While Brexit and EU regulations may grab the headlines in the next couple of years, technology will continue to be the game-changer for the corporate card industry
The UK government finally started the process of the UK leaving the European Union at the end of March. But it’s still going to be EU legislation that will be shaping much of the corporate card landscape over the next couple of years.
The EU’s wide-ranging Directive on Payment Services (known as PSD2) is due to be implemented in UK law from January 13, 2018, when the Brexit negotiations will be in full swing.
So what will PSD2 mean for the corporate card industry when it takes effect from early next year?
Maria Parpou, product director for Barclaycard Commercial Payments, explains:“PSD2 is a broad piece of regulation covering a number of areas, from how complaints are handled to customer authentication through to the opening up of data to a range of new players.
“There could be numerous implications for the commercial card market, including changes that drive more robust security and further innovation.”
Security, particularly around online payment, is one of the main thrusts of PSD2 that will have an impact on how corporate cards are used over the next few years.
Airplus International UK managing director Caroline Haywood says:“PSD2 is going to lead a shift in the way corporate cards are used for online payments, as there are significant increased security requirements – an increase that is likely to make the payment experience less user-friendly but lead to a reduction in digital fraud rates.”
There has also been talk about how PSD2 may ban the practice by travel suppliers – particularly some airlines – of levying high surcharges for bookings made through credit cards, which some carriers have set at up to 3 per cent of the airfare.
Karen Penney, vice-president and GM at American Express Commercial Payments UK, reckons the UK government is currently consulting on whether to completely ban surcharging in the UK.“Amex believes a ban would be positive, as consumers do not like this practice, as it misleads them about the price of goods and services,” she says.
However, a complete ban on surcharging has been thrown into doubt by the wording of the UK government’s consultation into PSD2, with the Treasury saying that it “does not currently propose to extend the prohibition” of surcharging as part of the implementation of PSD2.
Card surcharges are already covered under the Consumer Rights (Payment Surcharges) Regulations, which came into force in 2013 and state that companies should only use a surcharge to cover its own costs. But consumer groups say this legislation is not being enforced properly and this has allowed airlines and other suppliers to continue to charge higher levels of surcharges.
While EU legislation continues to be implemented, everybody knows Brexit is coming. Like many businesses, most corporate card companies are adopting a “wait and see” approach and have urged the UK government and EU to deal with Brexit in a “phased” approach.
Trade association Payments UK says that the impact on the payments industry “will vary significantly” depending on what type of deal is reached between the UK and other 27 EU member countries.
Key issues revolve around whether UK-based card companies will continue to have access to pan-European payment systems and have the ability to offer services across the EU as part of the “passporting” policy.
These elements are seen as being crucial in offering UK customers more choice and competition in payment options. A loss of access could also ultimately lead to higher fees for corporate clients.
A Payments UK report on Brexit states: “During the negotiation, it needs to be recognised that there has been a revolution in the way we make payments across the EU over the past decade, and this pace of change is only speeding up.”
Payments UK has called for “open communication” between the industry, government and regulators to “ensure the best possible outcome for customers and the UK more generally”.
Airplus’s Haywood says: “The UK government has made it very clear to the industry that all the existing EU regulations will be maintained in the event of Brexit and that new and upcoming regulations are also likely to be adopted by the UK to ensure uniformity across the European market.”
She adds the negotiations will undoubtedly have an impact on business travel spend and the location of many large corporations.”
American Express says that it is “identifying any changes that might be necessary to ensure stability and business continuity” as the Brexit process continues.
“We believe it is important for business to be able to make long-term plans, so we support a phased implementation of Brexit to give industry time to adapt,” says Amex’s Penney.
Like almost everything connected with Brexit, there are more questions than answers so far. But this fog should at least start to lift in the next year as EU-UK negotiations proceed.
An earlier piece of EU legislation – the capping of interchange fees, which came into effect in December 2015 – is still playing out within the payment sector. These caps, which are set at 0.2 per cent for debit cards and 0.3 per cent for credit cards, apply to individually billed accounts.
For providers, the cap means lower profits or introducing fees, so individual pay can now be a more expensive option for customers – causing some to move towards centralised accounts through use of lodge cards or virtual accounts instead of individual cards.
“With the capping of interchange rates by the EU, the pre-existing pricing models for individual payment programmes are no longer viable for major providers, leading to many closing down their individual payment programmes,” says Airplus’s Haywood.
She says concerns include reduction of competition, confusion for buyers, inconsistent adoption of the regulation, and financial pressure on corporate card issuers stifling innovation.
Barclaycard’s Parpou says the impact of the interchange rate cap on the corporate card market has yet to fully play out. “Corporates are still looking for individually billed solutions but, at the same time, they don’t want to incur a fee for that provision,” she adds.
“Corporates with a global card programme may find this challenging as legislation varies by geography.”
But it’s not just the interchange rules that are driving the move to centralised accounts. They also have other practical benefits, such as enabling remote approval processes and capturing valuable management information (MI) data.
Diners Club marketing director Adrian Steele says clients are moving to corporate pay for a range of reasons, including policy and governance, and better insight and monitoring.
While impending regulations and Brexit have created some uncertainty within the corporate card sector, there is one constant that is not about to change – and that’s the remorseless advance of new technology, as you will read about throughout this supplement.
Much of the innovation has revolved around using technology such as virtual card account numbers, as well as giving more options that combine different payment regimes like pre-payment, debit and credit accounts.
There has also been a focus on integrating expense solutions to help both travellers themselves through automation of the process and also travel departments which benefit from the collection and reconciliation of MI.
But what’s the next big move? Fintech firms – new technology-led financial services companies – are set to create more competition by offering these hybrid payment solutions to corporate clients.
“This is something established players are looking into as well – indeed, at Barclaycard we recently updated our Precision Pay solution so that it offers debit, credit and pre-paid payments on one platform,” says Maria Parpou.
There is also an inevitable shift towards more mobile-based ser- vices, helped by the increase in virtual payment technology and use of API (application programming interface) links that are increasingly enabling a range of travel expenses to be managed through a single platform on a mobile device.
“Demographic changes are driving shifts in the workforce, with millennials driving demand for mobile and digital experiences,” says Amex’s Penney.
“Similarly, the importance of the SME [small and medium-sized enterprises] sector is driving increased demand for working capital solutions, like cards that help extend payment terms as well as facilitate payments to merchants.”
Innovation is key to this development, and companies are casting their net wide to find the “next big thing” in payments. For example, Visa recently launched its Everywhere Initiative in Europe. This offers entrepreneurs up to €50,000 to help develop new payments technology. This project has already been running in the Americas and Asia.
“Every time we expand this programme into a new region, we aim to attract talented entrepreneurs with fantastic ideas to the payments space, and we hope to see similar great outcomes in the European market in the months ahead,” says Shiv Singh, senior vice-president of innovation and strategic partnerships at Visa Inc.
Visa also opened a new European innovation centre in London in February – the largest of its kind across Visa’s global network – where the payment giant is working alongside financial institutions, merchants and other partners to develop new products, such as using biometric authentication to pay for tickets.
No matter how many new barriers or obstacles Brexit or EU regulators may throw up in the next couple of years, technology is set to continue leading the way in the corporate payments world.