Commercial Card Rebates in the U.S.: A Wild Ride

For years I have wondered how U.S. card issuers could sustain the very generous revenue share incentives offered to eligible end-user organizations. I have come to realize, though, that Commercial Card rebates are not as simple as up and down. There are twists and turns on this ride, and there is a bigger question and better option—beyond basis points—that deserve our focus. Keep reading to see what is it, including a that-was-then/this-is-now comparison.

That was Then

Revenue share began modestly with U.S. card issuers in the 1990s typically offering organizations well under 100 basis points as the maximum possible incentive. The structure tended to be one dimensional; a program had “X” dollars in total annual card spend, so it earned “X” basis points. Rebates did not garner much attention, at least not until organizations experienced their first check (or ACH) payment. Purchasing Card programs were originally sold—and implemented—for their ability to revolutionize the procure-to-pay process and yield substantial process savings. In the previous post, Mark Silverman of PayTech Group described how other countries still focus on the broader value of card programs, not rebates.

This is Now

Today, the maximum possible revenue sharing incentive for eligible organizations might easily exceed 100 basis points for “regular” purchases; that is, transactions not associated with a special low interchange rate, such as large ticket, as defined by the different card networks. I asked Mark why he thinks revenue share has climbed so steadily in the United States and he noted, “As long as we keep calling commercial cards ‘cards,’ business customers will continue to expect the rewards or rebates they expect on the consumer side.” Certainly, the demand by end-users is there.

As for the supply side, issuers have responded by being generous, but some Commercial Card programs are too small to have any revenue sharing opportunity (based on the particular criteria an issuer uses). Modest-sized programs are usually offered modest incentives. And on it goes. This leaves just a portion of end-users that have crazily high basis points on the table.

Nevertheless, the demand has, in many cases, turned an end-user’s request for proposal (RFP) process for a card issuer into a bidding war. Some select an issuer primarily or even solely on monetary incentives, sadly overlooking issuers who cannot offer as much money, but still offer much in terms of service and technology. Then I wondered, regardless of what is offered and to whom, what percentage of the collective rebate-is-possible organizations actually earn the top tier specified in their contracts?

I spoke to one industry expert whose data indicates around 22% of companies hit the top quarter of tiers (above the 75th percentile). The majority of end-users fail to fully capture what their issuers offer, thereby keeping the lucrative revenue share offerings sustainable, at least for now. Do end-users not care as much about rebates as it would appear? Do they actually place more value on the other benefits of card programs, which Mark touched on in the previous post? Unfortunately, I don’t think so, as the buzz around rebates has not died down. This leads to the bigger question.

The Bigger Question

Why have so many end-user organizations failed to maximize their Commercial Card programs to take advantage of all the possible benefits, including earning the highest tier of revenue share offered to them? On top of it all, issuers are increasingly beefing up their services (e.g., helping end-users on-board suppliers) and providing more robust technology solutions for program management. The benefits are almost too good to be true. Instead of speculating about why end-users fall short (but it really boils down to decision making), I’d rather provide some tips on how they can improve.

Tips for End-users

The following serves as a starting point.

  1. Hire the right person or people to manage the program. A strong foundation will support growth and naturally lead to reaping more benefits.

  2. Bring the stakeholders and decision-makers together, ensuring they understand all the benefits of Commercial Cards and where the organization is currently missing out.

  3. Paint the picture of what the procure-to-pay processes would look like (and cost) without cards.

  4. Strengthen the relationship with your issuer. If they will not help you optimize your program, it might be time to think about seeking a new partner.

As interchange, and therefore rebate structures, become more complex, it is more important than ever for U.S. organizations to change their focus. Committing to improving process efficiencies and adopting electronic payments whenever possible is the best ride of all—one that can be sustained no matter what the external/market forces.

U.S. Commercial Card rebates have been on a wild ride. The industry would be better served by refocusing on process efficiencies, which is the best ride of all.

U.S. Commercial Card rebates have been on a wild ride. The industry would be better served by refocusing on process efficiencies, which is the best ride of all.

About Interchange

As a refresher, card issuers earn interchange revenue, which help fund rebates to end-users. Interchange is the largest component of the fee suppliers pay for card acceptance. (See more about card acceptance fees). Lower interchange means less revenue for issuers to offer to end-users in the form of rebates. However, the benefit is, it can make suppliers more receptive to card payments, including purchases at higher transaction amounts.

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About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more