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Cards on the table

The EU's new corporate credit card payment model.

Cards on the table
Michael Fürer, AirPlus: Growing range of cheap credit cards on offer
Michael Fürer, AirPlus: Growing range of cheap credit cards on offer
Manuel Hauptmannl

Interchange, surcharge, acquirer and issuer – the diversity in monetary jargon does not make it any easier to understand the results of the new regulation for credit card fees within the EU, which is complex anyway. Yet the ultimate question is only whether corporate customers will have to pay more in the future for credit card payments – or not.

It is the annual press conference of corporate credit card provider AirPlus – but everyone really only wants to know one thing: What happens now with the capping of interchange fees on credit card payments announced by the EU Commission for mid-2015. More precisely: What the exception from this regulation adopted for corporate credit cards means in Germany.

Because if traders – whether hotels or airlines or the kiosk around the corner – have lower expenses in future when they accept payment with a credit card (reduction in the interchange fee from currently 1.7–1.3 to 0.3 percent), then AirPlus only has two possibilities: to forego a important portion of its revenue or to pass on the costs of its settlement system to its customers, in this case, the corporates.

Granted, there is an exception. Because after intractable negotiations, the EU Commission decided to exclude corporate cards from the new regulation. At first glance, that sounds like a good thing – everyone could continue as usual. However, there is a snag: In future, only those credit cards for which the costs incurred are settled through a corporate account will probably still be considered as corporate cards.

However, up to now, the majority of all companies in Germany allow their employees to have any travel costs incurred deducted from their private accounts. And AirPlus itself only makes 17 percent of its revenue from corporate cards settled by company account.
What is to be done? In negotiations between AirPlus and its most important major customers, it became clear that Germany's corporates are more prepared to accept higher costs than to adapt their processes to the new legislation. This result surprised "The Hotel Expert" editorial team so much, that we invited VDR President Dirk Gerdom, AirPlus Head of Sales Michael Fürer and HRS payment expert Christopher Hecht to a round-table discussion.

Mr Fürer, AirPlus will adjust its product portfolio i future and leave its customers with this choice: In future, the "Corporate Pay" model will work like the corporate travel card: Travel costs will be settled through the corporate account. In the case of the "Individual Pay" private card solution, travel costs can continue to be settled through the traveller's private account. However, because AirPlus will lose part of its income after the interchange fee is capped – the share that the traders had to pay up to now – it will charge the company for this service in future. How high will the costs run to for the new private card? Michael Fürer: We are still in the implementation process, the final prices are still being fine-tuned. Our models show what settlement processes could be options for corporate credit cards in future. However, the draft legislation still leaves open questions: For example, can travel costs really only be settled through a company account in future? Or is the use of the card in itself decisive, meaning, only for business-related payments? We are currently in contact with the authorities to get clarity on this.

  Dirk Gerdom, VDR: Control process from tried and tested payment programmes
Dirk Gerdom, VDR: Control process from tried and tested payment programmes
Manuel Hauptmannl

Mr Gerdom, the big companies in Germany are more prepared to fork out more and continue to settle travel costs through private accounts than adjust their process and switch to corporate accounts. But otherwise, costs are usually the prime focus. Why this decision? Dirk Gerdom: That is a classic business case, meaning a scenario which we customers have to calculate: What is the cheapest solution? In addition, we have to ask ourselves: How can I keep costs under control? To do this, I need a control process – and this is precisely what the programmes we have been using up to now can offer.

Because an employee will write his travel expense report faster if the money is booked from his private account rather than from his employer's account? Fürer: Exactly. The question is, who has to chase after the money. For the company, the risk increases when travel costs are settled through its own account. And the companies' main worry now is: How do I get my receipts? And how do I deal with private expenses? Gerdom: You need a control process and the employees' honesty: Is an overnight stay private? Are the drinks from the minibar concealed in the hotel invoice? This is not just about abuse; the danger of fraud is always there. In addition, what is decisive for us is prompt settlement, if the costs will not be booked through the employee's account in future.

