Technology is revolutionizing payment platforms, and the transformation is only beginning
By Mark Rowh
If anything is assured in the world of payment processing, it’s ongoing change. While virtual card technology is no longer groundbreaking, things continue to evolve in the development of payment systems.
The security offered by virtual card numbers and digital wallets has been a welcome development, but it’s only a start. Now come concepts like cryptocurrencies and blockchain. And while mobile payment technology has arrived in the consumer space, it has a way to go before becoming standard in business travel.
“We expect what we want, when we want it in our personal lives, and it is not unreasonable for business travelers expect nothing less,” says Raj Gazula, head of commercial payments for SunTrust. “Mobile technology is critical to improving the traveler experience and matching that to our expectations as consumers.”
At the same time, global adoption of mobile payments has been slower than expected, according to Bradley Mathews, senior vice president, U.S. Bank Corporate Payment Systems. But it’s now picking up steam, he goes on to say. Last spring, his was the first financial institution to offer mobile payment for Visa travel card transactions, allowing business travel customers to make purchases with a phone via Apple Pay, Samsung Pay and Android Pay.
"The capability is still in its infancy as people try to understand the functionality and where it’s accepted, but we can unequivocally say that the people who use it love it,” Mathews says. “Some industry observers are predicting that mobile and contactless payments will overtake plastic by 2020, and we would not be surprised if they turn out to be right.”
The new technologies are enabling both speed and ease of use, says Ralph Kaiser, president and CEO of UATP. “These technological advances are disintermediating traditional payment ecosystem players,” he says. “They’re also enhancing revenue and aiding in important initiatives like fraud prevention.”
Virtually Accomplished Advocates point to multiple advantages with virtual payments. “The industry continues to be focused on security and ease of use, which means offering corporate clients of all sizes multiple payment solutions,” says J.P. Morgan Chase commercial card president Molly Walsh. “Our clients are increasingly looking to leverage virtual card products to deliver secure payments to vendors and suppliers.” She notes that these solutions offer a seamless experience from payment through reconciliation, with more security than a traditional card product.
“What makes this trend different is the critical importance of engaging the supplier in the use of the technology, and in making the process for payment and reconciliation as easy for the supplier as it is for the buyer,” she says. Walsh adds that adoption of this technology is growing quickly, and what started with larger corporations is now gaining momentum among medium-sized businesses.
With virtual cards, travelers need not pay ahead, and employers receive and settle invoices centrally without paper documentation. Their transparency not only brings indirect savings through streamlined processes, but may also offer more direct advantages. That's the key finding of a study released by HRS in February, which showed that virtual payment solutions can have an immediate impact on business travel costs.
Analysis of 30,000 corporate travel bookings found an average 12 percent decrease in the price of booked overnight hotel stays. In addition, no-show rates fell to 3.5 percent compared to 4.1 percent for travel completed before the introduction of virtual payments, and travelers tended to book overnight stays earlier than before. They also chose regional and local hotels more frequently, bringing additional cost savings.
“Virtual payments are certainly growing in popularity,” says Andy Nicholas, vice president of sales, global accounts, global commercial payments for American Express. “Businesses may benefit from using virtual accounts for employees and contractor travel expenses to more seamlessly manage their travel.” In addition, Nicholas points out virtual cards can help travel managers and accounts payable departments simplify and automate the stressful – and often manual – reconciliation processes that may come from matching purchase order and invoice data.
Walsh says that not only is the adoption of virtual card payments growing every year, but that their use will continue to evolve to meet customers’ needs. She affirms that virtual card products, also called single-use accounts, make up a key focus area for her business. She also predicts they will continue to grow in functionality and usability through partnerships with clients to embed virtual payments into their operational processes.
“It’s already gaining ground in the mid-market and we anticipate that it will continue to do so,” she says. “Businesses that don’t embrace payments automation run the risk of lagging behind their competitors that are using automated, integrated, multi-tool payments platforms, because those companies are gaining cost-savings efficiencies as a result.”
