EAP into Action
Electronic accounts payables are paving the way for a more manageable back office By:Bryan Yurcan
| BTE December 2016
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It’s no secret that banks and card issuers are working to respond to their corporate customers’ demands for business payments solutions to be more like those available to general consumers. But streamlining these systems while keeping them secure and manageable is easier said than done.
One recent trend that aims to accomplish this streamlining while focusing on security is replacing the old two-step system of corporate card and accounts payables and merging them into electronic accounts payable, or EAP.
Fifth Third is one bank that’s applying the technology to make life in the back offices of its corporate customers easier. The Cincinnati-based bank in October announced the launch of ePay, an electronic accounts payable solution for commercial card clients using virtual card numbers for payment. The service allows corporate clients to take advantage of electronic accounts payables and provides them with multiple options for supplier payments, visibility into account and payment status, and critically important program controls for fraud and risk mitigation, according to the bank.
“Last year Fifth Third’s commercial card clients used our electronic accounts payable solution for nearly 25 percent of payments to their vendors and partners,” says Bridgit Chayt, director of wholesale payments at Fifth Third, in a written statement. “The new platform makes the solution more convenient and secure for our business clients.”
Indeed, electronic accounts payable solutions have begun to shift from “best practice” to “common practice” for many corporations, according to Jud Staniar, senior business leader, commercial product development and innovation at MasterCard. He cited a July 2015 report from First Annapolis Consulting that predicts virtual card spend should continue to increase 20 to 30 percent per annum for the foreseeable future, meaning that by 2021 virtual card spend will be nearly at parity with traditional walking plastic purchasing card spend.
“Mastercard first introduced virtual cards for use in the B2B space – primarily used by accounts payable departments to pay for invoice-based payments,” Staniar explains. “Virtual cards offer significant added benefits, such as enhanced data, tracking and reconciliation. While it took a few years for virtual cards to take hold, it has become one of the fastest growing technologies in B2B card payments. We see a similar adoption curve evolving in the travel space. Online travel agencies have already adopted virtual cards for use in their core businesses, and we are starting to see a similar upward trend in corporate T&E.”
One of the fastest growing trends MasterCard has seen in the corporate travel payments space is the emergence of virtual cards to pay for centrally-booked travel expenses, Staniar says. “Mastercard has integrated our virtual card platform, In Control for Business Travel, with travel agencies around the world,” he adds. “We currently have issuers supporting our virtual card platforms in all major geographic regions.”
In a 2015 survey from the RPMG Research Corporation, the vast majority of respondents (71 percent) reported growth in EAP spending over the past year. The survey, which polled 870 EAP end users from public and private corporations, found that EAP spending grew, on average, by 33 percent over the past year.
“EAP spending ramps up quickly in comparison to plastic purchasing card spending, increasing from 57 percent of plastic spending for respondents with programs less than one year old to nearly double the level of plastic card spending by respondents that have used EAP for five or more years,” according to the report.
Going forward, 72 percent of all EAP-using respondents expect increases in EAP account spending over the five-year period from 2015 to 2019. EAP spending, estimated to be $65 billion at the end of 2014, is expected to rise to $110 billion by 2019, the RPMG research found.
Visa is another card issuer that is also seeing an increasing popularity in the use of EAP solutions by corporate clients, says Daviv Henstock, VP, global commerce solutions for Visa. Visa offers its own product, the Visa Virtual Travel Card.
“Companies are expanding their traditional T&E corporate card programs to include the usage of virtual accounts, thereby expanding the reach of their T&E program, while gaining greater efficiency and control over their T&E spend,” he explains. “Single-use virtual accounts used as part of an EAP solution are typically used for infrequent travelers or employees who don’t have a corporate card, bringing a broader number of employees under the corporate travel umbrella.”
These services can help T&E management in a number of ways, Henstock says. For one, the process allows companies to set parameters on purchases made with virtual accounts that are tailored to their needs – parameters that offer control, enable increased compliance with travel policies and maximize transparency into the travel spend.
