Do misperceptions impede card program growth?

March 17, 2015 Lynn Larson

How good are we at assessing Commercial Card risk? Broadly speaking, research shows we hold numerous risk misperceptions. Consider the study in which people rated a 12.86% mortality as more dangerous than 24.14%. Huh? This stems from research by Kimihiko Yamagishi Ph.D. in 1997. People tended to rate a disease that kills 1,286 people out of every 10,000 as more dangerous than one that kills 24.14%. Our minds can play tricks on us, impacting all types of decisions, including on the job.

Risk Psychology

In The Organized Mind, author Daniel Levitin commented on Yamagishi’s study outcome, observing, “In the first case, people focused on the number of people, likely imagining that many people in hospital beds. With a percentage, our brains tend to treat it as an abstract statistic with no human beings attached.”

Could we benefit from a mind metamorphosis? Do we always see what is in front of us or is our vision focused on one thing?

In a January 2013 article published by The Pump Handle, author Sara Gorman explored the work of psychologist Paul Slovic, who championed the psychological approach to risk perception theory. She shared, “Early research on risk perception assumed that people assess risk in a rational manner, weighing information before making a decision... Subsequent research has demonstrated that providing more information alone will not assuage people’s irrational fears and sometimes outlandish ideas about what is truly risky.” Further, “People tend to be intolerant of risks that they perceive as being uncontrollable, having catastrophic potential, having fatal consequences, or bearing an inequitable distribution of risks and benefits.”

Contributing Factors

Last October, Robert Leahy Ph.D. wrote the article, How Panic Spreads With Fears of Ebola, including 11 factors that contribute to misperceptions of risk. I noticed some similarities to our industry. Here are two examples from Leahy; read the complete article for more:

Recency

The more recent a negative event, the more likely we think it will happen again—and soon. Recurring media coverage of card fraud and related data breaches tend to cause knee-jerk reactions. Management might use such news to rationalize additional card restrictions without first considering the facts or internal impact.

Invisibility is Threatening

Our threat-detection system treats an invisible threat as a greater risk. If you can’t see it, you think you can’t prevent it. You can’t necessarily see card fraud coming, but you can assess your card programs for control gaps. Do a risk analysis. Most organizations who experience internal fraud and card misuse lack appropriate controls and/or enforcement.

Leahy concludes by suggesting, “When you are listening to the news, think about the fact that there are 325 million people without Ebola here.” Use the same advice on the job. Thousands of organizations use Commercial Cards without major incidents. Industry research (e.g., studies by RPMG Research) has consistently shown good news. The majority of organizations suffer no direct losses from P-Card fraud, internal or external.

Need help garnering program buy-in? Visit the related webpage.

“Thoughtless risks are destructive, of course, but perhaps even more wasteful is thoughtless caution, which prompts inaction and promotes failure to seize opportunity.”

— Gary Ryan Blair

A Lighter Touch

Risk psychology/perception theory is serious, but interesting, stuff that helps explain some organizations’ aversion to Commercial Cards. However, I also appreciate the unencumbered thinking of children, which can often teach us a thing or two as well. Take an example from hilarious homework answers from kids. In response to the math homework question of “find the difference between 8 and 6,” one child wrote that eight is all curly, six is not. Based on how the question was phrased, this is not incorrect. While the teacher was looking for 2 as the answer, the child saw something else. It reminded me that problem-solving, including assessing risk, is not a one-dimensional exercise.

How Does a Child See It?

Does this call for a mathematical calculation or artistic critique? Perception is in the eye of the beholder.

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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Do not bury your P-Card tax skeletons.

March 2, 2015 Lynn Larson

Trying to hide from auditors or cover up a poor tax strategy? Lack of an effective process puts your organization at risk of a use tax assessment that could reach or exceed $1M. Because P-Cards are associated with a different purchase-to-pay process than other payment methods, they also require a different approach to managing U.S. sales tax compliance. While tax is not a topic many people embrace, you can satisfactorily address it. To help you improve, I consulted with tax veteran Greg Anderson, Application Design Resource, LLP (ADR), to compile the following plus additional tax content.

