industry trends in commercial payments · 2018-04-01 · • not a silver bullet . card not...
TRANSCRIPT
Visa Confidential
Industry Trends in Commercial Payments
April 2015
Alan HubbellVisa Inc.Senior Account ExecutiveCommercial Specialized Sales
Visa Confidential2
Agenda
Visa at a glance
Commercial Payments Trends
Fraud/Risk Mitigation
RPMG Research Study Findings
Visa Confidential3
Visa at-a-glanceVisa is the world’s largest electronic payments network and provider of tailored payment solutions; driving business growth by streamlining procure-to-pay processes, while delivering enhanced control, transparency, and insight
2.3 billionVisa cards1 (as of June 30, 2014)
14,300Financial institution clients1
98 billionTotal transactions2
Visa settles the majority of volume from public sector credit card programs, and has relationships with most issuers competing for public sector business.3
• 83% of GSA is Visa-branded4
• 41 of 49 states are Visa-branded• 76 prepaid programs in 40 states
$7.4 trillionTotal volume2
38 millionAcceptance locations
175Currencies Processed
Note: Figures are rounded, exclude Visa Europe and are as of September 30, 2013 unless otherwise noted; figures from 4Q13 operational performance data except number of financial institutions and ATMs. Source: 1Based on payments volume, total volume, number of transactions and number of cards in circulation; 2Includes payments and cash transactions; 32014 U.S. Commercial Card Market Update, Mercator Advisory Group; 4GSA website, 2013
Visa Confidential4
Payment Trends
Visa Confidential5
Common Payment Types Example: Business-to-Business (B2B)
Traditional Checks Wire TransfersACH
(Automated ClearingHouse)
Purchasing Card & Payables
• Most common form of B2B payments, but highest cost to process
• Suppliers will often permit 45–60 daypayment terms
• Check payments take 3–5 days to settle, increasing a supplier’s DSOs
• Generally offer same-day settlement for the buyer and supplier
• High transaction fees to send and receive
• Typically reserved for large dollar or international transactions, since for smaller, reoccurring transaction the high cost can be prohibitive
• Utilizes an electronic network via a daily batch process with a 1–2 day settlement delay
• Standardized payment files with limited remittance information
• Can be easily integrated into AP systems
• Most widely used card payment product for procurement of goods by various channels
• Can replace the traditional PO / invoice / approval process
• May have embedded controls to help ensure compliance
Source: First Annapolis primary research.
Visa Confidential6 Visa Public
Commercial Consumption ExpenditureMeasures Business-To-Business and Government-To-Business spending
• Commercial Consumption Expenditure (CCE) is an index that measures the global commercial payment opportunity
• Created by Visa in 2004 to provide a standardized metric across geographies by which commercial opportunities could be evaluated
• Modeling and analysis performed by a 3rd party, Economist Intelligence Unit (EIU), for independent, validated results
• CCE results are reported in arrears and announced annually in the fall
Visa Confidential7
24%
19%
50%
7%
Global CCE 4% 5-Year CAGR
1 Source: "Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, September 2013. Global CCE index data sources include Bureau of Economic Analysis (BEA), U.S. Census Bureau, Organization for Economic Cooperation and Development (OECD), Structural Analysis (STAN) Database, EuroStat Database, General Government Accounts from the National Accounts of OECD Countries, United Nations Statistics Division National Accounts Main Aggregates Database, EIU proprietary databases, government data and EIU model estimates where government data was unavailable. Large contracted defense spending not included in CCE index. Page 5. Note: Figures updated September 2013.2 Source: "Electronic Payments & Remittance Data: Pain Points and Solutions," Federal Reserve Banks of Minneapolis and Chicago (December 2012). Page 6. (n=654 AR, treasury, AP, purchasing, procurement, & accounting professionals)
U.S. B2B Payments MixThe total opportunity is large as measured by Commercial Consumption Expenditure (CCE) but card acceptance has very low penetration (~3% in U.S.)
