Analysis: The growth of automated expense management

Businesses of all sizes are looking at the advantages of using automated end-to-end expense solutions, reports Mark Frary

End-to-end travel and expense management, where a company captures all of the data surrounding the entire booking and travelling process and uses it to automatically populate expense claims, has often been thought of as ‘end of the rainbow’ stuff for all but the very largest of companies. Yet the growth of open booking and the availability of pay-as-you-go style systems means that end-to-end is now becoming a possibility for all.

David Vine is managing director for UK SME businesses at Concur. He says: “Traditionally, the barrier was the requirement to have a managed travel solution and to mandate where travellers book their travel. Today, the biggest barrier is actually the misplaced perception among mid- and smaller-sized companies that they can’t get the benefits of end-to-end without having managed travel, when the reality is that they can.”

These days, systems like Concur’s Triplink mean unmanaged itineraries can now be imported easily into the expense solution, regardless of how or where they are booked. “This provides the company the visibility it needs, but also allows the employee to book through their preferred vendor while also capturing and integrating all the travel-transaction,” says Vine.

There is good reason for SMEs to be interested in end-to-end automation – studies show substantial differences in cost between manual and automated expense processes. HRS sales director Mark Douglas says: “Any company of any size will make the decision based on the benefits, which include control and reducing processing costs. Whether a small company  or a larger corporate, these are likely to be important considerations that they will weigh against the investment costs of such a system.”

Travel and expense (T&E) management platform Traveldoo has recently tied up a partnership with TMC consortium Advantage Business Travel, which should open up opportunities for this business segment. Advantage corporate director Ken McLeod says the agreement with Traveldoo will enable his members to “expand their portfolio of product solutions to corporate clients, without investing in additional resource”.

He adds: “This agreement has come at the right time. We have seen an increasing trend towards the expansion of travel procurement, to encompass the total cost of the business trip – it’s now becoming necessary for TMCs of all sizes to provide a T&E platform for their customers.”

Traveldoo’s UK director Julian Mills says that there are concerns from smaller organisations about adopting such systems, but they are being addressed. “There is a fear around the lack of in-house expertise for some organisations, plus the cost of implementation is perceived to be high,” he says.

“I hear many organisations express concerns around integration and the ability to link up with existing systems when, in fact, expertise is provided by the supplier. In my experience the long-term efficiency savings far outweigh any short-term disruption. But many companies are still reluctant to take that leap.”

Mills also believes that process costs are not the only attraction of end-to-end products. “An automated end-to-end solution will drive processing costs down,” he says. “The visibility and control of your supply chain also allows TMC and company to make better decisions about suppliers for commercial reasons – and about T&E policy for employee reasons. It’s a win-win situation.”

Being able to integrate booking information with expense systems is vital, says Mark Douglas at HRS. “Data can be passed on from the external application, like an expense management system, and be pushed back into it after concluding the booking on the HRS portal,” he says.

“This closed loop ensures data consistency and connectivity, and allows streamlined processing. The implementation effort for both parties is minimal.” He adds that HRS connects to a number of expense management systems, via agreements with providers such as Mobilexpense.

The rise of systems that are designed for open booking such as Concur Triplink and KDS Maverick is also driving interest in end-to-end processes. Concur’s Vine says: “The modern business looks radically different from just ten years ago – technology allows for greater reach across geographies, customer segments and an employee base that is more mobile and tech savvy, and thus more empowered.”

End-to-end is not just about the expense claims themselves. Automated reclaim of foreign VAT is also a current issue for many companies, as is integrating ground transport into the system. But for a business to make the most of an end-to-end expense system, secure feeds into payment, HR and ERP (enterprise resource planning) systems are vital. As Traveldoo’s Mills puts it: “An organisation will only maximise the benefits of automation if it has a managed process, with ideally a single profile per employee.”

Corporate cards are usually one of the key pillars in an end-to-end system, since card providers generate transaction feeds that can be plugged into automated expense management systems, allowing claim forms to be pre-populated with information. If all spending has gone through the card, it can be relatively easy for the traveller to account for everything, from the airline ticket and hotel room to the taxi fare and restaurant bill, with only the cash expenses needing to be added manually.

Yet the European Commission’s proposal to cap interchange fees to 0.3 per cent will bring the cashflows surrounding card payments into focus and may ultimately increase the costs to corporates of using them.

So what are the money flows in the corporate card business? Imagine a business traveller pays for something costing £100 with their corporate card. The person they are buying from is called the merchant, and that could be an airline, restaurant or taxi company. The merchant’s bank is known as the acquirer. The bank providing the corporate card is known as the issuer.

The merchant asks the acquirer to authorise the transaction. The acquiring bank then sends a request for authorisation to the issuer over a network, such as Visa. On authorisation, the issuer transfers the £100 to the acquirer, minus what is known as the interchange fee. That fee may have been agreed between the acquirer and issuer directly, or may be the default interchange fee set by the network. For corporate card payments, Visa sets this default fee at 1.5 per cent.

The acquirer then transfers this money to the merchant, less what is known as the merchant discount or service fee. The merchant might then end up with £97 or £98, depending on the level of fees.

The acquirer makes its margin on the difference between the interchange fee and the merchant service fee. A drop in the interchange fee would then suggest that merchant fees would drop. However, banks and networks argue that the money they charge in fees goes towards making universally accepted systems and pays for innovation. There is also evidence that even when interchange fees are reduced, the savings are not necessarily passed on to merchants (or their customers). Large merchants, with their financial clout, tend to do better out of the situation.

There is also the question of rebates. Many corporates earn percentage rebates on their card spend, with the level of rebate increasing with the volume of spend. Rebates are typically negotiated in terms of basis points (1 per cent = 100 basis points, or BPs). A smaller-spending company might earn just a single-digit basis point rebate, while multinationals might get more than 100 BPs. What is certain is that rebates are closely linked to interchange fees. If interchange fees fall, rebates will, too.

Using cards is not necessarily a cheap method of payment either. Brazil, for example, levies a 6.38 per cent tax on citizens who use cards for transactions abroad. If interchange fees on corporate transactions are capped, the change to these money flows will alter the sector immensely – and corporates may be the ones that lose out.

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