Compliance Begins with Teamwork

Greg observed that, most of the time, the P-Card program management team and the internal tax group never communicate. Like cats and dogs, they do not typically understand each other’s worlds or establish a relationship. For instance, the tax folks do not know what type of P-Card data is available, which is unique compared to other payment methods, so they do not know what to request when trying to resolve an issue. If you manage a P-Card program, do not assume that the tax group is handling your tax compliance. Schedule a meeting with them today.

Are you prepared for a tax auditor to dig into your P-Card program?

The Auditor is the Alpha Dog

Understand that the auditor’s job is to make sure your organization accrues the correct amount of use tax on taxable purchases for which the supplier has not collected sales tax. A tax assessment to your organization will occur if the auditor cannot find documentation of either the payment of sales tax or the accrual of use tax; for example, if receipts or images are not available/missing or no longer legible because of mishandling or fading.

Implement an Effective Process

If your organization does not have an established tax compliance process for the P-Card program, you could find yourself scooping up the remains. The auditor’s only option is to work with a larger sample and request hundreds of receipts for the full statutory period. This can be frustrating and time consuming for both the auditor and your organization. Larger samples may also include more errors, which increase the amount of the assessment.

Learn from the Tax Audit Results

While very few people enjoy a tax audit, it is no reason to bury your head in the ground. Through the results, the auditors are giving you a bone that can be a valuable contribution toward making your program more tax efficient. If your organization receives an assessment, ensure you make accruals on those purchases going forward. If the auditor found over payments—your organization was accruing use tax on transactions where the supplier was already collecting sales tax—end that practice going forward.

Additional Tax Content

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I hereby renew my vows to card acceptance.

February 10, 2015 Lynn Larson

The term irreconcilable differences is often associated with divorce, but it also applies to the ongoing battles over card acceptance fees. I find the related litigation tiresome, so I am offering a different perspective below. However, I also share some litigation/regulation highlights elsewhere on my website, including something new from Colorado.

My Card Acceptance Experience

With Valentine’s Day looming in the United States, it seemed appropriate to use this blog post to declare my love of card payments from a supplier’s point of view. I do not receive the lowest fee out there, but, considering various factors, I would not expect royal treatment. I simply expect a fair deal. Rather than focusing on the fee alone, I view my entire value package—namely, electronic payments that I do not need to touch and a no-surprise, consistent fee. I am grateful, not disgruntled like many suppliers.

Relationships Can Go Wrong

I realize other card acceptance relationships might be rocky, even if they started blissfully. The romance can fade. There are suppliers who outgrow their acquiring partners and the initial deals. Others are wooed by rates that dazzle and cause an immediate attraction. Such rates could be masking an ugly side—low fees that are unattainable most of the time due to corresponding requirements a transaction must meet. If something looks too good to be true, it is worth uncovering the faults before committing.

Suppliers who have already committed to a tedious and/or unfair fee structure should weigh their options. Renegotiating a better deal might be possible. If the partnership cannot be saved (here enters irreconcilable differences again), the supplier should seek a business divorce and move on.

I have a business owner friend who did just that. He initially pursued card acceptance with his bank; it was a natural choice given the banking relationship. However, it quickly proved to be the wrong choice. A couple $1,000 transactions from two different customers ended up incurring fees amounting to nearly 7%! The same thing could have happened with a non-bank partner. The devil is in the details. Fortunately, this story has a good ending. He later switched to a different card acceptance route that works better for him.

For suppliers, the key to loving card acceptance lies in finding the right acquiring partner and appreciating the entire value package.

Advice to Suppliers

In the business-to-business (B2B) payments world, it is critical to find an acquirer who specializes in this space; Commercial Cards are unique and have more complexities. I invite industry providers and others to expand on this advice in the comments section below, but no bashing of another provider, please!

A supplier always has the option of forgoing card acceptance altogether, but other payment methods have costs, too, and other drawbacks. Suppliers tend to forget this. I encourage any supplier who is dissatisfied with card acceptance to channel their energy into:

evaluating the entire card acceptance value package for their business
understanding and calculating the costs of other payment methods
finding a different acquiring partner, if necessary

Let’s show a little love for the positive things payment cards have allowed businesses and consumers alike to do. If we really need to become riled up over something, look no further than the industry with unpredictable, ever-changing pricing; excessive fees; an unpleasant environment for customers; and inconsistent service. Need I say more? Airlines. They give everyone plenty of reasons to be disgruntled.