The Purchasing Card Rebate Conundrum – Basis Points or Dollars?

Navigator Edition: July 2015
By: Frank Martien

Is your organization prepared for an upcoming new era in B2B payments and rebates?

We are rapidly reaching a point of inflection in the U.S. purchasing card market. As shown in the chart below, by 2021, First Annapolis projects that Vcard1 spend will nearly be at parity with more traditional walking plastic Pcard spend; and, by 2024, Vcards will well surpass Pcards. While Pcards will remain relevant for most organizations desiring a walking plastic mode of payment for typical indirect spend categories such as office suppliers and catering, the real growth story in purchasing cards relates to Vcards where 20-30% annual growth rates in spend are projected for the foreseeable future. Plenty of runway exists as, even the $1 trillion in projected spend in 2024 would only comprise less than 5% of First Annapolis estimates for potential addressable dollar spend for U.S. mid market and large corporate organizations in the private and public sectors.

Figure 1: Purchasing Card Spend in U.S. ($B)

Fig-1_-Purchasing-Card-SpendSource: First Annapolis Consulting forecast informed by industry statistics and primary research of end user organizations and B2B providers.

Most of the potential growth drivers around Vcard spend adoption, such as potential to move paper checks to a centralized, controlled, preapproved, and invoice work flow integrated form of payment are quite well documented by the NAPCP and many other advocacy organizations and sources. Just to add to this running list, First Annapolis sees a significant potential forthcoming driver related to travel spend.

For a quick background, the European Council based in Brussels adopted a regulation capping interchange fees for payments made with debit and credit cards on April 20, 2015. Among many provisions, commencing December 9, 2015, this regulation will reduce credit card interchange rates to 0.30% of the transaction amount. Commercial cards are exempt from this interchange regulation, but only if “charged directly to the account of the undertaking or public sector entity,”2 which has been interpreted by many European commercial card providers as requiring client programs to be centrally billed to qualify for regulation exemption. Meanwhile, many European organizations approached by their providers to consider migration to centrally billed programs have opted instead to stick with their current individual liability, individually billed plastic programs.

Consequently, First Annapolis projects that European commercial card providers will seek to divert as much travel spend as possible away from individual plastics and towards centrally billed accounts. We believe this could lead to aggressive use of traditional central travel accounts as well as introduction or expansion of invoice-based billing of certain categories of travel expenditure, which would occur in the Post-Trip process and for which many individual traveller charges could potentially be packaged, subsequent to expense report approval, into large payments by organizations back to the travel providers via accounts payable (“AP”) and Vcards. Should this phenomenon, driven potentially by providers to preserve interchange economics, become common for organizations in Europe, we could see this practice spread to North America beginning with multinational organizations. For many organizations, this could be a triggering event to embed Vcards into AP for travel but then radiate Vcard usage out to many other spend verticals. We would further note that Vcard use for travel-related expenditures is already common in support of online travel booking providers; so this European-led adoption would actually be an expansion rather than an entry of Vcards into travel spend.3

In this new world of B2B payments in which Vcard growth will result in Vcards comprising the majority of many end-users’ commercial card programs, we may also enter a new era of rebates. Historically, many end-users have focused on basis points as the hallmark currency of quotation for rebates (e.g., an end-user receiving rebates equal to 80 cents for every $100 of card spend would say they receive “80 basis points” from their provider). In the new era, Vcards will play a much more prominent role by delivering superior enterprise resource planning (“ERP”) and AP integration, functionality, controls, and reporting. Meanwhile, the expansion of lower large ticket interchange rates to encourage supplier acceptance and improvements in automating acceptance of cards and payment application to invoices in accounts receivable (“AR”) systems for suppliers will promote the demand-pull component of Vcard growth. With end-user programs migrating towards larger ticket, enterprise spend transactions, we foresee rebate basis points declining significantly but rebate dollars growing as the portion of an end-users’ direct and indirect spend on cards increases exponentially. First Annapolis thereby projects that before or as we reach the tipping point of Vcard spend surpassing Pcard spend, end-users will start to refocus on maximizing rebate dollars rather than rebate basis points.

To be clear, end-users, in this new world, will continue to negotiate aggressively with their providers for the best deal they can secure. However, the reign of rebate basis points could wane as more sophisticated end-users selected providers that will help them most effectively radiate spend and grow their commercial card programs, including through introduction and expansion of Vcards. Through such growth, end-users will not only increase rebate dollars while eliminating bank fees associated with checks, ACH, and wires, but they will also achieve the true value promise of purchasing cards through process savings and superior access to spend data through which to manage their supplier relationships in a coherent manner across spend verticals.

1 The term “vcards” is synonymous with virtual cards, virtual accounts, epayables, EAP, and other commonly used industry terms for non-plastic purchasing cards accounts often integrated with accounts payable and/or ERP systems.
2 Quotation from “Regulation Of The European Parliament And Of The Council On Interchange Fees For Card-Based Payment Transactions,” Brussels, 20 March 2015.
3 “Payment Provider WEX Finding Virtual-Card Niche With TMCs,” Business Travel News, November 6, 2014.

For more information, please contact Frank Martien, Partner,, specializing in Commercial Payments and Bankcard Issuing.

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