At the beginning of the COVID-19 lockdowns in early 2020, massive declines in spending were pervasive. Credit card spending in the travel and entertainment categories declined as much as 73% from the first week of March to the first week in April 2020.
However, as the economy recovers, we are seeing an emergence of the usage of commercial cards by businesses. In commercial card portfolio managed by Corserv, Jan-May 2021 spending increased 60% over the same time period in 2020. The adoption of commercial cards presents unique opportunities for community banks to serve businesses in their local communities and generate new streams of revenue. Commercial cards will play an integral role in the future of work.
Growth of Commercial Cards
During the pandemic, the application volume for new commercial cards remained low, and many banks tightened their underwriting criteria. The environment early on was just too uncertain. Today, as we see progress in a “return to normal,” commercial card applications and approved account volume are growing at a fast rate.
Bankers are keen to expand their reach, from solely providing a payment channel for business and commercial customers that gets the job done, to one that takes advantage of additional value-added opportunities and creates a well-rounded experience for the customer. Yet, they want to do so without the complexities associated with the process and the high cost to implement and maintain these services.
Services such as integrated spend controls, expense management automation, or support are possible features offerings without the need to add staff or incur the traditional costs associated with owning a commercial card issuance program. APIs should also be leveraged for key services so that the banks can integrate commercial card features in their systems for unified customer experience.
Opportunity for Community Banks
Owning the card issuance ability capitalizes on this increasing growth and provides bankers services, such as self-service spend controls, virtual cards, support for ePayables and expense reporting system is critical. According to the 2020 McKinsey Global Payments Report, payments grew faster than overall banking revenues in 2019, increasing its share to just under 40%, compared with roughly 33% only five years earlier. We can anticipate the pandemic only accelerated this growth, underscoring the vitality that lies in products such as commercial growth. Banks that opt into providing this service are preparing themselves for long-term success.
Commercial card growth, in particular, presents an opportunity for community banks to extend their reach and continue building revenue and relationships with the businesses in their community. Providing full-service card issuing programs, especially with technology and support for commercial cards, are becoming an increasingly important part of a successful financial institution's fiscal success. The card programs, especially commercial, are designed to meet the business needs of an ever-changing corporate environment, while being flexible to continue to adapt as business needs change.
Bankers have a huge opportunity to book high earning assets while deepening relationships with the local businesses. Average monthly purchase volume on a commercial card relationship is $28,000 resulting in an average direct margin of $1,300 per month per relationship.
Future of Commercial Payments
The work-from-home environment highlighted challenges in outdated accounts receivable processes. Businesses that processed payments manually through checks and ACH had issues because the employees were not physically in the offices. They had to quickly learn and adapt to more efficient digital payment processing. Check usage in commercial payments will continue to see a precipitous decline.
The pandemic has also improved the adoption of virtual cards. A virtual card is a unique card number that is created on demand for a single use. Virtual cards enable businesses to pay invoices securely while allowing suppliers to receive payments faster.
The COVID-19 pandemic accelerated the move to digital and virtual environments for many industries, payments included. As we recover from the pandemic for years to come, organizations must prepare themselves to take advantage of the accelerated trends.
Incorporating virtual cards for commercial payments is the first step to ensuring your business is ready for the future.
Author: Anil Goyal, President, Corserv