SmartPay allows government employees to use a corporate credit card to purchase goods and services from a wide variety of suppliers. SmartPay was designed to simplify government “micro-purchases” with a dollar value of under $3000. Government research found that the cost of issuing a purchase order, processing an invoice and cutting a check to be $75 per transaction on average. As a result, the procurement and accounts payable groups at agencies might have been spending $75 to process a $25 or $50 purchase.
If you have a corporate American Express card that you use for travel and entertainment expenses at work then you are already familiar with the concept of a commercial credit card. Selected workers are issued corporate credit cards which can be used for low-dollar value reimbursable expenses. If an employee wishes to purchase an airline ticket, office supplies or training materials they simply present their card to the supplier. There is no need for the buyer to issue a purchase order or the supplier to send an invoice. The supplier will be reimbursed by the banks via the credit card network in two to three days. At the end of each month a statement will be sent to the employee with all of the charges they have accrued through the card. The employee is then responsible for submitting the appropriate documentation to justify the expense.
Supply Chain Finance is a multi-faceted concept. Some of these concepts can be leveraged today while others are more visionary at this point. Without question the most widely embraced aspect of supply chain finance today is the idea of post-export supplier financing. The term is intimidating to those not familiar with trade finance, but the principles are actually quite simple and familiar to anyone who understands the business model for credit cards.
2009 has been arguably the worst year the US automotive sector has witnessed in 80 years. There are several key challenges for auto dealers in recessionary periods. First, dealers must compete for a smaller number of overall sales. Furthermore, dealers are challenged to win business from Internet-savvy consumers who are much better educated on the true vehicle costs, financing options and aftermarket accessories than ever before.
In recent years many multi-national corporations have established their own, “in-house banks.” The in-house banks are not officially regulated or licensed financial institutions. However, they act much like a commercial bank by offering payment processing, liquidity management and collections functions to various subsidiaries of a large, global corporation. Technology is a key enabler to in-house banking. In my opinion, banks are becoming more and more of a technology business every day. Most of the services banks perform are not conducted by people, but instead by vast computing networks. As banking goes digital, the barriers to establishing a banking function are reduced.
In my last post, I explained the fragmented payments and banking landscape in the EuroZone. In this post, I will continue the discussion with an explanation of the Single European Payments Area (SEPA). Starting in the 1990s, the European Union began the SEPA initiative to harmonize and simplify payments across the 15 countries which have embraced the Euro as the national currency. The goal of SEPA is to establish a common set of regulations, processes, standards and technologies for making payments across the Eurozone. Consumers and corporations will enjoy consistent pricing and service levels irrespective of their country of citizenship and the location of their bank account. Surcharges for cross-border transactions within the Eurozone will effectively be eliminated. As a result, citizens and corporations will be able to make payments in any Eurozone country as easily and cost-effectively as they could in their home nation.
The subprime mortgage crisis is not the only source of radical change in the banking industry this year. A less publicized, but perhaps equally significant transformation is occurring across Europe as part of the Single European Payments Area (SEPA). Much like the credit crisis, SEPA will result in significant losses to banks. Payment fees collected could decline between 30 to 60%, the equivalent of €13-29B of foregone revenues. But unlike the credit crisis, SEPA losses will not be the result of a series of unplanned events leading to catastrophe. Instead SEPA is a deliberate, methodical attempt to evolve the banking system that will provide substantial long term benefits to both consumers and businesses. SEPA is not a new phenomenon. Planning for the changes has been occurring within the European banking sector for over a decade now. However, since the SEPA initiative’s progress has not been well communicated outside of Europe, I thought I would take a few minutes its goals and benefits.