According to the European Central Bank, non-cash payments in the Eurozone are worth €167.3 trillion. Meanwhile, card payments accounted for 47% of the total number of non-cash payments. [1] With this data alone, we can see that cards are big business in Europe.
But how is this translating into the corporate payment scene?
We’ll be taking a look at that question today as we answer: Why is corporate card usage growing in Europe? But first, let's cover the basics.
What are corporate cards?
Corporate cards are credit cards that are issued to companies, rather than an individual. Whether you know them as commercial credit cards or business credit cards, they all serve the same purpose: paying for authorized business expenses like corporate travel and procurement.
They come in many different forms:
(Plastic) corporate card
Corporate cards are just like your typical credit card – to be used online or in-person. They can be linked to a company account or an individual employee's account.
Virtual corporate card
Virtual cards come with everything you need to make a purchase (i.e. card number, expiration date, CVC code) – except the card itself. A the name suggests, these come in digital form and can be generated as needed.
Lodge card
Lodge cards are very similar to virtual cards in that they are digital. However, what makes these stand out is that they are lodged at an external service provider like a travel agency, where they can be used to cover the costs associated with business travel.
Now we know what they are, but why are they important? Put simply: they make it easier to make and manage these payments.
Why use a corporate card?
For the employee making the payment, it means they no longer have to pay using their personal cards and then being reimbursed. For the finance team, it means better transparency and control over the payment process, helping to reduce payment fraud and the like.
You get the idea - they are specifically designed to accommodate the needs to businesses when it comes to payments.
So why are they so popular in Europe?
Payment card usage in Europe
Across the board, card usage has been increasing year on year amongst the general population of Eurozone countries. [2]
Of course, we need to highlight the role of the pandemic in this trend. Cards grew in popularity at the expense of cash, contactless payment limits increased substantially, and adoption of card payment facilities expanded.
At the same time, lock downs lead many to avoid the shops altogether. E-commerce channels are built around the use of cards, especially when it comes to digital wallets. By 2024, almost 30% of online payments are expected to be made through digital wallets. [3]
Card payments are arguably the optimal means of payment on e-commerce platforms
But it's worth mentioning that while the trend of growth is homogeneous, the same can't be said for all aspects. Let's look at the types of cards used as an example.
A fragmented market?
In countries like the UK, Ireland, Turkey and Greece, there is widespread usage of both credit cards and debit cards. But elsewhere on the continent, credit cards are much less prevalent. By some estimates, the number of debit cards outnumber credit cards by a ratio of 2.21 to 1, up from 1.81 to 1 five years ago. [4]
It's safe to say that the European market is still rather fragmented when it comes to payments. Sure, there is promising growth when it comes to cards, but in other areas, like the types of cards used and where they are used (online vs in-store), there is still a difference in preference.
It is difficult to say why this is the case. Cultural factors certainly play a part in this, as does the the lack of lucrative rewards offered for use of credit cards as seen in the US. The differing payment infrastructure in each country is also worth a mention.
But how do things look on the corporate side?
Corporate card uptake in the region
European businesses are well known for their more traditional payment practices.
In 2020, 88% of the companies we surveyed in Germany and Switzerland were still paying for online and ad hoc purchases using an account or via bank transfer. 35% had employees paying the costs upfront and reimburse them later. [5] These procedures are particularly time-consuming, and far from efficient.
But things are changing.
By 2019, 68% of European organizations surveyed commonly used corporate cards, a number above the world average, even if slightly. [6] And this number is only set to grow – especially when considering that corporate cards only account for 10% of total payment card volume in Europe.
But Europe is a big place and not all countries are growing at an equal rate. So where is this growth happening and why is this the case?
Where is the growth taking place?
As you may imagine, Western Europe has already seen a significant uptake of corporate cards over the last decade or so. At this point, we can see that that growth has mostly leveled out. We need to turn our attention to another up and coming area of the continent: Eastern Europe.
Why (Eastern) Europe?
Globalization, improving infrastructure, new investments - there are many reasons why this is occurring right now in the East of Europe. Perhaps the biggest reason behind this shift is the EU.
As several countries in the East have joined in the last 15 years or so, they have slowly been able to make use of the support from EU regulations and financing.
This means they have been able to improve infrastructure, reduce fraud, build trust and ultimately grow their credit card usage. [7] There is, however, still a clear divide between the two sides. This means there is more opportunity for growth.
But what does this have to do with corporate cards? Well, it stands to reason that this growth will lead to a better credit infrastructure, which makes it easier to access and use corporate cards in the region. And that's not all.
Why corporate cards are on the rise
As well as the new opportunities we have mentioned, there are more general reasons that can help explain this latest trend.