In other countries, for example in the US market, it is customary to settle costs through a company account. Why do you baulk at this so much? Gerdom: I do not know anyone internationally either who does this. But quite apart from that: As soon as the laws are finally passed and providers like AirPlus have adjusted their portfolio accordingly, we will have to look at how our processes are organised. And to do this, it will be important to look at benchmarks and exchange information internationally. That is why the association with the GBTA is so important to us too.

Currently, AirPlus is planning to design its services related to what was formerly the corporate travel card more attractively, according to Managing Director Patrick Diemer.
Fürer: We are actually already seeing a tendency to settle travel costs centrally more often. We have been championing this too for years.

Christopher Hecht: HRS also offers its corporate customers the opportunity to settle travel costs directly through the company account: through debiting via A.I.D.A.
Fürer: Admittedly, it is a long-drawn-out process, because the IT landscape in the hotel business is very heterogeneous: Pretty much every hotel chain, every hotel has do be connected individually.

Gerdom: Correct, and that happens although the hotel business cost pool is almost as big as the one for airlines nowadays.

Does the new regulation have benefits too? Fürer: Overall, cashless payments will become cheaper and therefore more important for traders. In addition, we expect an increased acceptance of credit cards, because they will become more economically attractive to traders. Consumer protection was actually the predominant objective of the EU authorities, because ultimately prices should also decline too. However, we surmise that traders will not pass on these savings on credit card fees to their customers.

Why is that? Fürer: There will continue to be a range of cheap credit cards on offer, but the providers will have to rethink their pricing structure to ensure their profitability. In future, there will be cards for which the consumer will not be aware of the actual costs at all at first glance. Some will charge high interest on arrears, others will have no additional features, meaning they will be designed more like a MAESTRO card.

  Christopher Hecht, HRS: More bookings via company tools thanks to virtual payment solution
Christopher Hecht, HRS: More bookings via company tools thanks to virtual payment solution
Manuel Hauptmannl

But that will not apply to the AirPlus products, surely!? Fürer: Germany is a country of cash payers. Thus some companies might consider whether an – at first glance – free Commercial Card might not be cheaper for them than an AirPlus card. Or whether to make their employees make prepayments in future again.

And thus reintroduced all the processes we thought we had overcome? And forego the other benefits of a corporate credit card, like for example their higher credit facilities? Not to mention foregoing the data you prepare? Just to save a bit of money? Fürer: It will be our task in the sales division to support our customers in deciding on the most cost-effective settlement model.

Hecht: However the customer decides how to proceed: We see a steep increase in bookings via the corporate tool after the introduction of the payment solution using a virtual credit card. A clear benefit for both sides: If the payment of the hotel room is already completed with the booking, that saves the employee a lot of time and effort – and as a travel manager I have more bookings through the prescribed channel.

Do you have an explanation for why German corporates, despite the exception regulation for company credit cards, still prefer the private card solution? Fürer: Currently traders in Europe are not permitted to refuse credit cards for which they have to pay higher fees, meaning interchange fees. Thus some charge an acceptance fee (surcharge fee) which the customer must then pay. However, from 2017, it will probably no longer be permitted to charge this surcharge fee for regulated, meaning private credit cards. Thus, for companies that opt for the private card solution, these costs would cease to apply when booking travel services.

Thus corporates are speculating on the assumption that that the additional costs they accept now will be relativised again through this so-called discrimination ban. Thus, assuming that the ban comes: Is it really conceivable that traders in the business travel process will refuse certain cards? Fürer: Many will not do this for fear of angering their customers.

Hecht: And how will small hotels behave? For many, corporate credit cards are already more expensive today, and many do not even accept MAESTRO cards.

Fürer: If only five percent of a hotel's guests want to pay by card, then the hotel will accept it. In a large business travel hotel, there will be a completely different calculation behind this than in a small one anyway.

Gerdom: For central payment, it is important to us that the payment systems also provide that. Take the example of mytaxi. They have solved everything on the system side. In the hotel business, that is not always possible. Travel management has to tackle the issue urgently …

Fürer: That's true, there is still great need for clarification among most travel managers.

Gerdom: … and when all the figures are ultimately on the table, they have to decide for themselves which path they want to take.

Gentlemen, thank you very much for this interview.