Fulfilling the potential of commercial cards in Central Europe, the Middle East, and Africa
Addressing the challenges through education may be the answer.
Clyde Rosanowski
Head of Large & Middle Market, CEMEA at Visa Business Solutions
Clyde Rosanowski
Head of Large & Middle Market, CEMEA at Visa Business Solutions
A growing number of large companies (those with annual revenues of more than US$100 million) in Saudi Arabia, South Africa, and the United Arab Emirates (UAE) have access to corporate cards and are therefore able to tap into the benefits that they bring. However, research shows that commercial cards across this region remain largely underutilized.
Research shows that commercial cards across the CEMEA region remain largely underutilized.
Too many large corporates in the Central and Eastern Europe, Middle East, and Africa (CEMEA) region have historically relied on cash, cheque, and electronic transfers for most business payments. This comes at a cost as corporates, still using these B2B payment methods, are missing an opportunity to take advantage of the significant benefits commercial cards can bring.
A new Visa Commercial Payments Opportunity Study, based on a survey conducted by RFi Group¹ across UAE, Saudi Arabia, and South Africa, identified key blockers to the roll-out of commercial cards across these three countries, and also looked at ways in which these barriers could potentially be overcome. This article takes a deeper look at these challenges, how they can be overcome, and the importance of doing so to help companies in these markets achieve their growth aspirations.
Identifying the barriers
Despite significant growth, the CEMEA region still has not reached the penetration levels seen in other markets around the world. However, there is still a large growth opportunity. Our research identified three main barriers to adoption in the region.
The first barrier is the perception that commercial card use is only for travel, entertainment, and fuel related expenses or simply as an emergency payment tool. Outside of these three expense categories, the region sees cards capturing less than 20% of total expenditure. If not addressed, this perception could become a self-fulfilling reality, if corporates and banks do not make efforts to expand the categories used for card payments.
The second barrier is low card acceptance in many supplier and invoice categories. According to the study, four in five companies in the UAE report that less than half of their suppliers accept cards. Moreover, a significant portion of companies report strained or difficult relationships with their suppliers – 48% in the UAE, 56% in South Africa and 69% in Saudi Arabia. These tensions are often caused by payment-related issues and could indicate that current payment methods may not be working. Cards have the potential to help.
The third barrier is a set of concerns relating to security, fraud, and policy compliance of commercial card usage. In Saudi Arabia, 39% of organisations polled in the survey referenced security as being among their main concerns, the single most cited issue. In UAE and South Africa, they are also among the top three concerns.
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Banks are best-placed to educate their business customers around the value of using cards.
Overcoming the barriers
So how should the industry address these challenges? Given that these barriers arise mainly from a lack of knowledge and information, a significant part of the solution needs to be education, in a way that is tailored to the specific type of barrier or concern.
With respect to the first barrier, there are multiple examples that can be used to demonstrate the opportunities of using cards for strategic spend, beyond travel and expenses (T&E). In Saudi Arabia, according to our survey, tax, government payments, insurance, utilities, stock/inventory account for 40% of total monthly expenses of Saudi companies but cards capture no more than 10% of total expenditure in any of these categories.
The largest opportunities in South Africa are for tax, stock/inventory, professional services, courier/logistics, and government payments. These expenses make up just under 40% of total monthly expenditure yet cards currently capture no more than 7% of what is spent. Insurance, rent and stock/inventory are the most prominent opportunities in the UAE. Combined, these expenses account for half of total monthly expenditure of large companies. Cards are currently used only in a limited fashion for these expenses.
The second barrier, limited acceptance, can be addressed in part by recognising that banks often serve as both issuer and acquirer. Through commercial cards, they can often play a key role on both sides - helping issuers initiate transactions, and acquirers accept transactions. This alignment within a banking institution can be key in helping both the acquiring side and issuing side drive greater growth.
The third barrier, fraud and security concerns, can be addressed by sharing the security benefits of card. As an example, cards can help businesses ensure compliance and minimise fraud through the implementation of spend controls, allowing them to track account activity and closely monitor spending. With a commercial card approach, robust spend monitoring delivered through a powerful transaction management system can help mitigate fraud, enabling businesses to effectively take control of their business spend.
Companies can also exercise more control over spending through virtual cards, reducing fraud or non-compliance through pre-approval of spend. By issuing a virtual card with relevant controls, businesses can reduce misuse risk and increase control of both regular and ad-hoc payments, ensuring that each transaction is approved and monitored by the relevant department or business owner.
What is at stake?
Some of these challenges arise from a skewed perception of corporate cards in these markets. Our research also suggests these payment methods are still being regarded as secondary or potentially risky, by both buyers and suppliers. Work should be focused on changing this perception, and banks are best placed to educate their business customers around the value of using cards. Banks can encourage corporates to expand the use of cards to strategic spend, talk to suppliers about the benefits of accepting cards, and focus on how cards can help corporates minimise fraud and ensure compliance.
Once these barriers are overcome, then banks can also emphasise how commercial card adoption can drive other tangible benefits for businesses. These benefits include reducing reliance on cash, more efficiently managing expenses, improving spend compliance, and reducing accounts payable functions. Having access to business/corporate credit/charge cards can also aid cashflow management. Cardholding businesses across the three markets are notably more likely to find their cashflow predictable, compared to non-cardholding businesses. They are also less likely to fail to meet their business objectives due to insufficient cashflow. Each of these benefits helps to drive overall efficiency, and enable businesses to grow while maintaining effective control over their expenses.
This is critical across each of the markets. In South Africa, the survey indicated that maintaining margins and profit is the biggest challenge businesses face. 60% of respondents in South Africa said they plan to improve efficiency over the next 12 months, along with 57% in UAE and 50% in Saudi Arabia. In all three countries, improving efficiency is prioritised among the top two plans, a clear indication of the focus organisations have and a goal that can be significantly advanced by growing usage of commercial cards across these countries
Expanding commercial card adoption can help companies achieve these objectives, and banks can play a critical role in educating corporates on the benefits of card. Doing so will help to overcome some of the misinformation that hindered historical growth and will help drive growth for both banks and their clients.
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- Visa Commercial Payments Opportunity Study, UAE, Saudi Arabia, and South Africa, based on research conducted by RFi Consulting Group, September-October 2019
A significant part of the solution needs to be education, in a way that is tailored to the specific type of barrier or concern.
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