Mastercard: Stay in Control - Jorn Lambert
FDE interviews MasterCard’s Jorn Lambert about the powerful features of corporate purchasing cards and how he believes they will develop as a way of cutting costs and boosting corporate efficiencies.
Corporate purchasing cards, a longestablished feature of US business, have been growing strongly in Europe says Jorn Lambert, group head of consumer and commercial payment solutions at MasterCard Europe.
The current economic climate is likely to make the case for using cards to dematerialise transactions and provide an end-to-end purchasing solutions.
‘There are four inherent benefits of using a card in the commercial space. The first is the cost saving associated with paper processing. The second is the generation of clear reporting, through to the third benefit: automatically feeding into a corporate’s ERP system. However, the fourth gain is often overlooked and that is the ability to enforce a spending policy, which can lead to huge savings.
‘Purchasing managers are there to get good deals and I am sure that they all do a good job of this. But if employees do not buy with those merchants, if they flout company policy, then much of that negotiating effort is wasted. There are not many ways to stop this happening and the purchasing card is by far the most efficient.’
But Lambert believes that while these key benefits are attractive, until now they have to some extent been outweighed by perceived disadvantages to card transactions.
‘One of the most important considerations has been that cards are a supplier-initiated payment. You give your card to a supplier and they decide when a payment will be made.
A lot of purchasing managers find that very uncomfortable. They like to be in the driver's seat themselves and they like to have “push” payments. They want buyer-initiated payments and they are nervous with the alternative.
This is understandable. The card payments are out there and who knows what the merchants are going to do with them? Purchasing managers need to have some leverage on their suppliers. And it is not just for cash flow control.
In the negotiations they want to say they are not going to pay until, say, 50 days unless the supplier gives them a 3% discount in which case they’ll pay within 30 days. If that trading component is not in the hands of the buyer anymore then, from a negotiation point of view, he feels in a bad place.
‘It is of course always possible that a purchasing manager can count on the supplier’s good faith and good will over the discount and payment terms that have been negotiated between them not to pull the payment before a determined date. But people can feel uncomfortable with this.
Trust may work with the top ten or twenty suppliers that do not really want to put a strategic relationship at risk. But what about the next layer of suppliers? How much of that trust exists there and how much is the purchasing manager prepared to rely on that?’
It has not been an impediment, says Lambert, otherwise commercial card-based transactions would not have taken off in Europe as they have. However, given the current economic environment, everyone is trying to get their money as soon as possible, while at the same time everyone wants to have a very tight control on when the cash is going out.
‘Related to this, there is obviously the overall concern about merchant or third party fraud. The moment you decentralise your spending and give cards to your employees there is a risk around it. Once again, this goes very much against the grain of a purchasing manager, who does not like the idea of anyone except him or herself being able to spend company money.’
Another challenge, believes Lambert, is the reconciliation of card purchases at the back end.
‘The moment multiple people have cards in their hands, the job of reconciling the actual original purchase order, the card payment transaction and the invoice and the delivery slip altogether, can prove a challenge which ideally should be automated.’
MasterCard’s first European roll-out of inControl last year in the UK with the Royal Bank of Scotland addresses all these three challenges.
‘The supplier-initiated payment is resolved because, as a transaction with inControl is initiated, it is actually the buyer who decides that this single-use card number will only be used at that merchant and on that date for that amount,’ explains Lambert. ‘So they get the same sense of security as with a buyer-initiated payment. They can also decide as a buyer when that merchant can receive payment and, even if they wanted to pull the payment any time before the agreed date, they are not able to.
‘At the same time, inControl also addresses maverick spend on the part of employees or by the merchant or third party, because again we put all those controls on that single-use card number. This means that neither an employee nor a merchant, nor indeed a third party can actually do something else with it other than make that specified purchase for a specified price on a specified date.
‘Because you are purchasing with a single-use number, that actual 16-digit card number becomes a reconciliation key between the purchase order and the back-end statement that comes in.
So reconciliation is hugely facilitated and automated if the company want to link with its ERP systems using MasterCard’s Smart Data. The reality of adding inControl to an existing proposition is that it adapts the card to a corporate accounts payable reality, rather than trying to retrofit a payment card to a corporate procedure.
‘That is where we are coming from with inControl and why we believe it can make the purchasing card mainstream for purchasing managers, rather than peripheral, where it has been for much of the time.’