presentation identifier.1 information classification as needed 1 1 darren muise commercial...

Presentation Identifier.1Information Classification as Needed 11

Darren MuiseCommercial Partnerships,State and Local

June 2009

VISA Commercial Update


Agenda

Commercial Payments• Market

– Landscape

– Legislative Updates

• TIPRA

• QPCA– VIM 1099

– Convenience fees

– Resources

• RPMG Highlights

– Market Analysis

– Industry trends

• Fraud, Misuse & Abuse


Growth in B2B Payments

3

Source: Visa Inc., Commercial Consumption Expenditure Index, 2008


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U.S. Commercial Opportunity

2007 CCE Segment Distribution100% = $19.7T

Public Sector

$1.4

Large Market

$9.9

Middle Market

$3.7

Small Business

$4.7

6.9%

50.3%19.0%

23.8%

U.S. CCE increased 5.5% in 2007 to an estimated at $19.7 trillion

Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, June 2008. Results include retail and wholesale intermediate inputs and are estimates only; government sources typically publish actuals within two years of estimates. U.S. CCE index data sources include the Bureau of Economic Analysis (BEA) and U.S. Census Bureau which conducts the Retail and Wholesale Trade Surveys.


Paper-Based Payment Methods

• Businesses may be recognizing the inefficiency of paper-based B2B payments since the use of checks as a payment method appears to be on the decline.

5

Source: 2007 AFP Electronic Payments Survey, October 2007


24%

19%

50%

6.9%

GPC2.6%

Public

Large Commercial(>=$500M)

Middle Market($25M–$500M)

Small Business(<$25M)

Market Overview

Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, June 2008. Results include retail and wholesale intermediate inputs and are estimates only; government sources typically publish actuals within two years of estimates. U.S. CCE index data sources include the Bureau of Economic Analysis (BEA) and U.S. Census Bureau which conducts the Retail and Wholesale Trade Surveys.

2007 CCE by Payment Type100% = $19.7T

2007 CCE Segment Distribution100% = $19.7T

Checks46.9%

ACHand Other

50.5%


Legislative Activities

TIPRA - “3%” provision requires Federal /State/ some local governments to also report merchandise and withhold 3% on all (service and merchandise) payments starting in 2011. Visa is working on minimizing the impact.

Various proposals (most effective 2009) could:

• Require certified TINs, TIN Matching, and “on-demand” withholding

• Require reporting on payments to corporations

• Require Governments to report merchandise payments

Increase in info reporting penalties almost enacted--still in play


QPCA

What is a QPCA ?

• Qualified Payment Card Agent (QPCA) is an IRS designation granted to payment card organizations which meet IRS Standards for IRS 1099 MISC reporting surrounding:

• Data Collection, validation, maintenance and distribution of supplier information

When will QPCA status go into effect?

• IRS released revised Proposed Regulations and Revenue Procedures in July 2007.

• Awaiting IRS clarifications and release of the revised regulations

• In the interim, continue to do what you have always done to comply with IRS 1099-MISC reporting requirements until IRS approves QPCA applications

• Visa will continue to work with IRS and to keep you informed of progress


Strategies to improve the process

Periodically review the 1099 report data,

Prioritize merchant records based on MCC’s

www.irs.gov/irb/2004-31_IRB/ar17.html

Utilize the IRS TIN Matching service to help minimize B notices

• Results returned in 24 hours

• IRS required formatting available on IRS website

• If you send W-9’s for those supplier’s whose data fails TIN Matching

– Can send copies of W-9 to Visa and we will update the Visa Merchant Profile Database

– Email to [email protected] , include the MPSID of merchant record – fax 650-554-6819

http://www.irs.gov/irb/2004-31_IRB/ar17.html

mailto:[email protected]


New for 2009

Addition of IRS TIN matching into VMPD data quality processes

• 13M records to match -100K per file

• Working with IRS to determine if results can be shared w/ cardholders

Addition of new data quality rules as a result of TIN matching

Acquirer focus on merchant data quality

• New information reporting obligation under IRC Section 6051W

• May reduce the need for the implementation of the QPCA program


Convenience Fees / Surcharging

5.2.E Convenience Fees

• Merchants that charge a Convenience Fee must ensure that the fee is:

– Charged for a bona fide convenience in the form of an alternative payment channel outside the Merchant’s customary payment channels

• Disclosed to the Cardholder as a charge for the alternative payment channel convenience

