The Corporate Payment Cards Market in Mexico
In Mexico, the adoption of corporate payment cards has been limited in the main to senior executives of major corporations, although recently it has also begun to spread into small- and medium-size enterprises (SMEs). Nevertheless, few banking and financial institutions offer corporate cards today. There are four bank issuers, of which three offer corporate credit cards and one offers debit cards and one financial services company, which markets several corporate products, including gasoline, purchases and meeting cards. Companies must have an impeccable record and hold accounts with these institutions in order to benefit from these services.
In spite of these limitations, the use of corporate payment cards in Mexico has grown. As well as additional companies obtaining cards, existing corporate card users are using their cards more. For example, as Business Wire reported recently, more than 150 Banamex corporate clients using Visa Commercial Solutions in Mexico experienced a cumulative average growth rate of 102% in total sales volume since 1999. Such growth has probably come from the sources suggested in last year’s ‘Global Commercial Payment Cards: Cutting Costs and Boosting Control on a Global Stage’ survey by Aberdeen Group, sponsored by Visa Commercial, which indicated that Latin American organisations expected the factors to drive growth would be: the number of employees given a card (56%), increasing travel budgets (approximately 60%), and the expansion of spending to non-travel-related categories (53%).
The Aberdeen Group study found that nearly 70% of respondents said visibility into corporate spend was the primary reason for implementing card programmes. As well as giving visibility of expenditure, these cards benefit companies by avoiding the need to give employees cash in advance for travel and other expenses, which gives better control over spending and decreases financial costs. Using corporate cards to pay for regular purchases like office supplies and other day-to-day requirements enables the users to defer payment for several days, regardless of the supplier and volume/value of purchases, with a consequent improvement in cash flow. These advantages are particularly important to SMEs.
Until a couple of years ago, credit and debit cards were not accepted in most of the petrol stations in Mexico. This situation influenced companies against giving cards to their executives and meant that they had to provide them with paper bonds or other means of payment. However, today, cards are accepted in most of the stations, which has given an important impetus to the spread of corporate payment cards. The cost of gasoline is tax deductible and corporate cards have simplified the process of calculating these deductions, saving management time in administrative and financial departments. Jan Smith-Ramos, of InfoAmericas, has recently estimated that the efficiency gains and decreased fraud attributable to fleet/fuel cards can save companies in Latin America up to 15%. Given that another significant finding from the Aberdeen Group study was that 86% of companies around the world identified the reduction of administrative costs as the number one priority for commercial card usage, the opportunity to reduce costs related to calculating tax deductions should help drive corporate card growth in Mexico. Having access to a tool that simplifies this process is of vital importance to small companies as well as to major ones.
Further growth in the use of corporate cards will come from their use for payments outside of the traditional travel and entertainment area. According to the Aberdeen Group’s study, in Latin America, 83% of companies plan to use cards for advertising and marketing services and 53% are looking to expand commercial card use to non-travel categories as a means of driving growth.
It is important that companies establish policies, procedures and checks governing the use of their corporate cards to ensure that employees do not use the cards for unauthorised or fraudulent purposes. The introduction of ‘chip and PIN’ EMV cards in place of magnetic stripe/signature cards significantly reduces the risks of employees falsely repudiating transactions and also of third party fraud, by obviating card cloning. This reduction is of benefit to companies in that it avoids the significant administrative overheads that typically arise in investigating fraud related problems and liaising with card issuers to resolve them.
For the future, the advent of EMV card-based prepaid and pre-authorised products offers opportunities for issuers to provide corporate card products that place a firm limit an employee’s potential spending that is effective even when the employee is travelling in regions where offline authorisation is prevalent. (Whereas a magnetic stripe charge card could be used offline under a terminal’s floor limit, and potentially cause its credit limit to be exceeded, an EMV card used in an EMV terminal is authorised against the limits set on the card by the issuer.)
As well as providing corporates with a way of ensuring that their employees’ spending is strictly limited, the credit and fraud control benefits that are gained by the issuing banks may persuade them to be more relaxed in their issuance policies and extend the benefits of corporate cards to a wider range of companies. These products also create new opportunities for corporate card usage; for example, prepaid cards can be used as salary cards. Salary cards are particularly useful in countries where a high proportion of the workforce is unbanked and in industries that have high staff turnover rates.
In April, Visa Latin America and Caribbean announced that over the last four years the number of Visa cards for businesses and public sector institutions in Latin America grew at a compound annual growth rate of 27% and Visa commercial cards generated US$1.5bn in annual sales volume. In Mexico, we can expect to see further significant growth in corporate card usage as more corporates seek cards and existing corporate card users broaden their use of the cards into new areas of spend. Hopefully, this growing market will persuade more banks to issue corporate cards and increase competition in the market for this business.