LAC6%
CEMEA8%
USA19%
Canada2%
Europe26%
Asia Pacific
39%
2013 Global CCE Distribution1
100% = $119.8T
ACH26%
Other3%
Card3%
Check60%
Do not know
8%
2013 U.S. B2B Payment Mix2
U.S. CCE = $23.1T
Small Business<$25M
Medium Business$25-500M
Large Business>$500M
Government
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• Anti-fraud and security measures continue to be top-of-mind for companies, even with fraud rates on the decline
• Purchasing and Prepaid are primary drivers of U.S. product growth
• Traditional Corporate Card volumes will benefit from strong business travel levels
• Mobile innovation and reporting/auditing tools will be two key options for growth outside of classic card benefits
• Green and Eco-business Initiatives are at the forefront of successful product strategies
• U.S. Markets show greatest opportunity, but Emerging Markets will play a key role in growth
• U.S. Commercial Card Growth is Greater than Small Business and volume growth will be led by Visa
Large and Middle Market Trends
$94
$206
$0
$100
$200
$300
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Corporate Purchasing and Fleet
U.S. Commercial Payment Card Purchase Volume by Type 2007 -
2016
$Billion USD
Source: Packaged Facts, December 2012
Visa Confidential9
Commercial cards are expected to grow $90B over the next 2 years with purchasing cards representing 87% of this jump. Virtual cards are the engine driving the P-card increase.
Asia Pacific35%
0
50
100
150
200
250
300
350
400
450
500
2010 2011 2012 2013 2014 2015
Source: 2013 US Commercial Card Update – Mercator Advisory Group
T&E (5% CAGR 2012-2015)
P-Card (16% CAGR 2012-2015)
$ B
illio
ns
141173
201233
26331194
103110
117123
129
Totals: $234 B $276 B $311 B $350 B $392 B $440 B0%
20%
40%
60%
80%
2005 2007 2009 2011 2014f
Percent of organizations using EAP1
accounts
Middle MarketLarge MarketFortune 500Government and Not-for-profit
(1) EAP = Electronic Accounts Payable and represents virtual accounts of all flavors that run on card rails.Source: 2012 RPMG Electronic Accounts Payable Benchmark Survey Results; n=4,375 survey respondents.
U.S. Growth Driven by Purchasing Cards
10
Supplier Initiated Payments• A traditional card-based payment process where a virtual card account is
provided to the supplier.• The supplier would manually enter the information into a point of sale
terminal or through online software.
Buyer Initiated Payments• A type of B2B credit card transaction that requires no action by the
supplier.• No point of sale terminals, other hardware or software is required to
receive payment. The supplier receives the payment as a direct deposit into its bank account along with an electronic notification of the deposit.
Payment Types
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Single Use AccountAn account will be communicated to supplier with each payment instruction
• Initial pool of accounts• Proxy number submitted in payment instruction• After use account is returned to pool but is unavailable for set period
Lodged Account• Fixed Limit: permanently lodged account where limit does not change• Adjustable Limit: permanently lodged ghost account where credit limit
equals outstanding payment instructions. One to one relationship account # to supplier
Tokenization• A Visa generated account that allows an unlimited number of pseudo
accounts settling to a (processor generated) primary account
Account Types
Visa Confidential12
Top Benefits of Transitioning to Electronic Payments(Percent of Organizations)
1%
16%
20%
24%
24%
27%
37%
39%
46%
57%
0% 10% 20% 30% 40% 50% 60%
Other
Ability to take payment discounts
Reduction in days sales outstanding
Straight-through processing to A/P or A/R
Better supplier/customer relations
Working capital improvement
More efficient reconciliation
Fraud control
Improved cash forecasting
Cost savings
Source: 2013 Association for Financial Professionals Electronic Payments Survey. Findings are based on 484 responses to a 34 – question survey provided to AFP corporate practitioner members and prospects with titles of cash manager, director, analyst, and assistant treasurer.
Visa Confidential13
Benefit Versus Cost Across the Organization
Clients have run any kind of study around cost of Payment**<40% 0% Clients have run any kind of study
Around Benefit/Value of Payment**
** PTCO European Client Research 2014
Cost of Payment
Benefit of Payment
Visa Confidential14
Fraud Awareness, Prevention and Mitigation
Visa Confidential15
Fraud, Abuse, & Misuse: Definitions
Fraud – The theft card information by fraudsters
Abuse – Intentionally or unintentionally violating policies and procedures for personal gain
Misuse – Intentionally or unintentionally violating policies and procedures for work related gain
Account takeover (information change)
Mail thefts Counterfeit cards Lost/Stolen cards Mail order/telephone order
Skimming Database Hacking Franchise Software Hacking Sniffing Phishing
Visa Confidential16
A layered approachBuild and enhance stakeholder trust in Visa as the most secure way to pay and be paid
Our Strategy
Trust andPartnership
ADVANCEExecute risk strategies for emerging products and channels
PREVENTMinimize fraud in the payment
system
PROTECTProtect
vulnerable account data
RESPONDMonitor and
manage eventsthat occur
!
