L2 Commercial Cards

Document Control

Revision No. Updated By Date Revision History

1.0 Karthik Gopinath
Shobha Subramanian 28th Feb 2008 Initial Version
1.1 Karthik Gopinath
Shobha Subramanian 14th Mar 2008 Document revised based on comments given
by Kamesh K
1.2 Karthik Gopinath
Shobha Subramanian 25th Mar 2008 Document revised based on comments given
by Kamesh K
1.3 Karthik Gopinath 19th Aug 2008 Document revised based on comments given
by Hema Vaidyanathan
1.4 Karthik Gopinath 20th Aug 2008 Document revised based on comments given
by Hema Vaidyanathan
1.5 Karthik Gopinath 28th Aug 2008 Document revised based on comments given
by Hema Vaidyanathan
1.6 Sundeep Kapoor 16th Apr 2009
1.7 Karthik Gopinath 27th Aug 2009 Document revised based on comments given
by Kamesh K

Table of Contents
1.0 Introduction 4
2.0 Credit Cards 5
2.1 Industry Evolution 5
2.2 Market Players 6
2.3 Credit Card Types 7
2.4 Commercial Cards 7
2.4.1 Overview 7
2.4.2 Commercial Vs Consumer Cards 8
2.4.3 Key Value Propositions 9
3.0 Commercial Cards � Detailed Concepts 10
3.1 Participants and Activities 10
3.2 Card Holder Account Types in Commercial Cards 12
3.3 Key Stakeholders and their Interests 12
3.3.1 Company (Employers) 12
3.3.2 Financial Institutions (Issuer & Acquirer) 13
3.3.3 Merchants (Sellers) 13
3.3.4 Card Holders (Buyers / Employees) 13
3.4 Major Business Entities 13
3.4.1 Issuer 13
3.4.2 Acquirer 14
3.4.3 Network (Association) 14
3.4.4 Third Party Processor 15
3.4.5 Independent Sales Organization 16
3.5 High Level Processes 17
3.6 Business Segments 18
3.6.1 Small Business 18
3.6.2 Medium and Large Business 19
3.7 Types of Commercial Cards 20
3.7.1 Purchase Cards 20
3.7.2 Corporate Cards 25
3.7.3 Small Business Cards 26
3.7.4 Fleet Cards 27
3.7.5 Stored Value / Limited term Cards 29
3.7.6 Multi-Cards 30
3.8 Distinct Features of Commercial Cards 30
3.8.1 Collectability 30
3.8.2 Remittance Capability 31
3.8.3 Processing Issues 31
3.8.4 Security 32
3.8.5 Privacy 32
3.8.6 Economics & costs 33
3.8.6.1 Investment Cost 33
3.8.6.2 Transaction Cost/Fees 33
3.9 Controls in Commercial Cards 34
3.9.1 Spending Limit Controls 34
3.9.2 Merchant Category Code Controls 34
3.9.3 Control through Reports 35
3.9.4 Fraud Controls 35
3.10 Compliance using Commercial Cards 36
4.0 Commercial Cards Process Overview 37
4.1 Process Overview 38
4.1.1 Issuers 38
4.1.2 Acquirers 44
4.1.3 Associations 46
4.1.4 Third Party Processors 47
4.1.5 Independent Sales Organizations 49
5.0 Technology in Commercial Card Processing 51
5.1 BASE 2000 52
5.1.1 Introduction 52
5.1.2 Features 53
5.1.3 Functional Architecture 55
5.1.4 Core Modules 57
5.1.5 Modules Pertaining to Commercial Cards 57
5.2 Vision PLUS 59
5.2.1 Introduction 59
5.2.2 Features 60
5.2.3 Core Modules 60
5.2.4 Modules Pertaining to Commercial Cards 64
5.3 TS2 65
5.3.1 Introduction 65
5.3.2 Basics of TS2 66
5.3.3 Features and Benefits 67
5.3.4 Architecture 70
5.3.5 TS2 Commercial Cards Processing 71
6.0 Commercial Cards - Business and Technology Trends 72
6.1.1 Business Trends 72
6.1.1.1 Issuing and Managing T&E cards in Multiple Countries and Currencies
73
6.1.1.2 Combining T&E and P-cards: The Multi card Solution 75
6.1.2 Technology Trends 77
6.1.2.1 Emergence of Smart Card Technology to Combat Fraud 78
6.1.2.2 Card Integration with Organization IT systems 78
7.0 References 84

1.0 Introduction
The search for safer and more convenient forms of money has spanned the ages. Coins
were circulated beginning some 3000 years ago. Paper money appeared around the 9th
century. Cheques date back at least to the 14th century. It took until the first
half of the 20th century before wire transfers and card-based systems came into
limited use. But even then they were not widely useful for everyday spending by
business or government, let alone the general public.
Payments are the lifeblood of economies, yet there is more to be learnt and much to
be accomplished in assisting policy makers� understanding of the costs involved in
the reliance on cash and paper-based payment systems. Similarly, lenders need to
realize how the value of electronic payment technologies can assist economic growth
and individual empowerment.
Experience has shown that electronic payment systems can drive many forms of
economic modernization and foster economic growth. Cards as a payment mechanism
have registered huge growth and acceptance among retail consumers, and its usage
among corporate customers is steadily growing. As the number of POS terminals for
cards expand, and the level of security is improved, card usage will increasingly
become a part of every financial transaction. Cards provide a growing, predictable
and significant source of income (mainly through fees and interest) for various
card industry participants that facilitate the card-based transactions.
Many developing countries are also making the move from cash, facilitated by new
products and new technologies such as smart cards and mobile phone. One such
development is the evolution of commercial cards. Commercial cards were primarily
designed to offer the meet the following objectives: simplify the purchase of
travel and travel-related services, reduce paperwork and administrative costs,
streamline payment procedures and improve cash management practices and Improve
management controls, reporting & decision-making activities.
The growing popularity of card among retail and corporate customers has increased
the card usage multifold, thanks to loyalty programs and Information technology
adoption & usage. The loyalty shown towards cards as a new payment instrument would
encourage organizations to come up with more such innovative payment mechanisms.

2.0 Credit Cards

2.1 Industry Evolution
The card concept started in the year 1914 when Western Union provided metal charge
cards giving free, deferred-payment privileges to preferred customers in the United
States of America. These cards came to be called "metal money."
In 1924, General Petroleum Corporation issued the first metal money for gasoline
and automotive services first to employees and select customers and later to the
public. In the late 1930's, American Telephone and Telegraph (AT&T) introduced the
"Bell System Credit Card." Soon, railroads and airlines introduced similar cards.
In 1946, a New York banker developed a credit system called Charge-It. When
customers charged local retail purchases, the merchant deposited the charges at
Biggins Bank and the bank reimbursed the merchant for the sale. The bank later
collected payment from the customer.
In 1950, Diners Club and American Express launched their charge cards in the USA,
the first "plastic money". In 1951, Diners Club issued the first credit card, with
a fixed credit period, to 200 customers who could use it at 27 restaurants in New
York.
In 1951, Franklin National Bank of Long Island issued a credit card with a
revolving credit facility, which enabled repayment of dues in installments. Bank of
America issued BankAmericard for the whole of California in 1958.
In 1966, Bank of America expanded its bankcard program by forming the BankAmericard
Service Corp. (BSC), which began licensing banks outside of California to issue
cards to their customers. Meanwhile about 17 banks around New York decided to
reciprocally accept the other banks card
They called the card as Master Charge. The association so formed was called Inter
Bank Card Association (ICA). As the bankcard industry grew, banks interested in
issuing cards became members of either BankAmericard or MasterCharge. MasterCharge
and BankAmericard developed rules and standardized procedures for handling the
bankcard paper flow in order to reduce fraud and misuse of cards.
Slowly NBI and ICA started issuing license to the International banks. In 1977 and
1979 respectively, BankAmericard adopted the name VISA and Master Charge [ICA]
adopted the name MasterCard. Both VISA and MasterCard are not for-profit
organizations. Both issue credit cards, set, and maintain the rules for processing.
They are both run by board members who are mostly high-level executives from their
member banks.
As credit card processing became more complicated, outside service companies began
to sell processing services to VISA and MasterCard association members. This
reduced the cost of programs for Issuing Banks and Acquirers and increased the size
of the bankcard industry.
MasterCard and Visa are open networks, which mean that they involve the
participation of many members who perform various activities related to credit card
processing whereas American Express and Discover are closed networks since they
themselves perform all the activities. The credit card industry in the US is
undergoing significant changes currently with the hitherto closed networks now
forming partnerships with banks to issue credit products.
2.2 Market Players
The Market Players of the Credit Card Industry can be generically classified into
one of the following:
� Card Issuer � A Bank or financial institution that issues Cards to Card
members. E.g. Banks, American Express, JCB, Discover, Discover, GE.

� Merchant Acquirer � A Bank or Financial Institution which provides merchants

with POS terminals and network connectivity, enabling them to accept Cards. E.g.
Banks, American Express, First Data, Nova, Global Payments, and JCB

� Networks / Associations � Form a common platform enabling the connectivity

between Issuers and Acquirers. E.g. American Express, Mastercard, Visa, Discover,
First Data, NYCE, JCB. Visa remains the leader in terms of total purchase volume.

� Card / Merchant Processors � Provide services to Issuers / Acquirers. E.g.

American Express, First Data, GE, Citi, HSBC, Tsys, Certegy, ATOS Origin, Experian,
Metavante. While in-sourcing has been buzz word in Large Bank circles (JPMC, etc),
3rd Party processors still command lions share in overall card processing markets.
Although First Data remains leader, its position is increasingly coming under
challenge from TSYS

2.3 Credit Card Types

A credit card indicates that the holder has been granted a line of credit enabling
the cardholder to make purchases and/or draw cash up to a pre-arranged amount.
Interest is charged on the amount of the unpaid credit balance and cardholders are
often charged an annual user fee. Credit Cards are generally classified into two
categories:
General Purpose Credit cards include Consumer Cards (Co-Branded Credit Cards,
Secured Credit Cards, Affinity Cards etc) and Commercial Cards (Travel &
Entertainment Cards, Purchasing Cards, Small Business Cards, Fleet Cards etc). Many
banks and non-banks issue general-purpose credit cards.

A private label card is issued by a retail outlet, such as a department store or

gasoline company, and contains the logo of the retailer. It is accepted only by the
retailer who issued it. Retailers partner with a bank or a card-issuing management
company to back the cards.

2.4 Commercial Cards

2.4.1 Overview
In today�s competitive business environment, companies are continually looking for
ways to cut costs and operate more efficiently to help improve their bottom line.
As both large and small businesses attempt to better manage and track their outlay,
the use of commercial cards has risen in recent times.
Commercial cards are B2B payment cards which are issued by employers to the
employees (or a group of employees) for official usage. In the B2B arena,
commercial cards continue to increase in popularity. The growth of Internet-based
procurement and advances in procurement card technology are contributing to
expanding business-to-business use of these cards. Businesses paying with
commercial cards, and businesses accepting commercial cards, range from single
proprietorships to large multi-national organizations, and include Federal, state
and local governments.
As on June 2008, 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.

2.4.2 Commercial Vs Consumer Cards

The following are some significant differences between a commercial card and a
consumer credit card:
Intended use - Commercial cards are used for business-related expenses while
consumer cards are used for personal expenses.
Balances - Most commercial cards typically do not carry a balance forward while
consumer cards are a revolving personal credit line
Merchants - The company specifies where an employee may use a commercial card while
the consumer card can be used almost anywhere.
Credit limit - Normally the company sets the credit limit for a commercial card
while the credit limit on a consumer card is set based on the individual�s income
and credit history. However, credit limits are applicable at multiple levels in
Commercial cards � at the company level, department level and card level. These in-
turn emanate from companies financial capability, risk appetite and cash flow
priorities
Legal Liability - The Truth In Lending Act (Regulation Z) limits a consumer
cardholder�s liability for unauthorized use of a credit card; however, the same
rule does not apply to commercial cards. Instead, Liability Waiver Programs cover
unauthorized employee use of a card to protect a corporation�s liability
Enhanced Data � Most Commercial Cards programs provide enhanced data capability.
The users and the Company may view data up to Level III. Most Consumer Cards
provide data only at Level I.

Enhanced Reporting � Commercial card programs offer enhanced reporting capability

as compared to a consumer card. Enhanced reporting enables corporate have better
control and monitoring of corporate expenses at various levels such as company,
department, cost center, product and card.
2.4.3 Key Value Propositions
Commercial card accounts provide the features and information necessary to save a
company time and money. In addition to meeting company requirements, these
accounts are useful and convenient for employee cardholders. Some of the benefits
of commercial cards offers to business are:
� Convenient management of purchases and expenses
� Better control of cash flow
� Identification of areas for cost reduction
� Detailed data on purchase patterns, employee expenditures, etc.
� Criteria for authorizing transactions
� Reduction of administrative costs
� Decrease in the time required to complete purchases
� Information kept electronically
� Control on employee spending
� Negotiate discounts with merchants
� Customized embossing to display Company name & Logo would provide association
and recognition to employees.

