Viewpoint: Why Prepaid Expense Cards Matter
By Alex Liu, Bank of America Merrill Lynch
Commercial credit cards are a great option for frequent business travelers and employees who need to make purchases on behalf of their employers, however there are many situations in which the credit may not work. Business expense prepaid cards can fill in the gaps when credit, cash or other business payments aren’t ideal. Prepaid works well in cases where employees are traveling unexpectedly—think utility workers after a natural disaster—or when employers want a little more control over how much is spent and where.
This vertical market for prepaid is young, but Bank of America Merrill Lynch sees many opportunities for business expense prepaid to work alongside traditional corporate payments, such as commercial credit cards, ACH, wire transfer and paper checks. Although Mercator Advisory Group hasn’t tracked specific statistics for business expense prepaid yet, the consultancy plans to investigate the size of the market. Ben Jackson, director of Mercator’s prepaid advisory service, says business prepaid is an untapped opportunity that makes sense for certain companies and use cases. Tapping into that opportunity will require good product features, such as instant funding and being able to pull money back off of cards, as well as finding the right kinds of businesses, he suggests.
Identifying the Opportunity
|“One of the greatest benefits prepaid cards provide is that they can be issued to any employee, contractor or agent without a credit check. Prepaid also helps to reduce certain risk factors that come along with paper payments.”|
To understand where prepaid fits in the business payments landscape, the best place to start is with its benefits. Prepaid offers several benefits to employers, including helping to eliminate costly paper payments and offering a solution for employees who don’t qualify for a commercial credit card because of infrequent use, risk or an employer’s comfort level. Some employees prefer to use their own rewards credit cards for business expenditures and wait for reimbursement. But not every employee is able to use personal cards for business either because they don’t have one or they don’t have a large enough credit line. One of the greatest benefits prepaid cards provide is that they can be issued to any employee, contractor or agent without a credit check. Prepaid also helps to reduce certain risk factors that come along with paper payments. The cards also may be loaded instantaneously and only with needed funds. Employers may add funds remotely and in real-time or remove funds when no longer needed. According to the 2015 AFP Payments Fraud and Control Survey, 62 percent of companies were targets of payments fraud in 2014, 77 percent of which was related to check fraud.
What’s more, an administrator can monitor transaction activity and review reporting, typically from a similar online interface to what they use for monitoring and initiating other business payments. Some of our clients take advantage of Merchant Category Code-blocking capabilities, so the business expense prepaid cards—like some of their credit counterparts—can only be used at approved locations, such as for transportation expenses.
In addition to the utility worker example above, prepaid has proven to be a valuable solution for university athletic teams that travel for games. The coach typically has a commercial credit card, but prepaid provides a payment tool for student athletes. Rather than the coach handing out thousands of dollars in cash to students before a trip, the university has better control and security with prepaid. Prepaid cards are especially useful in cases where students are given funds, but end up being ineligible to play and funds must be retrieved. At the same time, it’s much safer for students to carry a card for their expenses than cash.
Prepaid is not the end-all-be-all of business expense solutions. It’s not a replacement for commercial credit, and prepaid has known challenges at hotels and rental car companies, which often do preauthorization holds and/or require a credit card for liability purposes. But when the use case is right, prepaid can save money, improve efficiency, and offer businesses and employees peace of mind.
As important as it is to identify the opportunities for businesses to use prepaid cards for expense payments, we also believe it’s important for providers to view prepaid as more than a standalone product. Prepaid cards are another tool in a business payments toolbox. Offering prepaid doesn’t require business clients to become experts in prepaid. Payments providers can and should do the heavy lifting, while clients focus on their core businesses.
Historically, prepaid often has been offered as a standalone product meeting vertical-specific needs. That made sense when we were carving out a niche and establishing a new industry. But now that prepaid is successful and more mainstream, it’s time to bring it back into the fold. For us at Bank of America Merrill Lynch, that means it’s one of many payment tools available to corporate clients who are looking for more efficient ways to pay.
Alex Liu is responsible for Bank of America Merrill Lynch’s commercial and government prepaid card strategy, new product development, and ongoing product management and maintenance. He has 15 years of experience in prepaid. Prior to joining Bank of America Merrill Lynch, he was responsible for global prepaid strategy and products addressing financial inclusion at MasterCard. In 2009, he was named one of Paybefore’s 5 Rising Stars of Prepaid. He may be reached at: [email protected].
In Blogs & Viewpoints, prepaid and emerging payment professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.
“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and members of SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed. © 2015 Bank of America Corporation.