Your Corporate Card Is Watching You

Tatyana Gershkovich
June 27, 2008

Increasingly, companies use corporate cards not only to win business and save money, but also to keep tabs on employees

For modern business travelers, it's as valuable a tool as your laptop or cell phone. It can help you win clients and close deals. You take it everywhere you go but you can't always use it. And if you use it the wrong way, it could get you fired—or worse. What is it? It's the corporate card sitting in your wallet, and it's helping your company keep tabs on you.

The corporate card began as a way to ensure that employees could pay for what they needed—whether last-minute airfare to Chicago or a steak dinner for 12 clients—to win business. Corporate cards, in theory, work just like any credit card, except that the company picks up the tab. Every month the issuer would send out a statement and the executive—or more often his assistant—would submit his expenses.

Usually in the form of illegible and half-crumpled receipts stapled onto paper that the poor folks in the accounting department would have to decipher. As one can imagine, the opportunities for padding were considerable. Who's to know if that dinner for two was for clients or your girlfriend? And the difficulty of separating the legitimate expenses from the non was such that it was often easier to just write the check.

An Orwellian Twist

But today, thanks to new reporting software, businesses can tighten up their expenses and stop the wastage by both more closely monitoring employee spending and reducing the costs of processing the payments. It is progress with an Orwellian twist, however. Big Brother might not know what you're thinking, but he sure knows how you spend your time—and the company's money.

Corporate cards allow companies access to detailed information on employee spending. Travel managers can now use Web-based tools to view itemized purchases of everything from airline tickets to snacks from the hotel minibar. This information helps companies negotiate discounts and "preferred vendor" deals with the hotels, airlines, and car rental services that employees use most often. The Boston business research firm Aberdeen Group found that companies save 1.3% to 3% of their total travel spending by negotiating contracts with preferred vendors, and the cost of processing an expense report is $26 less. "Travel is often thought of as a cost of doing business," said Andrew Bartolini, a commercial card analyst for Aberdeen. "But today's business climate demands that strict attention is paid to the largest controllable expense within the average company."

"Cash is good for gangsters, but these days it's not the preferred method for paying for anything," said Frank Dombroski, managing director of commercial card solutions at JPMorgan Chase. "From the company standpoint, it's about information management. Travel cards allow a single point of access to all of their transactional data, by vendor, by city, and by type."

Corporate Cards Produce Savings

JPMorgan Chase is the largest issuer of all Visa and MasterCard commercial cards (excluding prepaid and debit cards, where Bank of America leads). It is the fourth-largest issuer of corporate cards for travel and entertainment expenses (T&E), behind Bank of America, Citigroup, and U.S. Bank, the retail division of U.S. Bancorp, according to data compiled by The Nilson Report, a leading trade publication.

A typical Standard & Poor's 500-stock index company saves more than $2 million annually by using corporate travel cards, according to a study from RPMG Research. Automotive parts manufacturer Tenneco, for example, spends more than $20 million annually on business travel.

Two years ago the Lake Forest (Ill.)-based company began to mandate the use of corporate cards. Purchasing administrator Susan Westover said that the mandate has helped the company reduce spending and noncompliance with travel policy.

"When it comes to travel, the largest cost is noncompliance to company policy," said Eduardo Vergara, senior vice-president for global commercial cards at American Express. He added that employees will frequently book their business flights on personal cards to accrue frequent-flier miles. "Most travelers feel that they are their own best travel agent, but the reality is that policies save money for the company," he said.

Tenneco figured out that it would save money on gas—an evermore costly expenditure—if employees rented fuel-efficient cars instead of driving their personal vehicles. "This was requested but not pushed last year," Westover said, but this year it will become part of the official company policy.

"One of our clients was able to save $10,000 on water," said Marcie Verdin, senior vice-president for large market commercial products at MasterCard. "The employees were buying the expensive bottles of water." The client used Travel Dashboard, a MasterCard product that itemizes travel expenses including hotel folio data, to find that company employees had expensive tastes. Aberdeen research group shows that 24% of companies report some level of fraud related to corporate card programs.

Rapid Reimbursement Is Key

Employers can also choose to restrict the use of corporate cards automatically by enabling business travelers to pay for flights, car rentals, and hotel accommodations, but blocking card use at retail stores. MasterCard is currently developing a feature called inControl that will allow employers to monitor employee spending in real time by sending e-mail updates each time a card is used.

Business travelers who use their corporate cards might have to forgo some perks of traveling on the company dime. Unauthorized long-distance calls and $20 martinis at the hotel bar might be harder to sneak by travel managers, but corporate cards have the advantage of convenience.

On average, corporate card users are usually reimbursed within five to six days as opposed to 10 to 12 for employees that use personal cards, says American Express' Vergara, who added that reimbursement was the most important issue for a frequent business traveler. Some card issuers also have executive corporate card programs that provide additional benefits for select employees. Features of an executive card can include access to an airport lounge, concierge services, and travel upgrades.

Companies may use one of two types of card payment arrangements: a corporate liability agreement in which the company receives and pays the card bill or an individual liability agreement in which an employee pays the bill and is reimbursed after submitting an expense report. According to Richard Palmer, a business professor at Eastern Illinois University and co-author of the RPMG survey, there is no significant difference in client satisfaction between these two methods. Individual liability agreements are nonetheless the more popular choice among S&P 500-size companies, the survey shows.

Potential to Expand to Midsize Companies

The greatest challenge for businesses with corporate card programs is ensuring that a card is paid on time. Each month, around 4.8% of employee payments at a company with an individual liability agreement are delinquent and 14% of the travel card statements submitted to companies with corporate liability agreements are unsupported by receipts, according to RPMG Research.

Businesses also cited employee preference to use personal cards, inadequate distribution of cards to employees, and budget limitations as barriers to implementing an effective travel card program. Card issuers are investing in better reporting technology as they compete for clients, because, as the RPMG survey suggests, employers are concerned with access to more detailed information on employee spending. But business travelers list customer services as a top priority.

Travel budgets may be shrinking this year, but financial analysts and card issuers say the corporate card market will continue to be profitable even in the softening economy. Spending on corporate cards has increased by about 12% in each of the last five years and by 14% in 2007, according to Aberdeen Group's Bartolini, who added that there is still tremendous potential for card programs to expand down-market into midsize and small companies. "Midlevel companies don't know they can also be successful in negotiating first-supplier deals," Bartolini said. "For very small companies, one of the benefits is a prenegotiated saving program—for example, co-branded cards with airlines."

U.S. Bank anticipates that its T&E portfolio will grow at a rate of 8% in 2008. Robert Abele, president of the bank's corporate spending division, said that the ever-increasing cost of travel will encourage businesses to use corporate cards. "Inflationary pressure is driving a lot of the growth, and airlines are now starting to pass those expenses to the consumer," Abele said. "We are starting to see companies managing their spending, and we think inflation is driving a lot of growth in this sector."

Just be careful about those $20 martinis.

Tatyana Gershkovich is an intern at