3.0 Commercial Cards � Detailed Concepts

Serving as an alternative to Electronic Clearing and Cheque payment, Commercial
cards have become one of the most widely accepted payment mechanisms.
In the B2B arena, so-called commercial cards continue to increase in popularity.
The growth of Internet-based procurement and advances in procurement card
technology are contributing to expanding business-to-business use of these cards.
Businesses paying with commercial cards, and businesses accepting commercial cards,
range from single proprietorships to large multi-national organizations, and
include Governments. Commercial cards may be used for either single or multi-
invoice transactions.
3.1 Participants and Activities
1. The Cardholder
A Cardholder is the designated user of the Commercial Card. The company (Buyer) has
approved the usage of the card by the Cardholder. The Cardholder is required to use
the card for official business purchases. Only in certain exceptional cases, the
Cardholder may use the card for making personal purchases. The usage of the card by
the Cardholder is governed by the policies and guidelines set by the company
1. The Buyer
A Buyer is a company that intends to pay a Seller using a commercial card. The
Buyer must have a commercial card and a contracted credit relationship with the
Card Issuer for the particular card being used to conduct the transaction.
2. The Seller/Merchant
The Seller is a merchant or business that can/will accept card payment from a
Buyer. The Seller must have a contractual relationship with a Merchant Acquirer for
a specific credit card type to be able to accept that credit card type as a payment
alternative.
3. The Card Issuer
The Card Issuer is a bank or other financial institution that extends credit or
initiates a payment via a credit card to a Buyer with whom they have signed a
contract, normally a traditional credit card application, to provide these
services. The Card Issuer is also responsible for making payment to the Merchant
Acquirer on behalf of the Buyer. In the case of an independent Card Issuer, the
Card Issuer and the Merchant Acquirer may be the same party.
4. The Merchant Acquirer
The Merchant Acquirer is an organization that enables a Seller to accept a specific
type of card as a payment alternative and to receive payment for a card
transaction. Merchant Acquirers solicit, screen, and accept Sellers (merchants)
into their specific credit card acceptance program. They also accept and process
merchant sales drafts and provide a Seller with point-of-sale terminals,
instructions, and support services. In the case of an independent Card Issuer, the
Card Issuer and the Merchant Acquirer may be the same party.
5. The Merchant Processor
A Merchant Processor is a provider contracted by the Merchant Acquirer to provide
network and other services to Sellers (merchants). It is distinct from the actual
Merchant Acquirer in that it does not actually extend credit; it simply processes
the payment. Some specialized Merchant Processors handle only a portion of the
transaction function (for example, transferring a transaction from the Seller
terminal to the Merchant Acquirer), while others provide value-added services, for
example, to airlines and gas stations. In the case of an independent Card Issuer,
the Card Issuer and the Merchant Processor may be the same party.
Note: An Independent Sales Organization (ISO) may perform some functions for the
Merchant Processor or the Merchant Acquirer. ISOs originally developed as
outsourced sales organizations for Merchant Acquirers. They have since taken on
many of the functions of Merchant Processors. Many Sellers deal only with their ISO
and never interact directly with any Merchant Processor or Merchant Acquirer.
6. Credit Gateway (Gateway)
A Credit Gateway is an online Internet gateway used to transfer encrypted credit
card data (such as account number, name, and expiration date) from the Buyer to the
Merchant Acquirer for authorization.

3.2 Card Holder Account Types in Commercial Cards

Individual Liability: - Cardholder is solely responsible for payment. Credit checks
are generally required. This is also called Individual account where monetary fees
and transactions are normally posted. A descriptive billing statement is sent to
the cardholder for payment.
Individual Liability with Corporate Guarantee: - Cardholder is responsible for
payment, but company may be asked to pay if cardholder reaches a defined
delinquency status
Corporate Liability: - Company is ultimately liable whether cardholder or
corporation pays
Individual Bill & Pay: - Cardholder receives a monthly bill and is responsible for
paying the issuer directly
Individual Bill/Central Pay: - Cardholder receives a monthly bill but company pays
reimbursable expenses to issuer based on expense report. (Cardholder may have un-
reimbursable expenses for which payment must be remitted to the issuer directly.)
Corporate Bill or Central Bill Accounts: - Cardholder receives a memo statement
only; company receives the bill and pays the issuer directly
Central billing and corporate liability benefit companies by:
� Reducing the issuer�s administrative costs for billing/collection
� Reducing the potential for delinquency/credit losses to the issuer
� Allowing the issuer to pass process savings on to the company
3.3 Key Stakeholders and their Interests
Commercial cards offer a whole range of benefits to all the stakeholders and that�s
probably the reason why the commercial card segment is growing at such a fast rate.
It is best for the corporate customers who derive significant value from this card.
3.3.1 Company (Employers)
� It helps to have significant cost saving due to improvement in process
efficiency.
� It simplifies the invoicing & accounting process thereby reducing time and
effort and hence saving transaction cost.
� Enhanced control in expense management
� Companies can monitor their relationship with various vendors and suppliers
and negotiate rebates and discounts with preferred vendors for volume transactions.
� It also helps management to track and control the organization processes and
expenses through the set of customized Management Information (MI) reports.
� It also reduces risk at the same time gives greater flexibility to the
employers for managing their finances.
3.3.2 Financial Institutions (Issuer & Acquirer)
� Huge market offers large source of revenue due to the volume and size of
transactions.
� It has a great market potential � Currently it�s growing at over 20% Year on
Year.
� Large business makes it profitable and less risky business because chances of
default/delinquency are very less
3.3.3 Merchants (Sellers)
� Merchants get their payments quickly because there are fewer hassles involved
in invoicing as seen in checks.
� Greater business opportunity and visibility once selected as preferred
vendor.
3.3.4 Card Holders (Buyers / Employees)
� Greater flexibility and ease of operation � Employees do have to keep
collecting bills for reimbursement.

3.4 Major Business Entities

3.4.1 Issuer
This financial institution extends credit to customers through bankcard accounts.
The bank issues the commercial card and receives the cardholder's payment at the
end of the billing period. They offer cards with particular features, set the
financial terms (e.g., the annual fee, interest rate on unpaid balances, grace
period, and late fees), extend credit, collect payments from the consumer, and
provide ongoing customer service.
Any of the following can be Card Issuers:
Banks: Any banking organization that has contracted with a card association /
organization to issue cards. Traditionally, banks have contracted with Visa or
MasterCard and are now doing so with American Express e.g. MBNA and Citibank.
Retail Merchants: Any merchant that issues its own cards. Usually, this type of
merchant issues a private label card, a closed card scheme, and acts as the card
organization and acquirer.
Credit Unions: Nonprofit, co-operative financial associations owned and
democratically run by their members.
Card Organizations: Any organization that issues its own card.

3.4.2 Acquirer
This financial institution does business with merchants who accept credit cards. A
merchant usually has an arrangement with this bank to buy the merchant's sales
slips (ticket) and credit the ticket's value either to the merchant's account or by
way any other mode of payment that is mutually convenient.
There are various categories of Acquirers namely Banks, processors, and card
organizations:
? Banks that function as acquirers contract with a card association or card
organization to provide card acceptance services to merchants.

? Processors are non-bank or processing companies that contract with an

acquirer, card association or card organization to provide card acceptance services
to merchants.

? Card Organizations provide their own card acceptance services to merchants.

E.g., American Express is a card organization, which provides acquirer services for
the acceptance of the American Express card.

3.4.3 Network (Association)

Network are composed of members that include commercial and retail banks, credit
unions, etc. They provide license to members (Issuers, Acquirers) to issue & accept
payment cards. Associations serve as the nerve center connecting the issuing &
acquiring sides. They limit their interactions to issuers and acquirers only, and
do not directly interact with the cardholder. Both of these help expand the market
for cards by reducing the costs of operations of issuers and acquirers.
Network primarily work for the following objectives
? Develop operating rules & regulations
? Process transactions and interchange payments between members
? Develop system-wide innovations such as interchange technologies
? Offer a variety of product programs and services to improve member
profitability and minimize member risk e.g. �Verified by Visa�, SET
? Promote the association brand through advertising

However, Network themselves do NOT

? Issue cards / set card fees / set credit limits / set interest rates
? Solicit merchants / set discount rates
The key transaction processing services provided by an Association include
transaction Authorization, Clearing, and Settlement.

3.4.4 Third Party Processor

Third Party processors act under contract with card issuers or acquirers to process
payment card transactions on their behalf. Issuers or acquirers opt for in-house
processing if it fits in with their core competencies, systems and infrastructure;
if not, they resort to third-party processors.
Third party processors offer a wide range of services that enable card issuers and
acquirers to serve their customers better and to reduce cost of operations.
Issuer perspective: Any outside company with which the issuer contracts to provide
cardholder transaction processing services. Typical services include account
maintenance, transaction authorizing and posting, statement generation and
printing, card embossing, fraud and risk management services and settlement.
Acquirer perspective: Any outside company with which the acquirer contracts to
provide merchant processing services. The services could include network and data
transmissions, merchant accounting, backroom operations, sales, or customer
service. Typically a large third party firm such as First Data may act as both a
third party processor and as an ISO depending on the bank for which it is working.
The shift in the industry from traditional financial institution providers to
independent providers is due in large part to more efficient distribution channels,
as well as increased technological capabilities required for the rapid and
efficient creation, processing, handling, storage, and retrieval of information.
These capabilities have become increasingly complex, requiring significant capital
commitments to develop, maintain, and update the systems necessary to provide these
advanced services at a competitive price.
3.4.5 Independent Sales Organization
An outside company (not MasterCard/VISA member, non-bank) that offers merchant
accounts and may process credit card transactions for a transaction fee. ISOs
enter into a contract with Acquiring banks to offer bankcard acquiring services,
through registered or unregistered sales agents or employees. An ISO acts as a
third party between the Merchant and the Acquirer. The MasterCard equivalent of ISO
(typically used in Visa context) is the MSP (Member Service Provider). An ISO may
provide a variety of merchant processing functions on behalf of the Acquirer.

3.5 High Level Processes

Customer submits an application to a bank/Financial Institution for a credit card.

The Issuer collects financial and other details and does the necessary credit
appraisal. The credit processing will involve a sequence of events like
verifications, credit scoring, credit check, etc. Finally decision will be taken by
the Issuer on whether a card can be issued or not. In the commercial card scenario
customer is the company. Companies choose a relevant CC Product being offered by an
issuer, Decide on What Should be purchased on that Card? (MCC Code), For How much
(MCC group Limit) and How many times, how much can be spent on the card per day,
per month, Companies send card holder details to issuer for embossing.
Once the credit application is approved, cardholder is free to perform any
transaction in return for goods/service provided by the merchant. Cardholder
presents the credit card as payment guarantee. Card Holder starts using card
subject to above authorization criteria. Daily spends are monitored by Company. Any
exigencies may be addressed by company using overall credit limit (telephonic
authorization may be given to supersede decline at POS)
Merchant requests for approval of transaction from card Issuer through card
association (The merchant swipes the card through a card reader, which reads the
data on the magnetic stripe and adds information that identifies the merchant and
the dollar value of the purchase. This electronic message is automatically sent via
telephone line to an IT system maintained by the merchant�s acquirer, also a member
of the association. The message is then transmitted to the association's system,
which routes the request to the appropriate Issuer to verify that the cardholder
has a credit balance sufficient to cover the purchase. The response (approval or
denial) from the Issuer is routed back along the same path to the originating POS
terminal. This entire process typically takes about 10 seconds and in case of an
approval, the cardholder is expected to sign the credit card charge slip)
At end of day, merchant collects all the slips and submits the same to acquired
bank. Bank then forwards the same to the issuer bank through the card associations.
The association consolidates the transaction with all other transactions that day
and settles the accounts among banks i.e. Funds are transferred from the Issuer to
the Acquirer and to the merchant.
Statement is then generated for the company on the account processing day sent to
the company typically as an invoice. Companies pay up and integrate the expenses
according to internal organizational costing mechanisms Company then pays the
amount to the issuer bank.
3.6 Business Segments
The growing popularity and acceptance of commercial cards as a payment solution has
made it an essential element in business related payments. Organizations
irrespective of their revenues are fast adopting commercial cards to get hold of
its benefits. The issuers of commercial cards have designed various commercial card
programs that would cater to businesses of various sizes with focus remaining on
controlling and monitoring expenses.
3.6.1 Small Business
Commercial cards provide the solution to reduce administrative expenses and provide
greater experience in efficiency across company. Some of the benefits that
commercial cards offer for small businesses are
Simplifies tracking and reporting of all spending for increased financial control
� Offers provision to set individual and group spending limits based on
employee and management needs.
� Provision to choose the billing cycle, billing structure, and payment terms
that work best for your organization.
� Retrieve comprehensive daily, weekly, or monthly financial reports; also
eases record keeping for tax time.
� Use the card at millions of acceptance locations-minimizing the need for
employee cash advances or reimbursements.
Protection against unauthorized purchases
� Several commercial cards programs restricts the user of the card to have
dealings with designated travel agents, hotels etc and transaction using the card
could be carried out only for certain specified purposes.
3.6.2 Medium and Large Business
Commercial card also support large companies looking to re-engineer existing stand-
alone payment programs for the increased efficiency of an integrated approach. Most
of commercial card issuers are providing solutions that would combine and provide
singe flexible card for managing travel & entertainment expenses, procurement
related expense and also fleet expenses.
The trend toward multinational consolidation of a single payment card for travel
expenses or procurement is on the rise. Large businesses and governments
increasingly are incorporating card payment in their global Procure-to-Pay
strategy, including integration of card processes with the enterprise resource
planning (ERP) technologies and the expense reporting technologies they deploy
around the world. As a result, the growth rate of commercial card spending is
outpacing gains in consumer cards in most world regions. Visa cited purchases and
cash withdrawals made with Visa Commercial payment solutions globally grew 27
percent in value. Total spend reached Euro 204 / $255 billion for the four quarters
ended June 2005 compared to the same period the previous year. The growth in card
usage is not limited to one specific region but is found across all countries
worldwide. Even in those countries where cash is the dominant form of payment,
commercial card usage is growing faster than any other payment method.
The Multinational Program provides international businesses with a single point of
contact for streamlining global payments and information management while providing
their local offices and employees with a seamless, convenient payment solution.
Organizations increasingly need the capability to integrate the procurement and
payment functions without being hindered by national borders or currencies. As
organizations continue to have more international business opportunities to expand
and streamline operations across different countries, increased regulation and more
stringent financial reporting requirements in the European Union require increased
transparency of global expenditures.
3.7 Types of Commercial Cards
3.7.1 Purchase Cards
Procurement or Purchasing Cards (P-cards) � are commercial cards used for
procurement purposes by the purchase department of the company. The card can be
used to make payments to vendors providing goods and services to the company. Most
of the P-card programs are directly linked to the company�s accounting and finance
through ERP such as Ariba amongst others. These cards provide point of sale
controls as well as back-end reporting data based on information collected at the
point of sale. Because Merchant Processors and/or Issuers are not always able to
accept or pass through some data elements, P-cards offer three levels of data
detail. These variations can be caused by system constraints, point of sale
terminal limitations, and/or training as it relates to capturing specific data
during the transaction.
The three levels of data available in association with a P-card transaction
include:
(1) Level I Data, providing standard credit card purchase information, such as the
total purchase amount, transaction date, merchant category code, and the supplier
(Seller) name.
(2) Level II Data, which supplies the sales tax amount and the Buyer�s accounting
code in addition to the information provided in a Level I Data transfer.
(3) Level III Data, which adds full line-item detail to the data offered in Level
II. This includes sales quantities, product codes, product descriptions, and
shipping data.
Corporate Purchasing Cards should be deployed where the organization has
concentrations of end users, commodities purchased, and spending that fit the
Purchasing Card profile such as low-value, high-volume, indirect goods and
services. A purchase transaction analysis will yield valuable data for determining
where these pockets of opportunity lie.
The first cut should look at transactions that fall below the organization�s �low-
value� threshold. This value may be the cutoff for capitalizing expenses, or it
might be $1,000 for office supplies and $5,000 for computer hardware. While the
80/20 rule is often applied here (80% of the transactions amount to only 20% of the
dollars spent), many organizations see 90% of their purchase transactions totaling
only 5% of their non-payroll dollars. Higher thresholds, such as $2,500 or $5,000,
have become a best practice as the industry has seen risk-averse organizations
severely limit their program potential.
Once the value threshold is established, look at concentrations of
commodities/suppliers and employee locations where these low-value purchases are
being made. The organization can then begin to prioritize commodities and specific
suppliers to target for card usage (or acceptance, if there is sufficient leverage)
and offices where there are many end users who would benefit from having a card.
By analyzing a corporation�s own data, it can determine where to target its
Purchasing Card spend, and which suppliers and locations to implement first, to
reach the low hanging fruit, and plan for the more difficult opportunities.
MasterCard proposes following best practices for effective management of Ghost /
Project Cards