Typical of recent growth is the move by global hotel groups Mantra Group, Best Western, Choice Hotels and AccorHotels who are registering their Australasian properties to receive virtual cards via Conferma Connect, a PCI-complaint secure e-mail communication system. As of February, more than 700 of the groups’ hotels across the Australasian region were registered. The arrangement ends hotel reliance on fax, instead processing virtual card payments via a simple e-mail exchange.
Gazula recalls that virtual card technology has been around for several years in the purchasing environment. “The ecosystem in this environment is much more controlled,” he says. “In the travel space, airfare expenditures are much like this since they usually involve organizations, airlines and TMC’s working together.”
In the hotel environment, Gazula notes that matters are more complicated because of the various stakeholders. They can include independent owner-operators who may support several hotel brands along with a constantly changing workforce at the front desk. Add to that travelers who may not have a corporate-sponsored card, such as a prospective employee or infrequent traveler.
“This area is making tremendous improvements,” Gazula says. “As virtual card technology continues to become more prevalent, it is likely to become a business-as-usual transaction.”
A major advantage of virtual cards is the single-use nature of the account number, according to Mathews. He points out that while many companies have road warriors who frequently travel, a majority of their traveling workforce will probably just take one or two trips per year. Or they employ contractors who submit expenses for reimbursement. “Providing and managing physical cards for such short-term uses can lead to major logistical headaches,” he says. “These are occasions for employing virtual cards.”
Virtual cards are a convenient way for travel agencies and TMCs to pay airlines, hotels and car rental suppliers, Mathews explains. Last spring, U.S. Bank and Amadeus formed a strategic alliance through which Amadeus is offering the bank’s virtual payment technology to its US travel agency subscribers. Travel agents can pay their travel suppliers quickly, replacing payment methods such as invoicing, wire transfers, bank debit card, checks and cash advances.
Emerging Futures Although the future may seem relatively predictable for technologies such as virtual cards, the same can't be said for cryptocurrencies and distributed ledgers, aka blockchain. While the ups and downs of wild speculation in Bitcoin trading dominate the news, the potential of these phenomena in the travel space is less clear, especially when applied to payments.
Every week, it seems, brings some new development in this rapidly emerging area. As just one example, Paris-based firm Paymium has launched Blockchain.io, a cryptocurrency trading platform. The new platform is designed to provide a safe and transparent bridge between different blockchains. And companies far and wide are exploring possible blockchain applications.
“Distributed ledger technology is in its infancy, and its potential is still being explored across industries,” Mathews says. He reports that U.S. Bank is part of the R3 consortium, a distributed ledger platform company, and has successfully piloted applications in areas such as syndicated commercial loans, commercial letters of credit and solutions for mortgage-backed securities. While those pilots have not been in the corporate travel space, he says it’s entirely possible the same technology could one day play a role in streamlining travel operations and processes.
Of course the processing of payments offers its own set of challenges. “There is a big difference between using blockchain technology to support travel and travel bookings versus cryptocurrencies as a form of payment,” Kaiser says. He notes that many travel brands are looking into blockchain technology to improve efficiency while not necessarily thinking about accepting cryptocurrencies, such as Bitcoin, as an FOP. He points to a recent Travelport survey, which found 43 percent of travel brands are exploring the use of blockchain, whereas cryptocurrencies are not yet relevant.
“Technology is making this possible, but there also has to be a demand for it,” Kaiser says. “Corporate travel tends to lag behind what is happening in the leisure world, particularly when the solution is not as workable as an enterprise solution.”
Those issues aside, there seems to be plenty of reason for optimism looking ahead. “It’s a really exciting time to be in the commercial card space,” Walsh says. She notes that her company’s job is to make payments easy, automated and secure for clients and suppliers, and to enable them to turn their AP operations into a strategic function for growth and efficiency. “Technologies like single-use accounts are going a long way toward helping our clients achieve this goal.”
This may bode well for travel managers as well as travelers themselves. “New technology has made mobile payments more secure and intuitive, while also providing travelers with a seamless booking experience,” Kaiser says. With the continued growth in this area, he feels it’s imperative that the travel industry fully embrace and accept mobile payment technology.
“Payments are what everyone is talking about now,” Kaiser concludes. “This area has become a focal point for enhancing revenue and optimizing corporate travel management.”