Making Change

Plastic-based credit card payment systems have pretty much been the norm for at least the past half-century. In that time they’ve undergone more or less gradual transformations – from credit to debit, from swipe and sign to chip and PIN, from bank cards to affinity cards, and now from real to virtual.

Between the rise of mobile and the emergence of digital financial services, it is likely that the way payments are made is about to undergo a revolution. For the business traveler, it could be the most significant change in managing corporate travel expenses since plastic credit cards overtook paper traveler’s checks as a medium of exchange.

But that’s par for the course in an industry that’s seen constant change and innovation, from the “charge cards” of the first part of the 20th Century to mobile payments today.

In the 1800s “credit tokens” created from fiber, paper, metal or coins are on record as the earliest forms of charge cards. The history of credit cards versus charge cards later took a momentous turn during a dinner conversation between an executive and a customer who was in a precarious financial predicament with department store and gas charge cards. At the end of the evening, the embarrassed executive found himself without the cash to pay for the meal and had to wait for his wife to bring money.

Frank McNamara, the executive in question, got the idea to make himself the intermediary, offering one card with a line of credit available across many business types and locations. Diners Club, as it would become known, replaced the numerous loyalty and charge cards typically found in the late 1940s. At the same time, travel for both business and leisure took off, leading to a boom in travel related purchases, further fueling the credit card expansion.

Now, the latest evolution in the card industry may soon involve the elimination of the physical card, in much the same way its credit token forebears disappeared.

A New Way to Pay

According to payments processing company Worldpay, 2016 is likely to be the year digital payments leave behind their growing pains, and alternative payment methods will surpass card-based payments and continue to widen the gap. Worldpay also predicts that digital wallets will overtake credit cards in the global e-commerce market by 2019, accounting for 27 percent of global turnover compared with credit cards’ share at 24 percent.

Of course much of this is due to the rise of consumer-focused digital payments,

such as Apple Pay, PayPal, Square, and Google Wallet, but it also means big changes coming to travel and expense payments, says Thomas Helldorff, VP of Travel and Airlines at Worldpay. “Think about taxi services; a lot of corporates have an account linked to Uber and within the app, a payments token is stored,” Helldorff says. “Mobile and tokenization are the future.”

Still, Helldorf notes that mobile and digital payments have not taken off as rapidly in the business world as on the consumer side, and much of that has to do with legacy payments processing systems many corporate entities use. “Most of the legacy systems cannot process new payment methods,” he says. “And business to business payments are still heavily reliant on credit cards.”

But Helldorf expects that many businesses will make the investment in the technology infrastructure to incorporate digital payments, mainly due to the benefits that the new system brings.

“It’s a trend we’re definitely starting to see, and it will continue,” he explains. “It’s more secure for businesses that way; there aren’t a number of physical plastic cards floating out there that can be compromised. It makes reconciliation easier for the travelers themselves, and in the back office, everything is integrated and there’s less paper involved.”

Further, as businesses send employees on more travel, and as more of that travel is international – particularly to developing countries – mobile and digital payments may be more universally accepted.

“Especially for countries where the credit card is not the main form of payments – in many up-and-coming economies like Brazil, India and parts of Africa – if businesses want to operate in these countries they need to look at alternative payments,” Helldorf says.

Digital payments will also continue to grow among business travelers and consumers alike as the world becomes more digitally interconnected, says Jud Staniar, vice president, global T&E product management at MasterCard.

“I think the curiosity of prior years is being replaced by genuine business interest and a recognition of the value that these payment technologies have,” Staniar says. “We’re in the midst of a global transformation as people are moving from the offline and disconnected world. This is the digital story of our time; everyone and everything is becoming connected. And this is transforming the way consumers interact – and now transact.”

According to Staniar, digital payment adoption could represent 20 to 30 percent of consumer payments by 2020. “The digital shift is the biggest change in payments – and biggest opportunity for MasterCard – since the introduction of plastic,” he continues. “In the next five years, we anticipate that we will see more change in payments than took place in the previous 50. And while much of this change is initiating within consumer payments, it will continue to move into corporate spending.”