Purchasing card benchmarking survey conducted by RPMG research suggests of greater

potential savings resulting from switch from checks to electronic payments. The
survey also indicates that companies can benefit from the positive impact to the
bottom line from enhancements to payment visibility, expense management, purchasing
processes, strategic sourcing and vendor/supplier management that come from an
electronic payment process.

Source: RPMG Research, Purchasing Card Benchmarking Report, 2007

Between 2005 (the previous RPMG Research report year) and 2007, p-card spend in
North America grew from $110 billion to $137 billion. More specifically, average
organizational monthly spending increased by 24%, driven primarily by increased
card distribution throughout the organization and a 6% increase in the amount spent
per transaction.
Overall, 80% of respondents reported spend increases between �05 and �07. In
particular, Middle Market corporations were the front-runners, reporting growth of
34%, while government and non-profit organizations� p-card spend grew by
approximately 20%. Key growth categories for purchasing card usage include:
computers and peripherals, telecommunications, printing and duplication services,
media and advertising services, and transportation and delivery services. In
addition, the traditional spend categories of office products and MRO goods
continue to be common targets of p-card spend.
The predicted purchasing card growth rate is 12% per year between 2007 and 2012 to
reach $218 billion.
P-Card Value Proposition

The below chart provides a quick snapshot of North America Purchase Card Industry.
The projected purchase card spend in 2010 is expected to be $185 Billion.

Source: RPMG Research, MasterCard International.

The below chart provides current spend categories addressed by P-card program:
The Purchasing Card Process

Following sections describes step by step process in a purchase card transaction

1. Plastic purchasing cards or non-plastic account numbers are issued to

requesters.
2. Card holder orders goods from supplier. The requesters place orders with
suppliers providing appropriate payment instructions
3. Supplier verifies the card with the bank electronically
4. Each card/account is mapped to a general ledger account. (In some cases G/L
mapping can be done based on Merchant Category Codes or Point of Sale Information.)

5. Cardholders receive their purchasing card statement directly from the card
issuer. The statement would contain details of purchases made for the period.
6. The cardholder reviews and approves the statement. Cardholders do not submit
payments directly to the issuer.
7. A single electronic invoice is sent from the card issuer to the requesters�
organization on a monthly, weekly or daily basis. Department head reconciles the
charges for each card in their area of responsibility.
8. The invoice is processed to create accounting entries and facilitate
payment.
9. Documentation of purchases will be audited periodically; retention
requirement would vary based on local government regulations.

Participants and Roles

End Users of the Purchasing Card include companies and governmental agencies and
their employees.

Suppliers of Goods and Services accept Purchasing Card for payment.

Card Issuers work directly with end users to set up the program, issue cards, and
provide the electronic invoice. The card issuer uses the services of the networks
and processors to facilitate card issuance, provide authorization, and provide
data. Many financial institutions provide this product.
Networks facilitate the movement of transactional data between the issuer and
acquirer. Organizations in this role include Visa, MasterCard, and American
Express.

Merchant Acquirers set suppliers up to accept Purchasing Cards. They provide

equipment or software that allows the supplier to process transactions. They
facilitate payment flow, including depositing funds into the supplier�s bank
account.

Processors provide various services to the card issuers which may include: card
production, statement printing, authorization, and data delivery.

3.7.2 Corporate Cards

Travel and Entertainment Cards (T&E Cards) � are commercial cards commonly used by
employees to pay expenses related to travel, including hotel, restaurant, airfare,
and other business-related entertainment expenses such as business lunches or
dinners. T&E Cards are sometimes referred to as Corporate Cards. These cards
provide data reporting capability up to Level III Data. These cards may have either
individual liability or corporate liability depending on the policies that govern
the corporate card program. Any personal expenses incurred on the corporate card
are individuals� responsibility and are typically paid for directly by the
employee. Typically, the card is required to be used only for official business
expenses. The expenses made on the card are paid by the company to the card issuer.
Before being paid, the expenses are required to be approved by the approving
authority, typically the supervisor or cost center head. These cards are linked
with systems such as Concur or PeopleSoft for approval workflow management.
The below chart provides compelling reasons in favor of the T&E card program:

3.7.3 Small Business Cards

Business Cards � are multi-function cards that are commonly used by smaller
companies for both procurement and travel and entertainment expenses. These are
Bank credit cards (VISA, MasterCard, Discover, and American Express) designed for
small businesses. Generally these cards are issued to a business based on the
financial strength of the business' principals and offer special perks and
incentives for business owners and employees.
A typical no annual fee small business credit cards with rates (Annual percentage
rate of interest or APR) below 10% require an excellent credit history or above
average credit risk score.
On the other hand, deriving excellent credit history by judicious usage of small
business cards is increasingly becoming popular among small business.
Listed below are some of the small business cards available in US markets, their
APR, annual and late fee structures as of May 2007. The promotional APR is valid
for current promotions and campaigns.

3.7.4 Fleet Cards

Fleet cards are a commercial card segment dedicated to the transport industry. It
improves the tracking and control process dramatically. It provides a very simple
and effective way to monitor health of the fleet.. Private Label Fleet Cards such
as BP Fleet Card or Fuel man Fleet Card can be used only at designated and pre-
approved merchant locations. Cobranded Fleet Cards such as MasterCard Fleet Card or
Visa branded Fleet Card can be used at any merchant location that accepts
MasterCard or Visa. Since route followed by a driver during a trip is pre-decided,
Gas stations en-route may be included for usage. There are 3 types of Fleet Cards:
1. Driver Card: A driver card is associated with a driver and the driver keeps
it on person while traveling. The driver card can be used to purchase fuel and
services for any vehicle he/she is driving.
2. Vehicle Card: A vehicle card is associated with a vehicle and is kept with
the vehicle. Any driver can use the vehicle card for purchasing fuel and services
for that particular vehicle.
3. Floater Card: A floater card is neither attached to the vehicle nor to the
driver. Any driver can use the floater card for any vehicle. Sometimes, these cards
are also referred as Open Cards.

Step 1
Each Vehicle has a dedicated card � it has the driver�s name or ID and vehicle
number encoded in it to prevent un-authorized usage. Alternatively each driver has
a fleet card issued to him by the employer having his name and ID embossed on it.
Depending on the vehicle number and the route which the driver takes, data is
entered into the fleet card (A driver can be assigned to a pool of vehicles).
Step 2
The driver can utilize the card in any of the gas stations along the route for
refueling. Signature verification is not needed for these cards � IDs and License
Number matching is done. After verification is done and identity ascertained, the
driver is allowed to refuel.
Step 3
On usage, the driver has to enter his ID & vehicle ID, gallons or liters filled and
current odometer reading into POS device. This helps keep track of the expenses as
well as the Mileage of vehicle. The parameters required to be entered at the POS is
predetermined during card setup.
Step 4
Purchase of any items other than fuel and maintenance, consumables at these POS is
restricted (however, to avoid cash advances to drivers, companies can enable usage
of card at convenience stores).Overall health of fleet can be monitored on a day-
to-day basis in addition to achieving significant operational efficiency.
Commercial cards also provide a set of reports, which are very useful to the
management for tracking and control. Some Fleet Card programs offer tax reporting
benefits. Taxes on fuel purchases vary by state, county or municipality in the US.
Depending upon the fleet card product, fleet cards offer a variety of tax
management reports to better track fuel taxes and simplify the filing process.
Among them, a summary of fuel tax activity for the selected period including of
activity by state; current tax liability, federal/state/local tax details and
interstate mileage tracking are included.
3.7.5 Stored Value / Limited term Cards

Relocation Cards
Issued by Employers to newly joining employees or employees set to relocate. This
has limited term, Pre fixed Credit Limits � in some cases limits set on sub
categories of relocation i.e. on transportation, Car Rentals etc.
Payroll Cards
Regular Stored Value cards � Amount put in by Employers on Payday. After that
Stored value gets topped up � acts similar to any debit card. The difference being
� Credits to the card account are done by Employers as against account holder in
case of debit cards.
Project / Budget Cards
Limited term, declining value i.e. stored value card that can limit where to
purchase, number of times a purchase can happen and associated limits. All the
project expenses directly hit the GL and can be tracked through reports.
Meeting Cards
A combination of T&E card and Project Card that aims at limiting meeting expenses.
This might include conferencing costs, T&E costs associated with meetings etc.
These cards are generally classified under stored value category owing to their
nature.
3.7.6 Multi-Cards

Although each commercial card serves a specific purpose, the future belongs to the
MultiCard. It is a combination of Purchase, Fleet & Corporate card features. It is
expected to replace all commercial cards in near future. But demand is yet to pick
up, as existing commercial cards are long term in nature and deep rooted within
using organizations. Some of the leading MultiCards are Visa�s OneCard &
MasterCard�s MultiCard. MultiCard solutions integrates purchasing, travel and fleet
spend management and control, allowing large corporations to integrate payment card
programmes and consolidate data and global reports. The client can set variable
spending controls on purchase amount, number of transactions, types of suppliers or
other criteria for any spending category. Such a solution allows for greater
controls over spending as well as improved purchasing power.
3.8 Distinct Features of Commercial Cards
3.8.1 Collectability

Commercial cards may or may not guarantee funds to the Seller depending upon the
card brand. Any Buyer has the right to dispute a credit card charge. If a charge is
challenged, a retrieval request will be sent from the Card Issuer to the Merchant
Acquirer. The Merchant Acquirer will in turn request proof from the Seller of a
sale to the Buyer.
For in-person transactions, signed receipt copies are normally requested. The
Seller assumes most of the transaction risk regardless of how the transaction was
completed. Since Internet transactions have not adopted electronic signature
capability, the burden of proof is on the Seller to prove the sale was legitimate
based on the nature of the cardholder (Buyer) inquiry/charge-back. In addition, the
Seller�s Merchant Acquirer has the right to discontinue service to the Seller for a
variety of business reasons.
The Buyer�s Card Issuer also has this right with the Buyer. Some merchant (Seller)
business models are high risk in nature as they relate to credit card
Association/Card Issuer rules. Examples include telemarketers and Internet based
businesses. These Sellers typically pay higher transaction processing costs and are
closely monitored for velocity related transaction patterns or chargeback�s.
Denials of online card transactions can occur for a variety of reasons including
limits that have been set on the spending pattern of the user (Buyer), such as
dollars per month, dollars per day, the type of merchant (Seller), etc.
In comparison with consumer credit cards, commercial cards have more features
designed to contain spending and prevent improper use of corporate funds.
Commercial cards also allow for reversals, enabling a Seller to send a credit to
the Buyer.
3.8.2 Remittance Capability