• Added only to a non face-to-face Transaction1

• A flat or fixed amount, regardless of the value of the payment due

• Applicable to all forms of payment accepted in the alternative payment channel

• Disclosed prior to the completion of the Transaction and the Cardholder is given the opportunity to cancel

• Included as a part of the total amount of the Transaction


Resources

• Best Practice Guides

– State, Local and Higher Education

– Global

• Components of a Complete Card Program

• Practical Guides

– State, Local and Higher Education

– Control and Compliance

• Visa Exchange

• Business Continuity

• www.visa.com/gov

Visa Confidential

RPMG 2007 Study Highlights

Market Analysis


*Source: RPMG 2007 Purchasing Card Benchmark Survey Results

PURCHASING CARD State & LocalOverall Study**

Monthly purchasing card spending $524,940 $1,627,608

Median monthly purchasing card spending $250,000 $400,000

Monthly spending per card $1,058 $1,872

Monthly transactions per card 3.46 6.7

Spending per transaction $260 $281

Purchase card-to-employee ratio 19.4% 10.2%

Spending per employee $206 $190

Active cards 75% 83%

Transactions under $2,500 made on purchasing card 47% 37%

Transactions between $2,500 and $10,000 placed on purchasing card

28% 19%

Usage Statistics


Louisiana – Usage Statistics

• Monthly PCard Spend $7.9MM

• Monthly Pcard spend (per card) $745

• Avg. Trans size $217

• Cards versus employees 11%

• Active cards per month 53%


Purchasing Card Program Growth

Source: RPMG 2007 Purchasing Card Benchmark Survey Results

2003 2005 2007

Average Monthly Organizational Spending – Purchasing Card

Monthly Spendingper Purchasing Card

2003 2005 2007

$1,062,329$1,026

$1,831

$1,297,453

$1,627,608$1,872


State and Local Program Growth

2003 2005 2007

Average Monthly Organizational Spending – Purchasing Card

Monthly Spendingper Purchasing Card

2003 2005 2007

$272,436

$745$793

$363,470

$450,194

$854


Visa Confidential

RPMG 2007 Study Highlights

Industry Trends


Market Trends and Opportunities

Annual purchasing card spending in North America grew from:

• $110 billion to $137 billion in the time between 2005 and 2007

• Corporations report purchasing card spending increased by 27%

• Public sector organizations by 19%

Overall, 79% of respondents reported growth, 15% reported no change, and 6% reported a decline in purchasing card spending since 2005.

Purchasing card spending in North America is expected to increase to $218 billion by 2012,

• Growing at a rate of about 12% per year between 2007 and 2012.

Source: RPMG 2007 Pcard Study


Market Trends and Opportunities (cont.)

In 2007, POS purchasing cards accounted for the lion’s share of both purchasing card spending (84.9%) and transactions (88.7%).

Ghost accounts accounted for 8.4% of all purchasing card spending and 8.5% of all transactions.

Electronic AP (EAP) cards accounted for 6.6% of all purchasing card spending but only 2.7% of purchasing card transactions.

Organizations continue to steadily increase their capture of low-value transactions with purchasing cards.

In 2007, 37% of transactions under $2500 were the purchasing card, up from 32% in 2005 and 31% of under $2,000 transaction activity in 2003.



Market Trends and Opportunities (cont.)

Use of the purchasing card for “higher ticket” goods and services is growing steadily.

In 2007 users paid for 19% of their $2,500 to $10,000 transactions with a purchasing card, up from 15% in 2005 and 9% of $2,000 to $10,000 transactions in 2003.



Pcard Trends

Average organizational purchasing card spending increased 24% between 2005 and 2007.

• This growth was facilitated by greater card distribution, higher average transaction amounts, and fewer inactive cards.

About 91% of respondents expect their organization to increase purchase card spending over the next five years.

• 80% of respondents report increased purchasing card spending over the past two years

• 15% report no change, and 5% report a decline in purchasing card spending.



Pcard Trends

Purchasing card use is generating overall transaction cost savings of more than $35 billion per year in North America, based on respondent reported administrative cost savings of $69 per transaction when compared to the traditional purchase-order driven acquisition process

Sixty-eight percent of organizations report real reductions in the manpower required to conduct the Purchasing and Accounts Payable activities.

