mercator Advisory Group discusses supplier enablement, recommending fundamental approaches for success, suggesting tools to enhance suppliers’ recognition of the value proposition of B2B e-payments, and reviewing innovative business/technology trends that will have an impact on the industry.