Remittance data is included in commercial card transactions, and credit card

Associations or independent Card Issuers set the content and file format standards.
There are typically three different levels of remittance detail.
Level I Data includes the standard credit card purchase transaction (e.g. merchant,
charged amount, date).
Level II includes summary level detail as well as a point of sale code and sales
tax amount.
Level III Data provides line item purchase detail
Merchant Processors and/or Card Issuers are not always able to accept or pass
through some of these remittance data elements due to factors such as system
constraints, point of sale terminal limitations, and/or training as it relates to
capturing specific data during the transaction.
3.8.3 Processing Issues

Commercial card Merchant Processors and Gateways are available on a 24x7 basis.
Authorizations are performed in real-time and can be handled online. Authorization
limits can be put in place by the credit Card Issuer or at the corporation�s
request to limit corporate liability for employee purchases. These can include
credit limits, order limits, or blocks for specific merchant types. Credits
(reversals) are handled outside of the authorization system.
3.8.4 Security

Data transferred through the credit card networks is protected by the data security
methods employed by the Sellers, Merchant Processors, Gateways, Merchant Acquirers,
and Card Issuers. Transactions are traceable, and Buyers can track them through
their credit card Association or Card Issuer via the credit card number and Buyer�s
account. Using the Merchant Acquirer and/or Merchant Processor or Gateway, the
Seller can also track transactions. Commercial cards also have other security
features that enable authentication, encryption, non-repudiation, and physical
storage and access of data.
A commercial card user (Buyer) can be authenticated via address verification
(Address Verification System or AVS). This service verifies the billing address
information (zip code and street address) and provides, upon authorization, an
additional code that is separate from the authorization code. This code is
generally used when the card is not physically presented to the Seller, as in the
case of purchases made over the telephone. The Seller verifies the address given by
the Buyer during the transaction against the address on the AVS cardholder file.
Credit card data is transmitted through Merchant Processors and Gateways in
encrypted form.
Most Merchant Acquirers use secured T-1 and frame relay lines to transmit and
secure data between their systems and the bank networks. Once the transaction is in
process, it can be reversed only by manual intervention by the Seller. Within the
credit card network, all data is stored on secure servers. Only personnel
designated by the organization involved can access data.
3.8.5 Privacy

Information such as the Buyer�s credit history may be disclosed to third parties
and official credit reporting agencies. The transaction and enhanced data received
as part of card use typically belongs to the company, and not the individual card
user. A cardholder agreement or disclosure statement often defines this agreement.
In some cases, credit Card Issuers may sell listings of commercial cardholders, but
they do not include credit card numbers or other types of information.
3.8.6 Economics & costs
3.8.6.1 Investment Cost
There are various hardware options available to Sellers who wish to accept
commercial cards for payment. The primary hardware requirement is a telephone line
for obtaining authorizations and a point of sale device or its equivalent for a PC.
Another option is a computer dedicated to real time credit card authorizations and
transactions. This equipment may need to be upgraded to enable Level II and III
data acquisition for P-cards.
A Buyer requires no hardware, although Buyers may wish to use a computer to
initiate a payment online through a seller direct or exchange site. Depending on
the Merchant Acquirer, Merchant Processor or Gateway, and the software used, there
may be one-time start up costs, setup fees, or testing fees.
3.8.6.2 Transaction Cost/Fees

With all credit cards, including commercial cards, interchange fees and third-party
costs constitute the majority of transaction processing fees that the Seller must
pay. Merchant Processors and Gateways also charge fees for their use. These fees
are typically collected with the interchange fees. Merchant Acquirers also charge
the Seller an interchange fee for handling each transaction, and this is reflected
in a "discount" subtracted from the face amount of the transaction credited to the
Seller. Independent Card Issuers typically bundle all of these costs, as
applicable, into a total referred to as the discount fee. The discount fee is
subtracted in a comprehensive total from the face amount of the transaction
credited to the Seller.
Card transactions that provide enhanced data may be more costly for Sellers. Fees
may vary based on the data that is supplied, the card type, and/or the method used
to process the transaction. Card Issuers or their Associations also may assess
different fees to process the various types of cards that they brand.
For the Buyer, there may be additional fees for line of credit services associated
with a card�s funding account. There may also be fees for detailed transaction
reporting and periodic management and transaction reports on the Buyers side. A
Buyer does not incur any direct pass-through costs from the Seller to use a credit
card. Sellers are charged a fee for chargeback�s made to their accounts. Buyers may
also have to pay a fee to initiate a chargeback
3.9 Controls in Commercial Cards
3.9.1 Spending Limit Controls

Electronic spending limit controls can be assigned to individual cardholders

according to any combination of criteria any company chooses: typically dollars per
month, dollars per transaction, number of transactions per day or month, possibly
even by merchant or type.
However, it�s important to strike a balance between adequate controls and the
flexibility employees need, especially for travel situations. It�s a good practice
to periodically review the spending limits established to see how well they are
meeting the company�s needs.

Companies can contact the card issuer to request adjustments to a cardholder�s

purchase authorization.
The following details the specifics of each authorization control:
� Credit limits � There will be an overall corporate credit limit established
by the card issuer
� Cardholder monthly spending limit � At the cardholder level, one can set
monthly spending limits appropriate to the cardholder�s travel requirements
� Transaction limits � In addition to the dollar limits per month, one may be
able to place limits on individual purchasing power based on criteria such as:
o Dollars per transaction
o Number of transactions per day
o Number of transactions per month
o ATM withdrawals per day, per week

Aside from ATM cash limitations, these transaction limits are generally not
recommended for frequent travelers or meeting planners due to their restrictive
nature.
3.9.2 Merchant Category Code Controls

Especially in the MasterCard network, all merchants (vendors) are categorized by

Merchant Category Codes (MCCs), which are similar to the Standard Industrial
Classification (SIC) codes.
With this, one may elect to exclude (or include) types of vendors where the said
card can be used based on these categories. Some companies restrict use of travel
cards to travel providers such as airlines, car rental companies, hotels, and
restaurants. It is general practice not to be overly restrictive in setting MCC
controls. While it is feasible to allow authorizations to vary by
Vendor categories, this may result in inconveniences and confusion for cardholders
attempting to use the card for legitimate business travel expenses. For this,
company should think through its spending policies to ensure that they are
realistic for cardholders
3.9.3 Control through Reports

Regular reports and alerts are ideal for deriving best out of controls. First step
in this direction is to determine the pre-formatted reports or queries that will
help each manager provide the necessary oversight in terms of the respective
commercial card program. Some of these are:-
� New cardholder report to check that the appropriate limits have been set up
� Possible split transaction report that identifies multiple transactions with
the same supplier on the same day
� Transaction summary by hierarchy unit to identify which units are using their
cards regularly and which units need more training or promotion
� Spend by MCC to determine potential new usage applications
� Capital threshold to identify purchases over the company�s capital
expenditure limit that may need unique accounting treatment (Issuer should assist
in setup)

3.9.4 Fraud Controls

Commercial Card programs offer best-in-class Fraud controls. These controls are
designed during the setup stage of the card. The Fraud control design is based on
individual needs and is arrived at after conducting a thorough risk based analysis.
Fraud controls may include the following:
1. POS verification and validation: These controls are setup to be verified
while the card is swiped at the terminal or used at the Payment Gateway. Examples
are PIN validation, Driver ID/Vehicle ID validation for Fleet Cards, Employee ID
validation for Purchase Card, Authorization level validation such as Velocity
Check, Day and Time validation, Threshold validation, ZIP validation.
2. Business Activity Monitoring: These are reporting based monitoring designed
to identify fraudulent activity on the card either by an unauthorized person or
unauthorized usage by an authorized person. Commercial card programs offer enhanced
data and reporting that can be used to identify any such activity.
3.10 Compliance using Commercial Cards
Commercial Card programs can be effectively used to better meet growing compliance
requirements such as that of Sarbanes Oxley.
While the new regulatory environment imposes strict compliance requirements on
companies, it also creates an opportunity to take more control over purchasing and
spending by implementing consistent policies and improving systems for the entire
process.

Below Framework developed by Visa is being adopted by companies to better manage

and control business expenses and to meet regulatory compliance:

Businesses that use purchasing cards must meet certain Internal Revenue Service
(IRS) information reporting, withholding, and payee documentation requirements.
These include:
1. E-Obtaining a merchant�s name, address, and Taxpayer Identification Number
(TIN) before payment is made
2. E-Backup withholding 31 percent if this information is not on hand
3. E-Filing Forms 1099-MISC at year-end to report payments made to merchants for
services.
These reporting requirements have been applied to check payment and invoice
transactions for the past 50 years. In the 1980s, Congress added the TIN
solicitation requirements, and added the requirement that federal government
agencies report payments made to all types of corporations. These IRS regulations
impose certain challenges that can be met by using the Commercial Cad program as it
helps in making the relevant data available, automating expense management
processes and reporting.

4.0 Commercial Cards Process Overview

4.1 Process Overview
4.1.1 Issuers
The key activities of a card issuer are:
� Account Acquisition
� Transaction Processing
� Account & Portfolio Management
Account acquisition: Issuers execute various marketing campaigns to solicit their
card products to customers. Account acquisition is usually through pre-approved
applications, new applications, and portfolio acquisition. For new applications,
based upon the cardholder�s application and the credit/risk approval guidelines,
the Issuer will either approve or decline the cardholder for a payment card
account. For approved applications, a cardholder account is created and the card is
created and issued to the card holder.
Transaction processing: Major activities include authorization-processing,
settlement processing, and handling dispute transactions such as charge backs,
generating customer statements, customer care, and payment processing.
Authorization requests are followed up by a presentment, which is a financial
message that urges the Issuer to transfer the requested amount. These financial
messages are contained within the �clearing� file, which is generated by the
Acquirer and destined for the Issuer. The Issuer will accept the financial message
after matching it with the corresponding authorization message.
Account & Portfolio Management:
This includes:
1. Monitoring Portfolio performance - performance parameters include past dues,
charge-offs, recoveries, fraud, profitability and others.
2. Monitoring Individual accounts for credit line increases, renewals, re-issues,
payment deferral plans.
3. Monitoring Specific programs - pre-approved portfolios.
4. Collections � Issuers typically outsource this work to a third party Agency
called collectors or agents who do all the follow-up/check with defaulters and are
responsible for bad debt retrievals.

Issuers Processes
Cardholder Marketing
This includes all marketing activities associated with the acquisition of
applications for new cardholder accounts.
Developing a solicitation campaign involves
� Establishing policies and procedures
� Identifying the channels which may include direct mail, telemarketing, mass
media, and Internet,
� Purchasing solicitation lists from credit bureaus and vendors
� Mailing and distributing new account solicitation materials
� Performing outbound telemarketing
� Developing mass media, Internet, and special event marketing campaigns
� Administering tracking programs to monitor the performance of the new account
marketing efforts

Credit Processing
Application Processing verifies the information provided in the Credit Card
application and determines the credit worthiness of the applicant. A verification
check is carried out on the applicant where the applicant�s past credit record,
social status, credibility, profession, financial status, personal background,
family history are assessed.
A credit score is a vital number lenders use to come to a credit decision. Credit
Score is a measure of a person's credit worth. It is calculated using many factors
that typically influence a person's ability to repay credit. Credit scores are also
called risk scores because they help lenders predict the risk that you will not be
able to repay the debt as agreed. Scores are generated by statistical models using
elements from your credit report, and sometimes from other sources, such as the
credit application. Credit scores are only affected by elements in your credit
report, such as:
� Number and severity of late payments
� Type, number and age of accounts
� Total debt
� Recent inquiries

Designers of credit scoring models review a set of consumers � often over a

million. The credit profiles of the consumers are examined to identify common
variables they exhibited. The designers then build statistical models that assign
weights to each variable, and these variables are combined to create a credit
score. Models for specific types of loans, such as auto or mortgage, more closely
consider consumer payment statistics related to these loans. Model builders strive
to identify the best set of variables from a consumer's past credit history that
most effectively predict future credit behavior.
Each applicant is evaluated in terms of credit and a decision on whether to issue a
card or not is arrived at. If found suitable, a card is issued to the applicant by
the lender.
Authorization Processing
� An Authorization request may be �on-us� item if the same financial
institution acts as the issuer and acquirer for that particular transaction or it
may be an interchange item if it is routed from a card association.
� Issuer�s responsibilities include setting an authorization policy and various
related parameters
� Authorization methods may include positive authorization which includes
checking customer balance and/or negative authorization to verify that the card is
not blocked
� Apart from this, the Issuer system checks for various card settings (e.g.
expiration date, status, restrictions) and various account settings (status,
restrictions)
� In case of over limit conditions or suspicious activity flag, the Issuer may
manually receive and respond to authorization transactions (this is referred to as
voice or referral authorization)
� Based on the result of the authorization, the authorization engine generates
a response code which will be relayed back to the association if it is an
interchange item or to an appropriate module of the card processing system if it is
an �on-us� transaction
� The approval/decline is recorded in a cardholder authorization file which is
required later for matching with the corresponding financial transaction