The “average” respondent organization (with over 5,800 transactions per month and $1.6 million of monthly purchasing card spending) experiences Purchasing/AP workload activity reductions that would have otherwise cost the organization $271,354. These savings are in perpetuity, occurring every year in which the alternative is a paper-oriented transaction process.



Pcard Performance

We identify and define “best practice” purchasing card programs as those that report at least one top quartile (and no bottom quartile) metric across three key performance measures

(1) The percentage of under $2,500 transactions paid by purchasing card

(2) the percentage of $2,500 to $10,000 transactions paid by purchasing card

(3) purchasing card spending per employee.



Trends - Controls

Higher per transaction and monthly spending limits are differentiating features of BP purchasing card programs.

Lower per transaction limits will affect what and how much can be bought with the purchasing card.

Consequently, the increase in the transaction spending limit has a “multiplier effect”--increasing both the number of transactions and the average transaction amount.

The combined effect of these changes is a significantly larger amount of spending placed on purchasing cards.



Growth in the Public Sector

In the Government category, purchasing card spending growth has been strongest in Cities and Counties and agencies thereof, growing by about 22% over the past two years.

State agencies, Cities and Counties project an average annual purchasing card spending growth over the next five years of about 6%, 12%, and 11%, respectively.



Accounts Payable - Trends

Accounts Payable (cards) are a positive force in the card administrator’s toolbox

Driving higher spending (in total and per employee) to the purchasing card by virtue of higher transactions per card at a higher average transaction amount.

However, companies with AP cards also have less liberal card distribution and lower average monthly spending on plastic purchasing cards.

AP cards add significant value primarily in those cases where they do not take away from spending that would otherwise go to plastic purchasing cards.



Dual and Multiple Use PCards

Organizations are moving away from restrictive definitions of what can be bought with purchasing cards.

• By 2010, only 23% of respondents expect to continue confining purchasing card use to indirect goods and services.

• The greatest dual and multiple uses of purchasing cards occurs in School Districts, Cities and Counties, and Middle Market organizations

• Generally, larger organizations with older purchasing card programs are more likely to limit purchasing card use to indirect goods and services.



E-Procurement Trends

About 37% of e-procurement adopters are Fortune 500 Size companies and 18% are Large or Middle Market companies.

Government and Not-for-Profit entities account for 45% of e-procurement adoption.

Sixty-seven percent of respondents using e-procurement expect e-procurement spending to go higher or significantly higher over the next three years.

The majority of e-procurement users have risen from 59% in 2005 to 64% in 2007.

• This figure is expected to continue to rise to 72% by 2010.



Supply Chain Management

All categories of BP purchasing card programs are more likely than their counterparts to obtain discounts using purchasing card data

• 46% versus 22% for Fortune 500 Size,

• 27% versus 17% for Large Market,

• 15% versus 2% for Middle Market,

• and 31% versus 10% for Government and Not-for-Profit entities

The ability of purchasing card data to generate vendor discounts is more a function of wise program management than sheer organizational size.


Visa Confidential

Fraud, Abuse, & Misuse


Fraud, Abuse, & Misuse:Definition of Each

Fraud – The theft of identity/card information or intentional use of a purchase card by the cardholder for personal gain

Abuse – Intentionally or unintentionally violating policies and procedures for personal gain

Misuse – Intentionally or unintentionally violating policies and procedures for work related gain


Fraud, Abuse, & Misuse:Prevention & Detection

Training and Communication

Integrate fraud, abuse, and misuse awareness into training sessions

Publish articles on prevention of fraud, abuse, and misuse

Publicize consequences associated with detected cases of fraud, abuse, and misuse

Continuous sharing of lessons learned to improve the overall program


Card Misuse

70 percent of all misuse dollars in sample are associated with less than 4 percent of respondents

65 percent of card misuse was identified through either internal controls or internal audit

Programs with “low misuse” significantly outperform organizations with “no” or “high misuse. They also have higher expectations of future growth.

© Copyright 2003, R.Palmer & M. Gupta

Overall CorporationsState & Federal

Agencies

City, County Government Universities

Average Dollars per Incident $932 $905 $599 $450 $690

Median Dollars per Incident $500 $575 $400 $100 $325Misused Dollars as a Percent of Annual Purchasing Card Spend

.027% .020% .017% .091% .032%

Annual Incidents per 1000 cards 4.2 3.5 2.5 14.7 5.2

Visa Confidential

Unanswered Questions?

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card transactions

purchasing cards

median monthly purchasing

purchase card

card program growth

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