Cash & Liquidity Management
Commercial cards: helping customers through the pandemic
Published: Nov 2020
The way that companies use commercial cards has been significantly affected by the COVID-19 crisis – but while T&E volumes have inevitably fallen, the use of cards for B2B spend is on the rise, explain HSBC's Jo Towers and Brian Tomkins.
COVID-19 has affected the commercial cards business in several ways. For one thing, the collapse of business travel has had a material impact on commercial card volumes. "Across the industry, the amount of spend has pretty much dropped off a cliff," comments Jo Towers, Managing Director, Europe Regional Head of Payments and Cards at HSBC.
Earlier in the year, some card issuers even reported a negative revenue scenario when refunds on travel bookings exceeded the amount of spend coming in. "I'm glad to say it was never that bad for HSBC," says Brian Tomkins, the bank's Global Head of Commercial Cards. In fact, as Tomkins explains, the arrival of lockdown at the beginning of the year actually led to an uptick in issuing T&E cards to certain customers.
Tomkins cites the example of a global oil company which had people stationed around the world – "they weren't traditional T&E card users; what they would normally have done is booked all their travel through a central company," he explains. But with cities locking down, and airlines ceasing flights, rapid action was needed.
"We opened up a card programme for them in just a few days, and sent cards all around the world to people who could then take that piece of plastic and turn up at an airline desk and purchase a ticket – whether that was with an in-policy airline or not."
The rise of B2B card spend
While T&E payment volumes may have reduced significantly as a result of the crisis, HSBC has been looking at how it can work with clients in a different ways, with a particular focus on B2B spend. One key opportunity lies in helping clients manage their payments in a way that provides a working capital benefit.
"We have been working with clients and seeing how we can embed card programmes into their end-to-end payables and procurement journeys," says Towers. "So it's not just about paying for a flight – it's about how you pay your suppliers. We've seen a real uptick in that since the beginning of the year."
As country-wide lockdowns began in Europe, a number of factories closed. As a result, many companies had to source goods and materials from suppliers they had never worked with before, often in different overseas markets. "They needed to pay for those goods and services – and probably the simplest and lowest-risk way to do that is with a card-based product, whether that be a virtual card or purchasing card," says Tomkins.
As Tomkins points out, cards offer companies protection on the fulfilment of goods. The 60-day interest free period has also proved beneficial for companies that may be struggling with cash flow during the crisis.
In particular, Towers mentions a pharmaceutical company that, like many, had to transition staff almost overnight to remote working. "They needed immediate access to supplies, laptops, printers, couriers – and obviously they weren't able to go ahead and just order that like they would do in the office," she recalls. "So we were asked to set up a programme to support them with our card solutions – and more critically, get those cards to individuals in their homes, rather than sending a bulk order of cards to the office. We got them all set up with the necessary approvals and permissions, and they were able to go ahead with that."
So when will travel return to pre-crisis levels? Tomkins says that at recent virtual conference, ratings agencies hypothesised that there would be a four-year window "before we get back to the world as it once was in terms of business travel."
That's not to say that the current focus on B2B and supplier payments will subside when travel volumes return. "I think this has been a great catalyst for B2B spend to grow on cards," he says. "Our virtual card product was already our fastest growing payment product globally, and this has been a catalyst to further that."
Consequently, Tomkins predicts that T&E will come back on top of the current growth in B2B spend. "So I'm pretty confident that commercial cards, as an industry and as a business, will be significantly larger in two to three years' time than it was pre-pandemic," he says.
Meanwhile, Towers says that the current convergence of payments and cards is set to continue. "We've typically seen them as separate solutions, and even when you speak to clients they are dealt with in different departments," she says. "But they are ultimately solutions that help you manage your payables." Interesting developments include industry initiatives that use the cards infrastructure without using a card as the token, "or where you flip a transaction so that what starts as a card transaction ends up as a bank account payment."
Thanks to Jo Towers and Brian Tomkins for sharing their thoughts on this topic. You can listen to the accompanying podcast to learn more.