It also provides better data management; data can be captured from booking through payment with visibility and detail into what was booked as well as what was actually paid. Data is also more comprehensive, since the spend for irregular travelers using a virtual account is captured alongside regular travelers who carry a plastic card, Henstock says.
“With the potential for automatic reconciliation and seamless integration with the managed travel ecosystem, travel managers can also get more information and improved insight into all aspects of their company’s travel spend,” he adds.
Single-use account functionality also provides a greater level of control to corporate travel managers, says Jennifer Petty, head of Global Corporate Card in Global Transaction Services at Bank of America Merrill Lynch. The BofA ML solution enables clients to have the controls needed to pay invoices with card accounts at any amount, she says. Suppliers charge the payable account when notified by the buyer. After posting the charge, the account cannot accept further charges.
“This creates a very secure environment,” she says. “Other benefits include auto-matching the payment request to the payment information once the payment is made – or account is charged and posted – and closing the entry in a buyer’s general ledger,” she continues.
“The single-use account is provided to the TMC and is very controlled, only allowing charges that equal the amount of the booking,” Petty says. “After this booking transaction, the single-use account can no longer be used. This replaces the open account number for all bookings and creates a very secure environment as the account number cannot be charged outside the one reservation for the cardholder. This process also enables 100 percent matching of the cardholder information and the travel booking to the financial data of the transaction. Once matched, the data can be loaded in the buyer’s general ledger system.”
Look Before You EAP
“Virtual payments have been around almost a decade,” says Bob Kaufman, general manager, Virtual Payment Products at U.S. Bank Corporate Payment Systems. “In a sense they were the first version of what we’re now calling tokenization, in that there is no card number open to abuse by potential fraudsters. Virtual accounts provide a card number that is no good to anyone but you. You can limit its useful life to a very specific, very short time parameter. You can limit the dollar amount to the penny. You can limit its use to a very specific type of purchase through the industry code.”
To make any use of the number, Kaufman explains, fraudsters need to know what industry, for what time period, and for what amount – and they need to get to it before you do, since it’s only good for a single use.
“That’s a high wall to climb,” he continues. “At U.S. Bank, our corporate virtual cards average about $6 billion in spending per year, and the amount of fraud is effectively zero. This is why more organizations should be using it. We need to do a better job educating the industry about it.”
MasterCard’s Staniar agrees. “One of the primary drivers behind the rapid expansion of virtual cards, in both the T&E and B2B spaces, is the fact that the virtual cards are extremely secure,” he says. “A wide range of flexible controls, including amount, validity periods and number of uses can be applied to each virtual card. In addition, the underlying ‘real card number’ is never exposed to the cardholder or merchant. As a result, fraud and misuse has been almost non-existent.”
In addition to giving greater control to the corporate travel manager, these solutions also make expense reporting much easier for the business traveler, U.S. Bank’s Kaufman says.
“For example, the virtual payment tool in our U.S. Bank Commercial Payments Manager automatically feeds the traveler’s expenses into its system, eliminating the need to manually enter them,” he says. “That is common at most large companies now, but is less common with small or middle market enterprises. With today’s EAP technology there’s no reason it can’t be done affordably at all levels.”
Kaufman also says EAP allows for instant account set-up “that you don’t have to wait for.” For example, if a business traveler finds themselves in an airport without a travel card and has to get on a plane shortly, they can request a virtual card by entering an amount, an expiration date and an e-mail address. Then you can pay for the trip in real time,” he says.
Ultimately, the success of any EAP system depends on finding a bank or card issuer partner willing to work with the company and its suppliers to get the ball rolling, Kaufman goes on to say.
“This means more than just making sure the technology gets set up initially for the supplier to accept such payments,” he says. “A complete supplier enrollment program involves follow up to make sure the process continues to work smoothly, removing obstacles or perceived obstacles that might present themselves. The right partner takes the workload off your hands and makes virtual payments as easy as possible for both ends of the transaction. That said, half of all the payments they make are still on check. We have a long ways to go as an industry to eliminate paper. Virtual card is one of the ways we will do that. It is not the only way, to be sure, and never will be. But its potential is very strong if we can make it easy for both buyers and sellers. Clearly, we have work to do.”