Transaction Processing
� Receive incoming financial transaction messages from the Card Scheme networks
via a Clearing Interface
� Match them with authorization records received earlier
� If there are no exceptions, pass the necessary postings to the relevant
customer and General Ledger accounts
� If any inconsistencies are found, or a dispute is raised by the Cardholder,
pass the transaction for Manual Authorization Matching or Dispute Processing
� Reconcile incoming interchange data to control totals
� Settle interchange with associations

Disputes Processing
When a customer transaction cannot be matched and/or processed in a completely
automatic way, or if a customer raises a dispute, the processing will require human
intervention. Disputes may also result from a disagreement between any of the
parties along the clearing chain regarding the fees to be collected for additional
processing.
On receiving communication from the cardholder regarding a transaction dispute, the
Issuer may initiate the following steps.
� The Scanning stage of the process allows for the creation of electronic
images from paper documents related to a case either from the cardholder or the
Acquirer and the assignment of document attributes to those images.
� The Indexing stage of the process allows for assigning additional document
attributes to documents. At this stage, an indexing representative identifies the
dispute type by looking at the document and either attaches the document to an
existing dispute case or creates a new case. This stage includes the sales draft
retrieval made by the Issuer to the Acquirer through the association and the
subsequent fulfillment of the request. If the dispute is not resolved then the
chargeback process is initiated
� During Automated Case Review, the system evaluates files for the opportunity
to resolve cases that do not require manual review either by auto write-off or by
auto-Chargeback. Automatically generated charge backs save Issuers entry time for
those items that are always charged back e.g. lost or stolen cards, retrieval
requests not fulfilled within a specified number of days, tickets that were either
presented late or if they were for a card that had expired or was on the warning
bulletin, etc.
� If the dispute cannot be resolved in the previous stage, a Chargeback
representative takes care of trying to resolve the case. He pulls the case, views
the data and supplied document images, possibly checks the account or transaction
history and makes a decision as to the action to be performed. If the case requires
more information from the customer or merchant, he puts in pending it for a certain
number of days. If not he releases it to a closed stage or for further reviews.
� If an outgoing chargeback is required to be created, the Issuer system first
debits the Acquirer and credits the cardholder. The chargeback is sent to the
Acquirer through the association.
� The acquirer or merchant may dispute the chargeback and send a representment.
If the dispute cannot still be resolved, the Issuer sends a pre-arbitration notice
wherein the merchant risks losing the disputed amount. Arbitration is the process
where Visa/MC determines financial liability between Credit Card Company and the
Merchant for transactions that are presented and charged back.

Fraud Management
Fraud management refers to managing Issuer Fraud risk through prevention and
detection, investigation, and charge backs related to fraudulent card usage. This
includes activities related to Application screening, Plastic Mailing, Lost/Stolen
reports, and Account activity.
� Applications are screened for possible fraud; issuers may also refer to
external screening services for this
� Card production security measures are developed and implemented
� Lost/stolen reports are taken from cardholders and inquiries from merchants
for suspicious card activity
� Parameters are determined for rules-based and neural-network screening
systems
� Account transactions are monitored for suspicious activity via automated
rules-based and/or neural network screening systems
� Attempt to identify patterns of fraudulent activity and plan countermeasures
� Fraud activity statements are mailed to cardholders
� Chargeback transactions may be processed for fraudulent transactions
� Fraud reports are created for the associations and insurance companies
� Fraud losses are forecasted and fraud management expenses budgeted.

Collections
Collections and Recovery helps Issuers to obtain payments on Defaulters accounts.
Issuers typically outsource this work to a third party Agencies called �Collectors�
or �Agents�, who do all the follow-up/check with defaulters and are responsible for
bad debt retrievals.
� An account is considered delinquent when it cycles and the minimum payment
due have not been paid. When the account first cycles in this condition, it is
considered 30 day delinquent.
� An account is considered over limit when the balance on that account is
higher than the approved credit limit.
The issuer prioritizes the delinquent accounts to be contacted, lists these
accounts on exception files, may block accounts based on internal criteria,
negotiates payment plans with the defaulters, uses behavioral scoring systems for
monitoring and collecting delinquent account balances, and prints messages on
subsequent statements.
In case of bankruptcies, the Issuer closes the account and depending on the
likelihood of compensation, may file a claim against the assets of the cardholder.

For accounts in the late stage of delinquency i.e. 90-179 days delinquent, the
Issuer reports the status to credit bureaus, sends legal notices for overdue
payment, closes the account, and may write-off select accounts.
The issuer may choose to outsource the collection work to external agencies that
are paid a specified percentage of the amount recovered. Alternatively, these
accounts may also be transferred to an internal Recovery unit. The issuer oversees
agency results and may re-assign accounts depending on the performance and workload
of various collectors. If the amount cannot be recovered, it is written-off and
such charged-off accounts may be sold off in the secondary market.
4.1.2 Acquirers

The key activities of an acquirer are:

? Merchant Acquisition
? Merchant Processing
? Account & Portfolio Management

Merchant acquisition refers to signing up merchants, installing point-of-sale

terminals, and providing any necessary training for merchant employees.
� Merchant Marketing: This process includes the promoting the acquirer�s card
acceptance service to merchants. Usually, an acquirer has full-time employees who
call on the larger merchants, while an acquirer will contract with one or more
ISO�s to sell and service smaller merchants.
� Credit & Risk Management: As part of the merchant application acceptance, an
Acquirer develops merchant application approval guidelines that determine whether
it will accept or decline a merchant�s application, the risk profile of a merchant
and any risk premium for the price quote. As an example, a restaurant that has been
in business for several years will be viewed as having much lower risk than a new
merchant promoting a new product over the phone.
� Application Decisioning: Based upon the merchant�s application and the credit
/ risk approval guidelines, the acquirer will either approve or decline the
merchant for providing a card acceptance service. For approved merchants, Acquirer
grants a merchant account. Acquirer signs up the merchants for transaction
acquiring through formal agreements indicating the merchant discount rate and terms
� Merchant Setup: Provide POS terminals and connectivity to Acquirer system on
lease/rent and training of merchant personnel

Merchant processing includes a host of activities. First, there is a routing of

transaction authorization requests from the merchant to the proper card issuing
institution. Thereafter the issuer�s reply is relayed back to the merchant. It also
includes handling the flow of electronic and paper receipts, settling accounts,
fraud monitoring and control, handling dispute transactions, creating reports,
providing ongoing services such as repairs, monitoring, and the provision of
supplies, and responding to merchant problems with card processing.
� Transaction Transmitting & Processing: Acquirers maintain, directly or
indirectly, a functional twenty-four (24)-hours-per-day operating connection to the
Interchange System and transmit all transactions they acquire to the Interchange
system. Merchants may submit settlement file to the Acquirer (terminal capture) or
capture it on Acquirer system (host capture). Files are processed in batch mode at
predefined intervals (usually at end of day)
� Merchant Settlement: Credit or debit (as applicable) merchant�s designated
bank account with the amount, (either gross or net of merchant discount) of all
transactions. Acquirers receive reimbursements from Issuers through the Association
for the payments made to merchants
� Merchant Statement: Distribution of detailed statements summarizing
electronic transaction payment processing activity.
� Merchant Service: Merchant service is provided on-site and via a call center
and could include such services as a request for supplies, a complaint that the POS
device is no longer working and a dispute about a chargeback. Acquirer needs to
ensure that merchants are provided with all materials necessary to effect
transactions in compliance with association rules. These materials may include POS
terminals, PIN pads, advertising displays, Merchant decals, and other point-of-
interaction promotional materials bearing the Service Marks.
� Security & Fraud Management: Card transactions are monitored for fraudulent
activity. If suspicious transactions are identified, this group will review the
transactions and potentially reject any subsequent transactions, hold funds,
disable the merchant�s card acceptance capability and notify the government
agencies/police.
� Disputes (Retrievals / Charge backs): At any time, a cardholder has the right
to question whether a transaction is legitimate. The first step in this process is
for the cardholder to request, via the issuer or the card association/organization,
a copy of the transaction from the merchant. This request typically goes to the
acquirer who either responds on behalf of the merchant or forwards the request to
the merchant for fulfillment. If a copy cannot be provided, the retrieval request
will become a chargeback. Even if the retrieval request is fulfilled, the
cardholder still has the right to request a chargeback. The acquirer may receive a
request from the merchant to dispute a chargeback, which then means that the
disputed transaction is dealt with through a defined dispute process. Acquirers
must ensure the provision and support of processes to facilitate the handling of
transaction inquiries, disputes, transaction documentation requests, and charge
backs.
� Merchant Collections: If the merchant defaults on outstanding fees (e.g.,
goes out of business), then the merchant collections process will be invoked
following typical business collections procedures.
� Legal / Regulatory: An acquirer must comply with the operating regulations
and by-laws of each card association/organization. Periodically, the acquirer will
receive updates from the card associations / organizations, which the acquirer must
interpret and implement in its operations and systems.
� Income accounting and Portfolio Analysis: Track income from rental of POS
devices and other hardware, software, merchants� discount fees and various income
streams.
Account & Portfolio Management activities include Merchant Relationship management,
merchant lead tracking, underwriting, boarding, risk analysis, customer support,
merchant transaction reporting, agent reporting, tracking income from rental of POS
devices and other hardware, software, merchants� discount fees and various income
streams.
4.1.3 Associations
The high level processes for a Card Association / Organization are as follows:
� Operating Regulations: Each card association / organization is governed by
its operating regulations or by-laws. These operating regulations must be
consistent with any governmental regulations and vary by country and currency type.
� Marketing: Card associations/organizations promote the usage of the card in
different media and at a variety of forums (e.g., Visa at the Olympics).
� Authorization: The card association/organization receives the authorization
request from the acquirer. For a card association, the authorization is analyzed
for fraudulent activity, reviewed for stand-in processing and if not approved for
stand-in processing, forwarded on to the issuer for authorization. The
authorization approval/decline is sent back to the acquirer. For a card
organization that also issues the card, and then the card organization decides
whether to authorize or decline the transaction.
� Clearing & Settlement: Periodically, the card association/organization
receives authorized and settled transactions from an acquirer. In turn, it batches
the transactions by issuer and routes them to the appropriate issuer. Next, it
financially settles the amount of transactions exchanged among acquirers and
issuers.
� Interchange Processing: In conjunction with the settlement processing, the
card association/organization assesses processing fees, based several factors
including the type of transaction, industry type and risk. Currently, interchange
fees are approximately 2% of the sale amount for fully authorized, lowest risk
transactions. However, these fees are greater for other types of transactions are
deemed more risky.
� Exception Transaction Processing: Issuers send chargeback requests to the
card association / organization. Also includes processing other disputes
transactions such as adjustments, chargeback reversals, representments, etc.
� Product Development: Card Associations / organizations develop new card
products targeted at specific market segments to increase transaction volume and
market share.
� Security & Risk Management: Card Associations/Organizations establish
security and risk management guidelines and monitor transaction activity to
minimize fraudulent transactions and financial losses.
4.1.4 Third Party Processors
The high level processes for an Issuer�s Processor are as follows:
� Application Decisioning: Based upon the cardholder�s application and the
credit/risk approval guidelines, the cardholder will either be approved or declined
for a payment card account. This process usually includes contacting a credit
bureau to review the consumers/business� credit/financial history, checking
existing profiles, etc.
� Account Setup: Once the Issuer has approved the cardholder, the Issuer�s
Processor establishes the cardholder on the cardholder systems.
� Plastic Production: Includes card design, custom or generic card carrier and
PIN mailer support, marketing message insert support, Card embossing and encoding.

