In an age defined by borderless commerce, commercial payments has found itself on a transformative journey. This evolution has been driven by various factors, including the convergence of personal and professional payment experiences, the digitalisation of payment methods and the imperative for faster, more efficient transactions.
In 2022, global commercial payment transactions surged beyond the $108trillion mark, with forecasts indicating a remarkable compound annual growth rate of 7.5 per cent. By 2025, this trajectory is expected to propel the market to an astounding $135trillion. As businesses anticipate a return to pre-pandemic levels of travel, there is also a growing recognition of the need to modernise business travel payments for greater efficiency and control in the new era of corporate mobility.
Despite a surge in digitalisation, traditional payment methods, including cash and cheques, continue to maintain a stronghold, accounting for over 20 per cent of total commercial payments in various regions. Seventy-three per cent of small and medium-sized enterprises (SMEs) still rely on cash to settle their business expenses, revealing a noteworthy contrast in payment methods.”
Global payments brand Discover® Global Network and research company Euromonitor International have unveiled critical insights into the commercial payments industry, shedding light on the forces that have shaped it over the past year and the emerging trends set to define its future.
Their research encompasses 30 interviews with upper management at large businesses across 16 countries and solicited feedback from 1,800 B2B survey respondents. The findings reveal a spectrum of challenges faced by large corporations concerning commercial payments management.
Among these challenges, the most pressing for large businesses is the management, payment, tracking, and reconciliation of supplier payments. This has a profound impact on various facets of organisations, including procurement, accounts payable and travel expense functions. Decision-makers are actively seeking improved commercial payment solutions capable of delivering operational efficiencies, seamless integration, cost savings, and enhanced peace of mind.
One significant catalyst for change has been the convergence of personal and business payment experiences. Younger, digitally native business managers are bringing their consumer-oriented expectations into the B2B realm. As a result, businesses are increasingly seeking more efficient, streamlined, and intuitive digital payment management tools.
Spotlight on VCNs
The role of virtual card numbers (VCNs), or a single or multi-use form of digital payment tied to an overarching spend account or line of credit with specific spend controls assigned to it, has emerged as a pivotal component in addressing the demands of not only business travel but B2B payments.
VCN offers multiple benefits including security as it creates rules allowing the cardholder to create a specific use of the VCN tied to date, merchant category code or an fixed amount – as management of total spend is another benefit.
Over the past year, VCNs have not only cemented their place in the market but have also become significantly more manageable, primarily attributed to the prevalence of API integrations between networks, issuers and commercial VCN management providers. This transformation offers substantial advantages to businesses, including simplified reconciliation processes, enhanced visibility into expenditures, and greater control over spending. These benefits empower both businesses and their traveling employees to conduct transactions with increased efficiency and effectiveness, streamlining financial operations and facilitating smarter financial decision-making.
As Dan McKenzie, senior product manager at Discover Global Network, pointed out at the recent CPI Global B2B Payments Summit in New York, VCNs are at the forefront of ‘consumerising commercial payments’.
He explained: “With the re-emergence of business travel paired with the surge in payment advances over the past three years, we’re seeing a trend of consumerising commercial payments, or minimising the gap between how someone pays in their personal life vs. how they pay and expect to be paid in their work life; meeting business travellers where they already are in how they spend. We’re seeing this particularly within the travel space where VCN has seen steady growth in usage, volume, and use cases and is modernising quickly in partnership with fintechs and travel management companies that are optimising the VCN experience.”
In the past year, VCNs have evolved to become more user-friendly, McKenzie said, offering businesses and travellers greater control over seamless business-related purchases, rivalling or surpassing personal payment experiences in terms of ease and convenience.
The complex nature of hotel bookings, pre-authorisations, additional charges, and check-in processes presents an opportunity for VCNs to streamline and enhance the payment experience within this sector.
Future trends in business travel
Looking ahead, the future of business travel holds exciting prospects, not only for large organisations but for small and medium businesses (SMEs) too. Seventy-three per cent of small and medium-sized enterprises (SMEs) still rely on cash to settle their business expenses. However, 49 per cent of SMEs plan to invest in commercial payment solutions in the future.
A similar trend is seen in large businesses. Over half (53 per cent) plan to increase their use of digital payment methods, such as VCNs, for managing business travel over the next 12-24 months.
McKenzie commented: “The concept of virtual card number is becoming even more mainstream due to its user-friendly nature, ability to assist in reporting and reconciliation, and advanced ease of integration.
“With this sharpening of the overall VCN product, we’ll also start to see more focus on specific verticals, like the hotel space, for instance. Historically, we’ve seen opportunities to sharpen the VCN experience within this space given the fragmented nature of booking hotel rooms, pre-authorisations, additional charges coming from hotels, or the check-in experience.”