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

Are U.S. Card Programs Focused on the Wrong Things?

Sometimes it is hard to know what we are missing unless we look beyond our own borders. In the United States, we often focus on just one or two benefits of Commercial Cards, such as revenue share, and lose sight of the valuable big picture. Not so in other countries, as described below in the article by Mark Silverman, PayTech Group, What the U.S. Commercial Card Market Can Learn from the Rest of the World. Recharged Education invited Mark to share some of his vast global insights, so we can all broaden our horizons and, in the process, strengthen our card programs.

What the U.S. Commercial Card Market Can Learn from the Rest of the World

by Mark Silverman, PayTech Group

U.S. commercial card usage, both for physical cards and virtual cards, continues to grow at a healthy pace year over year. The marketing of these product lines in the United States relies heavily on two factors:

  • The dominance of checks, which are perceived to have fewer advantages than card-based solutions, in the B2B payment space (roughly 50% of all U.S. business-related payments are still made by check)

  • The continued reliance on aggressive rebate/revenue share back to the end-user organization

What’s interesting is that these are two advantages that most other commercial markets in the world are not able to take advantage of. In many if not most European markets, the dominant B2B payment methods are already electronic, not check based. And the financial incentives that corporates receive in markets outside North America are nowhere near the 100+ basis point levels seen in the United States. The pillars for success in these global markets include:

  1. A focus on capturing transactions versus volume ($) 

    Without the ability to look primarily at card programs as having a straight financial benefit, the value then shifts to other benefits that are more volume agnostic like compliance (e.g., travel/purchasing policy) and fraud mitigation, where the benefits of capturing a small transaction via card are equal to a big-ticket item.

  2. More emphasis on T&E 

    Similarly, in the U.S. where rebates are king, there is often an emphasis—both from buyers and sellers of card programs—on big-ticket payables when it comes to implementing a card program. Conversely, in other markets like Europe, T&E card programs have not lost their prominence in relation to AP spend.

  3. Marketing of card programs as a technology solution   

    This is also related to overseas providers’ inability to sell card programs purely as a rebate-centric solution to the end-user. For payables-based solutions, these companies have to rely on other benefits and, in most cases, especially among FinTechs, the way these offerings are marketed often revolve around their respective technology.

Similar to other industries, in commercial payments the U.S. is often seen as somewhat of a front runner. Yet as regulatory and market pressures here continue, the U.S. might be best served to look abroad to “future proof” the marketing and selling and buying, of commercial payment solutions.

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About the Author

Mark Silverman is a Senior Consultant at PayTech Group, a payments advisory and consulting firm, specializing in helping both issuers and buyers of commercial payments via engagements ranging from sales effectiveness to research to vendor selection. He has shared his expertise in commercial payments while chairing and moderating panels at payments conferences sponsored by EuroFinance and NAPCP. Prior to consulting Mark spent several years at both American Express and U.S. Bank in a variety of leadership, business development and marketing roles. Mark can be reached at mark@paytech.no.

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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. 

Where do rebates rank?

I started in the industry when cards were all about convenience, but it did not take long for rebates to take center stage. This has shown no signs of slowing, which is why recent emails in my inbox intrigued me. One referenced a study about surprising consumer attitudes toward credit card rewards. Another email had an eye-catching subject line: ‘Rebates are toxic’—do you agree?     

Consumers vs. Organizations

Last month, the results of a 2015 Bankrate Money Pulse survey made headlines with these statistics:

  • Only 14% of American consumers noted that points and cash back are their major driver of card use

  • 51% of respondents would continue to use a card in the same manner as before if their issuer eliminated rewards*

I am certain that the results would be very different for a survey aimed at Commercial Card users. Why don’t our consumer views carry over to the workplace? 

What if rebates were not as visible?

What if rebates were not as visible?

*On a related note, at least two European issuers have cut consumer credit card rewards in light of new debit and credit interchange regulation in the European Union (excludes Commercial Cards). 

Industry Perspective

The “rebates are toxic” email was from Commercial Payments International (CPI). They are generating a discussion now in preparation of their fall Global Commercial Cards & Payments Summit during which they plan to tackle this sensitive topic. 

I would not necessarily say rebates are toxic (nor did CPI claim this as their belief), but I previously wrote about the dark side. I questioned how long the high levels, especially in the United States, would be sustainable. Even without U.S. regulation of credit interchange, banks/issuers face pressures stemming from other regulation. Yet, I recognize no one wants to be the first issuer to cut back on rebates. It is an interesting topic, so I applaud CPI and their partner EuroFinance for being willing to discuss it.   

A couple years ago, I had a hypothetical conversation with an end-user about what would happen to their traditional P-Card program if rebates were reduced. He quickly replied that they would decrease or even cease card usage. In reply, I observed this would cause a huge increase in work for their accounts payable staff (e.g., handling invoices for every purchase, most of which were under $2,500, and setting up all suppliers in the AP system). He initially overlooked the bigger picture, but then acknowledged the value of Purchasing Cards even without the rebate. How would your organization react? 


What You Can Do

I do not know where rebates will be in the future. Everything might remain as-is. Regardless, I do suggest that organizations routinely evaluate the other benefits gained from Commercial Card usage. For a review, see benefits of Purchasing Cards, and benefits of electronic payables and how they compare to P-Cards. As an end-user, make metrics a regular part of program management to ensure your internal decision makers are aware of the advantages. Industry providers can play a role by helping end-user customers measure the status of their card programs and identify improvement opportunities.  


About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more

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