� Plastic Issuance: Next, the issuer�s processor prepares and mails a

cardholder welcome package, which includes a welcome letter, the personalized card,
cardholder notification agreement and a card activation number. After the
cardholder calls the card activation number, the cardholder can use the card to
purchase goods/services and/or access other card entitlements.
� Authorization Processing: Every time the cardholder uses the card, the
issuer�s processor receives an authorization request that validates the amount of
available credit or available funds. The issuer�s processor authorizes/declines the
transaction based upon the issuer�s pre-determined authorization guidelines, which
are programmed into the authorization system. The Issuer has the right to authorize
or decline any transaction (e.g., purchase transactions or any other card
entitlement), because the issuer assumes the financial liability for each
authorized transaction.
� Settlement Processing: Periodically, the issuer�s processor receives batches
of authorized transactions, which are applied against each cardholder�s account
(e.g., a credit card transaction reduces the available amount of credit).
� Disputes Management: Includes processing related to chargebacks, adjustments,
etc.
� Cardholder Statements: Usually monthly, the processor prints and mails a
statement to the cardholder showing all transaction activities, deductions and
service fees on the account. A statement usually indicates the minimum payment
amount within a certain date. Some processors have the capability to provide
statements electronically.
� Payment Processing: Cardholders initiate payments to the issuer�s processor,
who in turn applies the payments against the cardholder�s account. Payments include
checks, ACH transactions and sometimes wires.
� Cardholder Service: Cardholder customer service is provided on-site and via a
call center and could include such services as transaction inquiry, change of
address, request for a new statement and a chargeback request.
� Fraud Management: The processor may monitor card transactions for fraudulent
activity. If suspicious transactions are identified, the department responsible for
this process reviews the transactions and potentially rejects any subsequent the
transactions, holds funds, puts a hold on the card authorizations and potentially
notifies the government agencies/police.
The high level processes for an Acquirer�s Processor are as follows:
� Account Setup: If the Acquirer approves the merchant�s application, then
acquirer�s processor establishes the card acceptance on its processing systems,
which include the merchant processing system, authorization system and funding
system.
� POS Switch Processing: Once established, the POS Switch recognizes the
variety of transactions coming from the acquirer�s merchants and routes the
transactions to the appropriate card authorizer, waits for the authorization
approval/decline and routes the result to the POS device.
� Authorization Processing: In conjunction with POS Switch processing, this
system reviews the transactions for any potential fraudulent activity and stores
the authorizations.
� Settlement Processing: Settled transactions are received from the merchant
and matched with existing authorizations, the card types are group and forwarded to
the appropriate card association/organization. In turn, the amount of settled funds
less any chargeback and fees is credited to the merchant either directly or via the
ACH.
� Merchant Statements: Periodically, Acquirer�s processor produces and forwards
statements of transaction activity. Also, some processors can send statements to
merchants electronically. Included on the statement are card acceptance service
fees, which typically include the discount fee, terminal charges, charge backs and
any other fees. These fees are deducted from the merchant�s settlement amount. The
discount fee also includes a transaction fee and discount fee charged by the
acquiring bank to handle the merchant�s account and fees charged by the processor
for its services. Typically a discount fee costs the merchant about 2.0% for
bankcards and 3.0% for T&E cards.
� Deposit Processing: The amount of settled funds less any chargeback and fees
is credited to the merchant either directly or via the ACH.
4.1.5 Independent Sales Organizations

The high level processes for independent sales organization are as follows:
� Merchant Sales: This process includes the promoting the acquirer�s card
acceptance service to merchants. Usually, an acquirer has full-time employees who
call on the larger merchants, while an acquirer will contract with one or more
ISO�s to sell and service smaller merchants.
� Credit and Risk Management: Develops merchant application approval guidelines
that determine whether it will accept or decline a merchant�s application, the risk
profile of a merchant and any risk premium for the price quote.
� Application Decisioning, Account Setup: Based upon the merchant�s application
and the credit/risk approval guidelines, merchant may be approved or declined for
providing a card acceptance service. For approved merchants, a merchant account is
granted.
� Merchant Service: Merchant service is provided on-site and via a call center
and could include such services as a request for supplies, a complaint that the POS
device is no longer working and a dispute about a chargeback.
� Execution of Credit Policy and Underwriting: Although acquirers are
responsible for establishing underwriting and credit policies, ISOs play a
significant implementation role.
� Back-end Risk Management / Transaction Monitoring: ISOs that take
responsibility for this back-end process have monitoring systems to scrutinize
transactions particularly closely during the first few days and weeks of a merchant
relationship, when fraud is most likely to occur, and provide prompt reports to the
acquirer.
� Terminal Leasing and Support: Includes setting up the POS terminal and
conducting training, POS device maintenance / reprogramming / repair and responding
to service questions.
� Supervision of Independent Contractors: ISO may employ ICs - individuals who
have a bankcard relationship with a member. An IC, if not registered with the
bankcard associations, can do merchant solicitation only by representing himself as
an employee of the ISO (or Acquirer). Sales groups or individuals marketing
transaction processing and individually branding himself or company as a Check,
Loyalty card, or equipment sales reseller or an unregistered group are in clear
violation of association rules. ISOs need to ensure that they do not sub-contract
since it is illegal.

5.0 Technology in Commercial Card Processing

Cards as a payment mechanism are more technologically dependent that checks or
cash. This has added advantages in terms of lesser time required for transaction,
ease of use, convenience, providing an electronic trail to money flow, which is
easier to track and control. However, similar to other technologies, usage of cards
also necessitates the IT systems infrastructure and network, regulations and
technology standards to be in place, and be constantly upgraded in tune with the
latest business needs.
The technology of credit card can be based on either magnetic card or chip
technology. Magnetic card or, Magnetic Strip Read (MSR) cards have identification
information embedded on magnetic strip, whereas in chip cards electronic chip has
such information. Chip cards offer more functionalities than MSR cards, because
they can store much more information, and process data as well (which is not
possible in MSR cards). Chip cards can store monetary value on chip, which is not
possible in magnetic cards.
The card processing involves development and deployment of variety of applications
for past few decades that typically utilize the mainframe for their primary
processing systems. Overall the following technology and processing generally apply
to payment card industry.
o Card payment entities must support significant Non-Functional-Requirements
like transaction processing speed, performance related requirements etc.
o Authorization processing is 24x7 with significant high availability, fail
over, and redundancy requirements. Generally IBM mainframe and servers are used.
o Core Processing (e.g. clearing, settlement and financial processing) is
usually done as batch process.
o Front-end systems (e.g. campaign management, customer service inquiry) are a
mix of mainframe and web based technologies.
o Middleware is sometimes used with MQ being the most seen applications
o Transaction monitoring applications (e.g., network management and fraud
management) are common.
o Data storage requirements are significant due to marketing, fraud analysis,
operating regulations and governmental requirements.
The following section describes some of the major off the shelf products for
commercial cards processing.
5.1 BASE 2000
5.1.1 Introduction
BASE2000 is a card processing platform from Certegy � which is now a part of
Fidelity national Information Services (FIS). This offering has a complete suite of
Mainframe card issuing and acquiring software, as well as a Client Server
application processing system.
BASE2000 is popular in North America, Europe and Asia Pacific Region (Especially
Australia and New Zealand). It is especially popular with Non FDI, Non TSYS 3rd
party processors
Some of its key clients are EDS Cards Processing Services, Commonwealth bank of
Australia,
The suite of products can be represented as follows:-

BASE2000 supports business card, corporate card, and purchasing card requirements.
Commercial card accounts are associated with a company that can have up to six
hierarchical levels. There are authorization controls that can authorize
transactions based on several parameters, such as the company hierarchy, the
merchant and time of day.

The Commercial Card Processing System is part of the BASE2000 system but can also
be purchased separately. This module works in conjunction with the BASE2000
Cardholder System to provide commercial, business and procurement or purchasing
card support.
The Merchant System is a highly flexible, feature-rich solution for merchant
processing and accounting, and is designed to handle large transaction volumes
while maintaining quick turnaround and responsive service. Functionality includes:
� Transaction routing from interchange and merchants to proper output locations

� Merchant accounting for posting financial volumes and tracking activity

� An online system for inquiry and maintenance of merchant history
� Table-driven parameter system that provides flexibility matched by no other
transaction processing software
The Collection System offers flexible, user-defined and controlled state-of-the-art
and fully automated online and batch functionality for collections and delinquency
management of many types of accounts, including mortgages, leases, installment
loans, line of credit, payment cards and utilities.

5.1.2 Features
BASE2000 offers:
� Card processing for personal cards and commercial accounts � business,
corporate, and purchasing cards
� Transaction-level pricing and payment options � promotional, introductory
rate, and fee options
BASE2000 software provides pricing and payment options at the transaction level. In
addition to a default set of billing terms for a credit product, a financial
institution can also set up promotional pricing plans, such as a deferred payment
plan, a deferred interest plan, introductory rates, and fixed payment plans.
Base 2000 Services

Typical Products supported by BASE2000 are:-

5.1.3 Functional Architecture

BASE2000 has table-driven four-tier architecture that gives control with client
defined parameters and Qualification Sets.
This enables users to define products, set criteria and select processing options
to configure a system that meets the requirements. This means, that there is no
limit to the number of products than can be offered through this platform.
The system hierarchy is comprised of four major tiers: Transaction, Account,
Product and Portfolio levels. These levels stratify an issuer�s portfolio according
to differences such as separate companies within a business, physical location or
reporting requirements.
Statistical reporting is provided for account activity at all four levels, and
because each level is defined separately with a one-to-many relationship
capability, portfolio structure is unlimited. Options are user-defined, not
hardwired; this means - changing a term in one place changes it everywhere.
Individual tiers in this architecture come with unique features. These are:-
Transaction Level:-
Define terms within a transaction to identify applicable:-
� Pricing plans
� Transaction routing criteria
� Disqualification criteria and
� Transaction Fee
Account Level:-
Define standard terms:-
� Billing parameters including late, over limit and membership fees, finance
charges structures and rates
� Delinquency History
� Payment history
� Electronic statement delivery options
� Commercial account parameters
� Smart card parameters

Product Level:-
Product level is the level at which client defines the product type and class,
related affinity partner and service codes. Products are defined online in real-
time. Product types supported include consumer, commercial, private label,
consolidated and smart cards.
The product master houses the options for several business functions as follows:-
� Defines a type of product, i.e., Visa, MasterCard, American Express, private
label, home equity, personal/business line of credit, chip, gold, standard,
platinum, commercial, consolidated card, co-branded, etc.
� Defines key management options for:
o Account management � parameters, cycle days, delinquency and over limit block
criteria and more.
o Services � insurance products, auto pay formats, fee waivers and Internet
services
o Correspondence � statements, PIN / card mailer forms and Letter Checks
o Plastics � reissue criteria, plastic type and embossing / encoding formats

Portfolio Level:-
The portfolio level provides a total view of portfolio management information for
statistical and management reporting.

5.1.4 Core Modules

5.1.5 Modules Pertaining to Commercial Cards

System Hierarchy in a typical BASE2000 commercial card system:-

A Corporation group�s cardholder accounts into a portfolio based on physical

differences, such as separate companies within an institution, or on processing
differences. The corporation is an internal identifier not communicated to the card
association. It sets processing options for financials, statistics gathering, and
report totaling. A Corporation may have many Visa and MasterCard BINs.
A BIN identifies each member institution. Visa BIN stands for BASE Identification
Number. MasterCard BIN stands for Bank Identification Number. Whenever a new BIN is
added to the system, the number must be provided first from MasterCard or Visa.
A product defines a type of credit card product for a corporation. A Corporation
may have many products in the product file. Examples of a product are a MasterCard
Gold card, a VISA Classic Card, a home equity loan, or a private retailer credit
card. The data for a product consists of the processing options that are set at the
corporation level only, such as a default billing code and statement options. Many
of the options are identified by a code that points to a control table with further
options.
A bill code entry defines billing options for accounts. A corporation can have many
bill codes. Some of the options specified are dispute options, grace day
processing, add-on processing, annual fee, and other fees. Many of the options are
identified by a code that points to another control table with further options.
An Institution is used to define demographic, reporting, and statement production
information for subset of the accounts. The institution name, address, and phone
number may be printed on the cardholder statement in a customized statement print
program or may be used with user-defined reporting. The institution can also
control plastics.
5.2 Vision PLUS
5.2.1 Introduction
Credit Card Management System-VisionPlus VisionPLUS� is a suite of applications
developed by PaySys Inc., which is now a part of First Data International. It is
one source global solution for all the credit card, lending and related processing
needs. It is one of the most advanced systems of its kind, incorporating fraud
prevention and extensive management reporting capabilities. It takes care of end to
end processing life cycle of cards and personal loans processing for any banking
customer. FDI mostly does business outside US, particularly in Asia and Latin
America, but often serves as a platform for First Data, ultimately to provide
outsourced card processing.
VisionPLUS, from First Data International, has a number of accolades in the global
credit industry:
� More credit accounts are processed on VisionPLUS every day than on any other
credit processing system.
� More banks, finance companies, and retail establishments worldwide use
VisionPLUS than any other credit solution.
� Over 200 million accounts are processed by over 175 clients using VisionPLUS
in 38 countries.
� The largest single VisionPLUS site supports over 50 million cards.
� VisionPLUS is the only software solution for managing private label,
bankcard, and consumer loans, all in one system.
� In Africa there are seven additional VisionPLUS clients:
o Edcon
o First National Bank of Southern Africa
o Foschini
o State Bank of Mauritius
o Topics
o Truworths
o Woolworths
5.2.2 Features
� Modularized Structure � Depending on the various processing functions, System
is divided into various modules. Like FAS for authorization, LMS for loyalty
management, CMS for account receivable etc.
� Flexible system due to its design
5.2.3 Core Modules
VisionPLUS is designed as a flexible, full-feature account processing system. Core
modules of VisionPlus are:
� Credit Decision Management (CDM) - new accounts/ application processing
module
� Credit Management System (CMS) - account & transaction processing module
� Collections Tracking Analysis (CTA) - delinquent collections module
� Account Services Management (ASM) - customer services module
� Financial Authorisation System (FAS) - financial authorisations module;
Provides real time authorization for account activity
� Letters System (LTS) - letter generation module
� Security Sub System (SSC) - user access control module
� Interchange Tracking System (ITS) - dispute tracking module
� Transaction Management System (TRAMS) - front-end processor which acts as a
front end collection, processing and routing mechanism for both monetary and non-
monetary transactions
� Merchant BankCard System (MBS) - merchant acquiring system which fully
supports both bankcard and retail merchants
Credit Decision Management (CDM)