Consumerization
The payment landscape if going through a transformation right now. Thanks to innovations by fintechs and the pandemic, new and easier ways to pay are appearing on the scene. Mobile payments, virtual cards and invisible payments are prominent examples.
However, a lot of this innovation is occurring on the consumer side. Businesses are naturally more skeptical of adopting new payment methods due to concerns over safety, privacy and compatibility with internal payment flows.
This is causing a widening gap between how employees are making payments in the office compared to privately. This naturally leads to some to ask whether these easier payment methods can be adopted. That leads us onto to our next reason.
Employee preference
Another important reason for this is that both travel managers and the business travelers themselves prefer to pay for work travel expenses with a company credit card. We are talking more than half of business travelers (61%) and over two thirds of travel managers (71%). [8]
Business travel expenses make up a large portion of corporate card usage, meaning there is a clear preference to the adoption of corporate cards over the alternatives.This is only being pushed further by the developing ecosystem - specifically with the adoption of smart POS technology.
Add to that the expected increase in the cost in business travel, along with the expected increase in the amount businesses will travel, and you can start to see why employees prefer the ease and efficiency of corporate cards.
Optimization
When we asked 238 corporate professionals what their most important purchasing priorities since the pandemic were, 'cost reduction' came in at a solid third place.
The concept of 'spend better, not less' is not exactly new. Far from it. Businesses are always looking for ways to save and optimize processes, and yet they often overlook the payment process.
The example of long tail ad hoc spend is a big one here, where a centralized payment method like corporate cards can really make a difference. In fact, although they account for only about 20% of the total volume, these ad hoc expenses are responsible for 80% of the administrative costs associated with indirect purchases.
That's a lot of bother over a small amount of money – the very definition of inefficiency.
Inherently useful
Beyond these reasons, corporate cards are simply becoming the preferred option when it comes to paying for business expenses.
They offer several inherent benefits:
- A system that integrates with your expense management software.
- Automation of reporting processes, bank reconciliation, etc.
- Improved management.
- Insurance coverage included with the card, such as travel insurance and reimbursement guarantees in the event of fraud.
As the economy of the region grows, it just makes sense that they will take up opportunities such as this to improve their payment processes and just overall facilitate business payment, whether for business travel or otherwise, better.
How have regulations impacted this?
With the implementation of Payment Services Directive 2 (PSD2), Strong Customer Authentication (SCA) has taken hold with a big splash. In fact, SCA is even starting to shape how we make payments.
In the corporate world, where topics like fraud are evermore important, reception of this regulation was mixed. However, what can be agreed on is that it helped spur new developments and innovation. Corporate cards are now straddling the line between the physical and digital worlds.
Whether in the form of virtual cards or simply through digital wallets and applications, they're evolving along with the needs and wants of travelers on the road and procurement teams alike – even when working remote.
And with business travel coming back, more and more travelers will be back hitting the road. This will further fuel the uptake of cards – both debit and credit - as they greatly simplify the payment process online. The same can be said about the growing need for cross-border payments.
We can see this trend taking place worldwide, but especially so in Eastern Europe, where penetration was not as widespread as in the West.
Will this trend continue?
As the market matures and businesses begin to find new opportunities that necessitate travel and other corporate expenses, this trend is very likely to continue over the next few years.
Corporate travel isn't going away, and its growth will add to the use of corporate cards in Europe.
And with more countries slated to join the EU and thus work more closely with other countries in the union, they will need to rework their corporate payment processes, which would likely include the adoption of corporate cards.
The latest trends like open banking may also play a big role. In that case, it is up to the card provider to ensure compatibility with the concept to provide better efficiency to the cardholder.
All of this would further benefit corporate cards, making them more attractive as an online payment method.
Will East Europe follow the same trajectory as its Western counterpart did before it? It is hard to say, but it certainly seems that corporate card uptake in Europe will continue to grow substantially.
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Banner photo by Guillaume Périgois on Unsplash
Photo by rupixen on Unsplash
[1] https://www.ecb.europa.eu/press/pr/stats/paysec/html/ecb.pis2020~5d0ea9dfa5.en.html
[2] https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000521274/Payment_choices_in_Europe_in_2020%3A_Convergence_at_.pdf
[4] https://www.paymentscardsandmobile.com/european-payments-in-2021-cards-remain-no-1-for-consumers/
[6] https://www.businesstravelnewseurope.com/Management/-Majority-of-programmes-use-corporate-cards
[7] https://www.statista.com/statistics/968220/credit-card-ownership-rate-european-countries/
[8] https://skift.com/insight/skift-report-state-corporate-travel-expense-2021/