One of the major motivators for corporations to invest in new payment systems is the superior security around digitized payments, Staniar says. “One of the core tenants of the digital payments ecosystem is the added level of security we can provide of account details and for each transaction,” he says. “Tokenization of credentials and the added layers of biometric security often incorporated into the devices, apps and commerce sites means that the risk of a data breach impacting cardholders or merchants is greatly reduced.”

Single-use virtual cards are also much harder to be stolen and used as a vehicle for fraud, says Dave Lukas, vice president and chief security officer for payments technology company Grasp Technologies. For example, a company can create a virtual token that can only be used for the exact employee who is traveling, and set the total amount that it can be used for across an entire stay – perhaps adding in a 10 percent buffer for incidentals.

“In that scenario, do you suppose a criminal would try and steal that and then pretend to be me to stay in that exact hotel for two nights?” asks Lukas. “Virtual payments are the ultimate management and protection mechanism in one.”

Further, he says, the use of digital payments also means the end of physical card numbers being scanned and copied and faxed between offices, he says. The paper-intensive aspect involved in the reconciliation process lends itself to fraud and theft, he believes.  

End of the Back Office Blues?

For the business traveler, digital payments offer convenience and efficiencies not available with the old corporate card. But it’s in the back office, where automated expense reporting is linked to mobile-centric payments, where the real revolution is taking place.

Back-end processes are becoming more mobile and hence more immediate. In fact, many businesses are starting to make a strategic shift, offering employees mobile solutions to make it easier to manage spend, says Deepak Seth, senior director of mobile product and strategy at expense technology provider Concur.

“With mobile solutions, employees have a more seamless, positive experience when capturing expenses, and in turn, the business benefits from increased efficiencies around expense processing, greater policy compliance and real-time visibility into spend trends,” he says. “Mobile also makes it easy to stay in compliance and complete tasks quickly.”

Though businesses and corporate entities have typically been slower in adopting cutting-edge technologies than individual consumers, that is beginning to change, however.  In large part this is driven by people wanting the same experience at work that they use in their personal lives, says Nicole Tackett, manager of emerging markets and virtual payments for U.S. Bank Corporate Payment Systems.

“Mobile capabilities can enhance a business traveler’s experience during and after the trip,” she says. “Such mobile capabilities in the B2B space mirror the ‘self-service’ concepts that users are getting more and more accustomed to as consumers. In their everyday lives they encounter – and increasingly prefer – interactive voice response systems, self-checkout at the supermarket, online ordering through places like Amazon and even making online reservations for restaurants. They expect that same kind of easy, intuitive experience at work. “

With the ability to upload mobile receipts and add out of pocket expenses, Tackett adds, business travelers can start the expense reporting process real time. In addition, notifications and alerts give the business traveler and the program administrator the ability to respond to issues near-real time and minimize any traveler friction. “As it relates to digital and mobile payments, businesses have the same expectations for convenience and ease of use as long as the proper control and security mechanism are firmly in place,” she says.

Dawn of the Third Age

In addition to benefits such as increased security and integration with back office systems, mobile and digital payments will continue to gain popularity in a business environment thanks to one simple fact: these platforms are skyrocketing in popularity on the consumer side. And business travelers are consumers too, and will want to use the same payment solutions in their professional life as they use in their personal. Indeed, Worldpay predicts we are entering the “third age of digital payments” where alternative payment methods will become nearly ubiquitous.

“The first age of digital payments kicked off with the e-commerce boom in the early 2000s when companies like PayPal and AliPay introduced e-wallets to the mainstream,” says Tang Kok San, vice president of business development in China for Worldpay. “The second phase coincided with the rise of the smartphone at the beginning of the decade, and we’ve since seen a proliferation of new mobile apps that quickly raised the bar for convenience in payments.”

Kok San added that with so many digital and mobile payment solutions available now, we should expect to see a winnowing down of the field over the coming years with a few players emerging victorious.

“However, with so many options being rolled out so quickly, a sense of app fatigue has begun to set in, leaving both consumers and merchants unsure of which approach is best and questioning the convenience of using multiple digital wallets,” he says. “I expect the next few years will see a consolidation of the market as the public homes in on their preferred payment methods and conscientious merchants feel more confident buying into technologies that their customers have already embraced.”

By Bryan Yurcan