As the costs of attracting and keeping good customers continue to increase, the CDM
module of VisionPLUS assists clients to balance their goals of portfolio growth and
bad debt control through consistent application of the most applicable credit
policies.
From application design through to real-time set up of approved accounts in the
integrated receivables system, the CDM module provides the functions and options
that clients need to efficiently process applications while controlling credit risk
effectively. CDM allows clients to translate internal credit policies into on-line
criteria, assigns scoring values and set approval thresholds. With CDM, the process
of acquiring new accounts, posting transactions to accounts immediately and
minimising potential fraud and credit losses, is substantially enhanced.
Credit Management System (CMS)
As competitive pressures continue to increase, the CMS module of VisionPLUS enables
clients to rapidly define new financial services products and services, on-line.
These products may be varied to target specific market segments and customer
groups. CMS provides the tools that will enhance the success in acquiring new
accounts, encouraging frequent transaction activity and retaining good customers,
all while effectively managing risk and controlling operating costs. CMS assists in
meeting the most significant challenges that face any credit-granting organisation
today. This is achieved by providing a single view of the customer across multiple
accounts and products and applying a flexible suite of products and services to
meet the customers needs.
Account Services Management (ASM)
The ASM module of VisionPLUS enables clients to provide the service quality that
customers demand. Instant access to customer and account information, automated
functions that improve representative productivity and on-line tracking of
unresolved requests are keys that enable the client to provide outstanding customer
service cost-effectively. The ASM module, in conjunction with CMS gives the
customer service department the tools they need to rapidly respond to customer
queries or requests.
Collections Tracking Analysis (CTA)
The CTA module of VisionPLUS assists clients to minimise bad debts and maximise
customer service. With collection results so dependent on the timing and approach
with each customer, the collectors need the tools provided by the CTA module to
meet the organisations collections objectives. Criteria-based on-line queues,
access to real-time account activity, pop-up appointments and automatic tracking of
payment arrangements are just some of the features that will assist in successful
collection actions on delinquent accounts. In those instances where the customer
relationship cannot be salvaged, CTA assists in measuring the effectiveness of
external agency activities.
Financial Authorisation System (FAS)
FAS provides real-time authorisation for account activity, which has become a
standard risk management function for today�s credit grantors. FAS provide the
customer with instant approval of debit/credit transactions. FAS provides extensive
on-line definable parameters which enable the client to determine the level of risk
sensitivity based on a variety of account conditions for automatic transaction
approval or decline. Clients are also able to apply instant referral capabilities
in situations that require extra delicacy.
Security Sub System (SSC)
The SS module is a comprehensive on-line security system that interfaces between
all of the VisionPLUS modules. SS is organised to allow a single operator,
designated as the Security Supervisor, to access all VisionPLUS products and
associated on-line functions. The Security Supervisor oversees and controls access
to all of the modules and establishes the sign-on parameters for any number of
Alternate Supervisors. The Alternate Supervisors establish the parameters that
define the extent of access other users will have to the VisionPLUS modules.
Specifically, supervisors can determine which products a user is authorised to
access, which screens within those products a user is allowed to access, which
fields within those screens will be displayed, and whether the user can perform
add, enquiry, or maintenance functions. The VisionPLUS security system provides a
secure yet flexible tool, to ensure that the integrity of all of your customers is
kept secure.

Interchange Tracking System (ITS)

The Interchange Tracking System is the dispute tracking and processing module. This
module is designed to interface with the Transaction Management System (TRAMS) and
the Credit Management System (CMS). Together, these systems provide the functions
necessary for processing Visa, MasterCard and Eurocard-MasterCard issuer
interchange transactions. ITS assists your business in keeping tracks of many
user-defined parameters, such as time limits, which will ensure that your business
remains compliant with the different card associations. User-friendly and automated
charge-back processing functions provide an optimal and efficient solution to an
otherwise time-consuming process. Charge-backs are worked through queues based on
criteria that you define creating a customised, organised workflow.

Transaction Management System (TRAMS)

TRAMS is the VisionPLUS front-end processor which acts as a front-end collection,
processing and routing mechanism for both monetary and non-monetary transactions.
TRAMS� design enables users to operate in an international marketplace using one
version of the system. When TRAMS is installed, the System Administrator
establishes the language to be used for TRAMS screens and reports, and the currency
used for financial transactions. The system further supports different currencies
for source and destination files. The system allows users to receive transactions
from multiple sources using a single system that interfaces with multiple
application end points. This capability provides for a timely transfer of
information between such applications. TRAMS accepts multiple transaction types
and prepares them for any destination, consolidating numerous application front-
ends into a single input system. TRAMS also provides extensive job tracking,
settlement, warehousing, reporting, reject, and online reject and suspense handling
capabilities.

Merchant Bankcard System (MBS)

The Merchant Bankcard System is the merchant acquiring system which fully supports
both bankcard and retail merchants. MBS is a system with high access to data and
the ability to execute processes within a reasonable batch window. In addition,
MBS provides an efficient way to settle funds and charge the merchant fees for
services rendered. Useful data is provided to the merchant and to the end-users to
support the merchant base. MBS offers discount, participation, reserve funding,
and volume bonus processing along with comprehensive activity reporting. MBS also
provides parameters which define the frequency at which a merchant receives
proceeds and determines how these proceeds are distributed among four settlement
accounts. Merchant�s proceeds can also be segmented under unique transaction types.
MBS also provides merchant-level and store-level field security by operator,
ensuring rigorous access control.
Some of the other modules of VisionPlus are:
a) HCS � Hierarchy company system
b) LMS � Loyalty management system
c) KMS � Key management system
d) ILS � International Language system

5.2.4 Modules Pertaining to Commercial Cards

1. HCS (Hierarchy Company System) - Hierarchy Company System (HCS) is an
application that provides a company hierarchy structure for processing commercial
cards and managing the relationship between the company, the sublevel reporting
centers within the company, and the individual commercial card accounts. HCS
supports multiple hierarchical levels, multiple card products, year-end and
intermittent statement summaries, organization-level and company-level reporting,
and node transfers for each company. Commercial card processing can be done without
the use of HCS. HCS just provides the hierarchy for processing commercial card
accounts in an efficient manner.

2. Security Subsystem and Common Routines module (SSC) provides online security
and access to common routines and data shared by the various base VisionPLUS
systems.

3. Credit Management System (CMS) provides the account processing and passes
transaction and account information to HCS. CMS provides the billing invoice
(statement) to the cardholder or company. CMS is the core module for commercial
card processing.

4. Financial Authorizations System (FAS) provides enhanced authorization control

for commercial cards.

5. Letter System (LTS) automatically generates letters based on activity that

are performed by the commercial card accounts.

6. InfoSpan� provides an interface to the Visa InfoSpan� reporting application,

which can be purchased only from Visa International. Commercial card processing can
be done without InfoSpan.

FIG: Figure shows the interaction (Indicated by red line) between the various
modules of VisionPlus for Commercial Card processing. Dotted blue lines indicate
the interaction between the SSC module and all the other modules.
5.3 TS2
5.3.1 Introduction
TS2 sets today's global standard in card processing. Originally released in 1994,
the system was developed in consultation with major issuers who wanted more
flexibility than traditional processing systems could offer. TS2 was revolutionary
then and remains the most advanced, most flexible and most successful processing
system in the marketplace today. How? Through continuous evolution intended to meet
the changing demands of a market that requires non-stop innovation. As the target
moves, our goal is to remain a step ahead.
In 1998, TSYS upgraded TS2 to support multiple languages and currencies on a single
platform. TSYS is the only company with a single platform capable of serving a
client's portfolio on more than one continent � a critical advantage for
institutions planning rapid, international growth. TS2 offers cost savings,
improved customer service, unsurpassed speed to market and efficient workflow.
5.3.2 Basics of TS2
TS2 is an integrated, option-driven processing system used to manage card
portfolios and serve customers. TS2 provides continuous online access to account
information and true account-level processing. TS2 also provides access to
information at the following levels:
1. Client level
2. Account level
3. Customer level
4. Product level
5. Transaction level
TS2's option-driven parameters provide maximum flexibility, online setup, and
lower-cost product-line expansion. This can improve speed-to-market for new
products or product changes.
TS2 supports applications for the life of an account, including:
1. New account processing
2. Portfolio management
3. Card production
4. Marketing
5. Fraud protection
6. Collections
7. Bankruptcy
8. Risk management

All TS2 applications are designed to work together seamlessly, ensuring data
consistency across functions and the highest processing efficiency possible.
TS2's automated workflows, rules-based controls, and management tools equip
employees to handle increased volumes with less effort. TS2 helps employees:
1. Make better, more consistent decisions
2. Prevent duplication and mistakes
3. Improve productivity
TS2 helps improve customer service and satisfaction by providing online customer-
profile data and the ability to set processing rules (options) at the customer,
account, and transaction levels.
TS2 is designed to support extraordinary variation in pricing and to deliver
product changes rapidly to customers, which helps clients establish strong, long-
lasting customer relationships and creates opportunities to enhance the customer
experience.
TS2 provides informative, time-sensitive reporting that helps monitor, track, and
refine product offerings. TS2's option-driven structure lets clients quickly make
changes or improvements without costly hard-coding.
TS2 is equipped to meet the requirements of global markets. TS2 supports multiple
languages and processes multiple currencies. TS2 also processes clients
independently on their own set of databases, ensuring data security and providing
the ability to customize nightly-processing windows to the time zone(s) in which
they operate.
TS2 offers fast, easy, low-cost retooling, so clients can quickly respond to the
challenges and opportunities of the evolving markets. When options are changed, the
changes permeate through the system. The modular design and task-appropriate
technology facilitates expansion and ensures a seamless integration of features and
functions. TS2 evolves with our clients' changing needs, helping them produce
improved shareholder and customer value.
5.3.3 Features and Benefits
The combination of IMS and DB2 database management systems results in a solid core
architecture that delivers the following key features and benefits:
� Continuous 24-by-seven availability: TS2 is available for inquiry and
maintenance 24 hours a day, seven days a week, making information accessible
whenever clients and customers need it. There is no need to close files for nightly
processing, and processing windows can be defined based on the business.
� Real-time updates: All non-monetary maintenance is performed online in a
real-time environment, while payments can be applied real-time for authorization
purposes. This enhances customer service and improves operating efficiencies by
providing current information for clients and customers.
� Full system integration: All TS2 modules (e.g.: credit, collections, customer
service, authorizations) are fully integrated and have the same look and feel.
Maintenance made within one module will affect all modules simultaneously. This
results in improved productivity, reduced cross training expense and consistent
data.
� Client-defined system hierarchy: The TS2 system hierarchy is independent of
any single account or portfolio structure. Clients can define a unique hierarchy of
client, provider, account, and product levels to suit its specific needs. As a
client's portfolio evolves, so can the hierarchy, thereby enabling clients to
effectively grow, manage, and understand their portfolio.
� Product independence: The architecture of TS2 accommodates Visa, MasterCard,
American Express, private label (retail), and line-of-credit products. This
flexibility of supporting multiple products on one platform improves productivity
and customer service and enhances cross-sell opportunities.
� Real-time product changes: Product changes - whether they be upgrades,
downgrades, or different products - are processed real-time. TS2 allows clients to
change any or all attributes of the account while retaining all product change
history for the life of the account. TS2 also provides automated product change
capabilities that enhance cross-sell opportunities and add operating efficiencies
by enabling clients to continuously evaluate accounts for product upgrades.
� Account number integrity: Within TS2, account processing is independent of
account numbers. Account numbers only serve as an identifier on the account. This
means that the account number does not need to change when a product change is
initiated, and the account history always remains with the account. In fact, we
recommend that TS2 clients do not use account numbers to control account processing
or reporting.
� Independent processing: All clients on TS2 are processed independently,
allowing a nightly processing window customized to the specific needs of our
clients. The only scheduling parameters that must be met are those dictated by the
associations or schemes for settlement purposes.
� Scalability and reliability: Continuous database management system monitoring
and a batch processing configuration known as group/area processing ensures system
scalability and reliability. Under group/area processing, the client�s IMS database
can be partitioned into 240 areas. Each area is managed separately, which ensures
that any one area can be recovered without disrupting the rest of the database.
Up to seven mirror copies of an area can be maintained, which allows IMS to access
that data even if the disk drive of the primary database is inaccessible. TSYS
rolls areas up into groups in order to improve processing efficiencies. Clients may
be in multiple groups, and groups can process simultaneously. With group/area
processing, the client�s nightly processing window is not impacted as the
portfolio�s account volume increases.
� Abundant information: TS2 stores four times the data found in most legacy
systems. This extensive electronic storage of data replaces a great deal of
information that would have been stored on "hard" media such as paper or
microfiche. TS2 also accumulates and stores information that legacy systems do not
even record. The increase in data availability on TS2 provides numerous issuer
benefits, such as enhanced knowledge of the customer and increased operator
efficiency.
� Accessible information: For information to be useful it must be easy to
access. TS2 offers a multitude of access methods from mainframe screens to data
mining and reporting tools, MQSeries data streaming to support real-time updating
of VRU and GUI front-end systems, Internet access, and standard and custom
interfaces.
� Secure information: All client portfolio data is proprietary and cannot be
accessed by any other client. Each TS2 client is assigned its own set of databases
(none are shared) and a unique four-digit identifier (Client ID). The Client ID
controls security access to client processing regions, validation tables, and
address directories.
Online and batch system resources, production data, and program files are protected
from unauthorized access by ACF2, a third-party package distributed by Computer
Associates (CA) Inc. Logical access to all production online and query processing
applications is controlled by Customer Information Control System (CICS)-based
security systems internally developed by TSYS.
� Automated processes: TS2 provides automated workflow management tools to
streamline operations and add efficiencies. These tools include the Queue
Management System (QMS), system navigation and online help, event tracking, and
tools for customer correspondence.
� Flexible, option-driven structure: Within TS2, products are identified by
product codes, and the features that define a product are defined through options.
Options are the rules by which accounts are processed. Options are applied to
accounts for features and rules such as finance rates and fees, loyalty and rewards
programs, authorization parameters, reissue criteria, and collection strategies.
TS2 options are grouped into option sets. Each option set is independent of the
others so that the client can assign options to an account based on different
account criteria.
TS2 options can be established online on a same-day basis at the client, customer,
account and transaction levels. This flexibility allows clients to deliver
unsurpassed speed-to-market for new products, respond rapidly to market changes,
achieve true one-to-one marketing, and accommodate quick and easy system
modification without the need for costly and time consuming programming.
5.3.4 Architecture
TS2 is made up of subsystems, which are groups of online screens organized by
business function. Subsystems are used to perform such tasks as responding to
customer inquiries, collecting on delinquent accounts, managing risk, and detecting
fraud. Although screens are grouped into subsystems, you can usually move from a
screen in one subsystem directly to a screen in another subsystem.
The organization of TS2 into integrated subsystems is shown in Figure below.

