Commercial P- Card Uptake in the UK Stalls
April 15, 2015
Recent reports suggest that while the uptake of p-cards--also called purchasing, procurement or payment cards—in the business-to-business payment market has soared in countries such as the US, Mexico and Australia, the usage figures in Europe are still quite low. Despite considerable uptake in the public sector, commercial p-card market share in the UK is estimated to be less than 1%. One of the obstacles to usage is a lack of understanding of the benefits offered by p-card programmes.
So what is a payment card? A payment card, or p-card, is basically a sophisticated credit card developed to help cut the processing cost of low value, high volume purchases. P-cards were introduced in the UK in the early 1990’s and became part of the Government Procurement Card framework in 1997. Essentially, they provide a simple, cost-effective purchasing, approval and payment process, supported by informative management reporting systems.
Benefits and Drawbacks of Payment Cards
- P-cards can eliminate several steps in the purchase-to-order process providing a prompt payment method. Thus controlling disbursements and maximising working capital.
- They reduce the need for time spent on requisitions, purchase orders and invoice approval.
- They can provide detailed management reporting by line item - e.g. item product code, item description, quantity and cost can all be included.
- They can be used to pay temporary contractors and the typical maximum spend per transaction on these cards is approximately €2,500 although many payments are much lower.
- They are always settled centrally, whether by a division or by the company, and always have corporate liability. They are never paid against an individual's bank account.
- They can be used by international corporations, particularly those who use shared service centres, to address and simplify issues of multiple currencies, VAT tax reclaim, technology integration and compliance with multi-national regulations.
- Within Europe, some suppliers are able to provide clients with full, itemised detail, which will appear on their VAT reports (known as level three data). Where level three data is available, VAT reports serve as evidence to support VAT reclaim activities. This eliminates the purchase order paper trail, which can save costs of anywhere from €60 to €100 per transaction. The cost when using a p-card with level three VAT data is approximately €5.
The surging demand for payment cards is not without its problems as they have become a target for many different types of misuse or even fraud.
P-cards are subject to the same types of fraud as general consumer plastic cards—e.g. from ‘card not present’ fraud transactions using stolen card information, counterfeit cards, identify theft, etc.
According to figures published by Financial Fraud Action UK, total fraud losses on UK cards fell to £341 million in 2011, a 7 per cent reduction compared to 2010 figures, thanks to online protection initiatives and on-going improvements to chip and pin technologies and roll-out. In the US, where chip and pin is not yet widely implemented, plastic card fraud continues to grow. US losses to fraud in 2010 topped $3.56b.
Card misuse, on the other hand, is often more problematic. Typical methods of payment card misuse include:
- P-cards allowing the same person to order, pay for and receive goods or services, providing an opportunity to bypass standard purchase-to-payment cycle controls
- Multiple payments to the same supplier
- Circumvention of internal controls by splitting purchases or sharing cards to bypass purchase limits
- Unauthorised person using the card or cardholder data.
Within a payment card programme, stringent controls must be in place to ensure charges are reasonable, properly recorded and made by a valid cardholder to an approved supplier. It is also essential that clear rules and policies are communicated to employees regarding proper card usage, spending limits and guidelines and the cardholder’s overall responsibility.
P-cards represent a highly effective way to reduce payment processing costs and increase visibility of purchasing transactions. But to mitigate business risk and implement p-cards successfully, management needs to formulate clear strategies and ensure that comprehensive, enforceable controls exist to ring-fence their use.
The Outlook for P-Cards in the Commercial Sector
According to Duncan Kennett in his article published in GTNews in December 2012, other obstacles to p-card use include the existence of effective domestic payment systems in Europe, which mean that the advantages of p-card systems may not be as compelling as they are elsewhere, as well as increased card transaction costs in Europe, the lack of real access to VAT data and apprehension over internal purchase controls. He points to the use of new virtual credit cards, or single-use accounts, in the near future which should remove many of these obstacles and result in vastly increased uptake throughout Europe.
Card providers and what you need to look out for
P-card / business charge cards are offered by most business banks and companies such as VISA, MasterCard, American Express and Diners Club. It’s worth examining the different deals available, considering a number of key points:
- Is there an annual fee? If so, how much is it and do you have to pay it for each cardholder?
- Can you give individual cards to designated employees?
- What are the minimum and maximum spending limits?
- What are the penalties for late payment of your bill?
- Is there automated approval and/or reconciliation software available?
- Are there any added perks or benefits - such as rebates, air miles or hotel discounts - that would be useful to your business?