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Lost and Stolen RE
AL-
TIM
E PR
EDIC
TIV
E A
NA
LYTI
CS
Counterfeit
Fighting Fraud With Layers of Security
Chip• Creates a unique cryptogram
for each transaction
• Not a silver bullet
Card Not Present EN
CRYP
TIO
N
PIN• Fraudster must know PIN for
card to work at a point of sale
• Static data set
Tokenization• Tokens replaces account number
with unique digital token
• If payment token is used as theaccount number, it will be identifiedas stolen and rejected
83%
of f
raud
in t
he
US
Source: Visa Fraud Reporting System (FRS) and Enterprise Data Warehouse (EDW); CY 2013; U.S. domestic Visa debit and credit
Visa Confidential18
Tokenization
Mobile
Key entered, Card on File
NFC + Tokenization
• Token replaces static account numbers for use in specific domains
• Token may use EMV rails– EMV cryptography for card
authentication and transaction security
– NFC payment enabled
Card Not Present
Key entered or Card on File
• Token replaces static PAN for use in specific domains
• Enables refined risk management
Tokenization
Visa Confidential19
Visa U.S. EMV roadmap
Technology Innovation
Program (TIP)
Acquirer Chip POS
Processing Mandate
POS Liability Shift
U.S. domestic and cross-border
Acquirer Chip ATM Processing1
Mandate
AFD Liability Shift
ATM Liability Shift
U.S. domestic and cross border
October 2012 April 2013 October 2015 October 2017
Note: POS = point of sale; AFD = automated fuel dispenser 1Requirement for third-party processors only
Visa Confidential20
Historical Fraud TrendsGlobal fraud rates decreased dramatically over the last two decades due to continued investments in technology
Source: Visa TC40 Fraud Reporting
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RPMG Research StudyKey Findings
22
Purchasing Card Spending in North America (in billions $)
$1 $1 $3 $8 $11 $17 $28
$40 $57
$80 $89 $98 $110
$123 $137
$149 $161
$176 $196
$217
$245 $267
$293
$318
$347
$377
$-
$50
$100
$150
$200
$250
$300
$350
$400
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Actual
Expected
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
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Purchasing Card Volume Growth
Across all respondents, the percentage growth in 2011-2013 (27%) was higher than the previous six years.
18%
22%
27%
2007-2009 2009-2011 2011-2013
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
24
Achieving High Performance
Organizational policy, internal processes, and program controls are fundamental components of the
architecture of a Best Practice program.
Process
ControlPolicy
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
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Policy Best Practice Areas
Leading organizations adopt best practices in five key card policy areas.
Resource Commitment
Management SupportMandateAllowable
Purchases
Card Distribution
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
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Ensure optimal card distribution
Regularly evaluate policies related to allowable spend categories and update as needed
Mandate card use for all eligible categories of purchases
Foster ongoing senior management support of the purchasing card program
Implement rewards related to purchasing card program performance
Policy: Client Checklist of Best Practices
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
27
Control Best Practice Areas
Leading organizations adopt best practices in three control related areas.
Card Issuance
Data MiningSpending Limits
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
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Revisit transaction and monthly spend limits to ensure maximum utility from the card program
Conduct regular data mining to ensure effective control and compliance
Evaluate and optimize card issuance criteria
Control: Client Checklist of Best Practices
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
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Process Best Practice Areas
Leading organizations implement best practice processes to optimize purchasing card use and use p-cards as an
innovative tool to improve business processes
Integration
OptimizationInnovation
Cost Savings
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
30
Quantify and track purchasing card program cost savings.
Implement an electronic accounts payable (EAP) solution to augment the purchasing card program
Implement a virtual card solution to augment the purchasing card program
Conduct regular spend analyses and policy and procedure reviews to ensure program optimization
Integrate and automate card program data in the ERP system
Process: Client Checklist of Best Practices
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research
Visa Confidential
Thank You