Each subsystem has option screens where processing rules are defined to carry out
the policies and strategies of our clients. Processing rules can be defined on the
level of the account, transaction, card, or client.
Some option screens are used to group accounts into queues so clients can see
accounts that meet certain criteria. Work-screens designed for specific jobs can
then be used to take action on the accounts.
5.3.5 TS2 Commercial Cards Processing
TS2 provides robust processing capabilities to support a suite of commercial card
products including:
� Small Business
� Purchase
� Travel and Entertainment
� Fleet
� Invoice Billing
TS2 uses Automated Credit Evaluation system, which interfaces with both consumer
and commercial credit bureaus and makes credit decisions for issuers based on their
defined credit criteria. It just takes one day to establish business-account
relationships using this system.
TSYS offers customization of TS2 to suite varying client needs. Authorizations,
billing, risk management and reporting options can be set at four hierarchy levels:

� Super Corporate
� Corporate
� Division
� Individual
TSYS Commercial Card module offers powerful transaction-authorization options,
which provide superior management and control for all levels of commercial
portfolio. Parameters such as individual transaction amount; total number of
transactions; amount spent per cycle, day and year can be set. TS2 also supports an
additional authorization and billing option for corporate clients is diversion
accounts. By identifying specific Merchant Category Codes (MCC) � such as airlines,
restaurants and lodging � businesses can divert authorization and billing of these
transactions to a separately managed account.

6.0 Commercial Cards - Business and Technology Trends

6.1.1 Business Trends
There has been growing interest across the globe for commercial cards, with
benefits for both employee and the employer commercial cards acceptance as a
payment tool has increased multifold. As the commercial card market grows the uses
and applications for commercial card have become increasingly diversified and
innovative. The innovation and diversification is driven by increasing competition
among issuers. There are various types of commercial cards that caters to various
purposes, the most widely used are the Travel and Entertainment (T&E) cards and
Purchase cards. The other types of commercial cards are small business cards, fleet
cards and stored value cards. The following section brings out new business trends
in T&E and purchase card segments.
6.1.1.1 Issuing and Managing T&E cards in Multiple Countries and Currencies
An increasing number of companies are expanding their existing travel and
entertainment (T&E) card programs and are taking them company-wide, which in this
day and age, means global. Research with multinational companies, conducted between
October 2006 and January 2007, suggests that 32% of Multi National Companies(MNC)
already have a comprehensive multinational T&E card program, 60% have not yet
implemented one and 8% are uncertain of the scope of their program. Of the 60% who
have not yet implemented a multinational card program, 21% said that they will take
their T&E program across borders, many of them within two years. This research
indicates that the number of MNCs implementing a global card strategy will continue
to grow, and at an increasing rate.

Expanding Across Borders

There are several reasons behind the increasing number of companies migrating to a
global T&E card program. T&E is one of the largest controllable corporate expenses.
Although home-country T&E programs may be fully implemented, the study indicates
that companies still have a lot of opportunity to expand and leverage their card
programs in other regions.
Companies are now looking at ways to achieve economies of scale via strategic
sourcing, as well as consolidating and centralizing their processes throughout the
entire procure-to-pay cycle. Technology that makes this possible is now accessible
to more companies than ever before and provides greater policy compliance and
proper expense allocation.
All of these initiatives require more accurate and complete data and leading-edge
companies are demanding it. Many companies require detailed point-of-sale
information; this data is more comprehensive than that needed to merely clear and
settle a transaction. An example is an itemized travel itinerary from an airline
ticket purchased, or a hotel bill that details all additional services used, such
as phone, etc. The more detailed and accurate the data, the easier it is to ensure
travel policy compliance, to automate employee expense reporting and to negotiate
preferred rates with suppliers.
MNCs are increasingly under pressure to make the best possible use of all
resources, driving an increased focus on optimizing global cash management. Every
aspect of cash management is being centralized and increasingly handled on a
regional, if not global, level; T&E card programs are included in these
initiatives. Gaining economies of scale and sensible company-wide policies can help
to make travel spend as efficient as possible.
Best practice MNC travel programs employ global product consistency, local
cardholder service, globally consolidated data, centralized supplier negotiations,
as well as automated expense management and reconciliation.

The Benefits of Implementing a Global Corporate Card Program

� Reduced administration costs related to managing the program.
� Reduced funding costs - use of a widely accepted corporate card reduces the
need for cash advances.
� Improved control and compliance of spending.
� Improved purchasing power.
� Improved employee satisfaction.

Challenges in Implementing a Global Program

The following questions needs to addressed to overcome the challenges in
implementing a global program
� Will cardholders be able to receive the in-country customer service? Is this
important?
� How will the card program support any unique tax-reporting requirements?
� What, if any, cultural differences come into play when using a travel card as
a payment method in markets outside of the home country?
� Does the company require the charges to be billed in local currencies or in
the home country currency?
� Will reporting be conducted locally, regionally or centrally?
� Will each operating unit pay the bills for its cardholder or will bills be
paid centrally?
� Who accepts liability for spending on the cards?

6.1.1.2 Combining T&E and P-cards: The Multi card Solution

Most organizations already use a card programme for business travel, but not as
many of them are getting the maximum benefit from the management information on
travel costs that payment cards can provide. Far fewer use payment cards as a
procurement tool. The availability of a new type of payment cards, called multi-
cards, will make payment card programmes more efficient by reducing the costs of
implementing and managing a programme. The Royal Bank of Scotland is the first bank
in the UK to launch a multi-card product, called The Royal Bank of Scotland
onecard.
The Next Step - The Multi-card
A multi-card is a payment card that, instead of having functionality limited to
either travel or purchasing, is able to combine those functions under a single
card. The multi-card concept was developed by MasterCard in the US, and is
progressively being implemented around the world. The development of multi-cards
has been driven by the realization that the payment card an employee carries should
be able to help them procure what they need, and not be restricted to only one type
of transaction. This flexibility also means that employees that previously only had
a corporate card can now make purchases without needing another card, and without
the organization losing out on purchasing management information or controls.
Provided that the employee has been given instructions, one payment card can be
used to procure more widely and an organization only has to manage one card
programme.

Payment Cards for Business Travel

Organizations with more experience of payment cards understand that the management
information provided by the cards is just as important, if not more important, than
the simple cost saving of moving from a paper to electronic transactions. The role
of payment cards in business travel is clearly understood, particularly by
multinational companies with multi-million pound travel budgets. Many other
organizations are not achieving these benefits, generally because they are allowing
staff to use their own personal credit cards to pay for travel, which means that
they are missing out on valuable management information on where travel budgets are
being spent, i.e. at the preferred hotels, car hire firms, or airlines.
Both the major card schemes understand that corporate cards are about management
information and are working with banks to extend the existing management
information to provide more details about airline flights and hotel stays. The more
management information that is available through payment cards means that travel
costs can be analyzed in more detail.
Purchasing
Payment cards for purchasing are progressively moving away from the low value/ad
hoc purchasing to more sophisticated roles, including the integration of cards into
applications that automatically match purchase order and invoice information and
create outsourced payment services. As with corporate cards, the management
information is important as well. Provided the merchant is equipped with the right
technology, enough information about the nature of the purchase flows back from the
merchant to the bank and is then delivered to the organization to remove the need
for paper invoices. In the UK, this information has been accredited by HM Customs
and Excise as sufficient for VAT reclaim, which means that collecting and retaining
paper invoices is not necessary, a major cost and time saving. More than 5,000 UK
merchants can provide VAT compliant information.

Management Information Software

Another major development that occurred at the same time as the availability of
multi-cards was the launch of management information solution. Most banks that
provide a multi-card include access to Smart Data Online� (SDOL), which provides an
organization with an on-line record of all card transactions, and the capability to
extract that data for interface into accounting systems. It also allows reports to
be customized to track cardholder activity, spend by cardholders at specific
suppliers; report on specific commodity types purchased and includes the capability
for cardholders to approve transactions electronically. In the case of The Royal
Bank of Scotland onecard, the cost of SDOL is included in the overall product
pricing, which removes the need for an organization to acquire special software.

Multi-national Reporting
Management information for any country where a payment card is used, can now be
consolidated into a central facility and reported using software like SDOL. This
development, in tandem with the use of multi-cards, means that both business travel
and purchasing information can be reported and managed globally, supporting
organizations with accounting and travel services in central shared services
facilities.

Integrating Data
The type of management information created by payment cards generally has two uses:
to manage the card programme by monitoring cardholder behavior using reporting, and
the integration into accounting systems to remove the need for manual keying of
invoice information. A software programme like SDOL neatly solves the first
requirement and, in the same way as existing software packages, can provide a web-
based solution to report on activity in a card programme, which can be accessed by
staff according to their role in the organization.
Where an employee uses a payment card to make any kind of purchase, a purchase
order is not required. However, the details of what was purchased still need to be
entered into accounting systems in order to properly track budgets. This produces
the major challenge for most organizations, which is using the electronic data
produced from payment card programmes to post card transactions to general ledgers.
A multi-card provides a degree of assistance, as all purchase and travel
information is provided in a single data stream, removing the traditional overhead
of managing two data channels.

6.1.2 Technology Trends

The current trends in the commercial card industry suggest that huge investments
are made in technology to establish controls in order to combat card fraud. The
emergence of common standards such as EMV (Europay, Master Card, and Visa)
highlights the growing need of common standards for supporting interoperability.
Emergence of chip based cards with EMV standards adherence reflects the
organizations commitment to combat frauds through technology. The other major
technology trend is the Integration of commercial cards with organizations
information technology systems. The integration of T&E and purchase cards
facilitates organization to get the exact view of spend patterns there by
establishing control over expenses.
6.1.2.1 Emergence of Smart Card Technology to Combat Fraud
The advent of new technologies that facilitate the increased acceptance of
commercial cards, together with the rapid growth in internet banking, has been
accompanied by a rapid increase in card fraud, particularly in �card-not-present�
fraud (primarily in online and phone transactions). Highly sophisticated fraudulent
techniques have evolved beyond the capabilities of traditional password-based
security measures with sophisticated spyware software, phishing attacks, and key-
logging all threatening the online security of banks and their customers and thus
derailing the increased adoption of commercial cards. This scenario has led to the
rapid adoption of EMV-compliant smart card technology, as represented by memory
cards, chip cards, contact-less cards, etc. Nigel Reavley of Xiring, a manufacturer
of smartcard security products banking unit, writes: "Most banks across the world
have shifted to chip-based EMV-compliant payment cards. The deadlines for the
liability shift had been set by Visa, Mastercard and JCB, as 2005 in Europe and
2006 in Asia. Failure to migrate to EMV by these deadlines would equate to
responsibility wresting with retailers for certain types of fraud."
The banking and financial services industry has invested a great deal in educating
customers and adapting their systems for EMV migration. Banks have leveraged this
significant investment to recognize the potential of customers using their chip
cards not simply for secure payments, but also as a means of authenticating
themselves during e-banking and other card-not-present transactions, thus
eliminating the hurdles facing the adoption of commercial cards.

6.1.2.2 Card Integration with Organization IT systems

(Source: www.usa.visa.com)
Cash management inefficiencies is the key reason that drives the organization to
integrate corporate cards with organization�s cash management practices. The most
common integration happens with expense reporting systems and e-procurement & ERP
processes.
The top three reasons for integration are
� Process streamlining leading to cost reduction
� Automating expense reconciliation processes
� Availability of transaction data for spend analysis
The reason for cash management inefficiency varies across regions
� In EU, LAC, and CEMEA, cash positioning and forecasting is seen as the least
efficient process
� In the U.S. and AP, collection and application is seen as the least efficient
process
� In LAC, disbursements are viewed as the least efficient process

T&E Cards - Integration with Expense reporting systems

In the last five years, large and midsized companies have widely adopted Expense
Reporting technologies to automate their travel and entertainment expense reporting
and reimbursement processes. Companies also have become increasingly interested in
how to integrate the commercial card with these technologies.
Corporate card integration with Expense Reporting systems entails integrating the
card utility and data with the applications used for reconciliation, payment, and
reporting of travel and other business-related purchases. The card integration
process can be divided into six distinct steps: Integration Planning, Issuer
Statement Submission, Expense Report Creation, Receipt Submission, Approval(s), and
Payment.

Source: www.usa.visa.com
There are number of approaches to integrate a card program with expense reporting
systems. Two primary factors that drive the selection of approaches are solution
selection (hosted or in-house) and card liability (company or individual pay).
Hosted Solution: Companies outsource travel and entertainment functions to major
providers to avoid software licensing and management costs.
In-House Web Solution: Enhanced Web enablement capabilities make Expense Reporting
timelier and speed up reimbursement for employees who are traveling.
Integration Benefits (T&E and Expense Reporting System)
Companies generally choose to integrate cards with expense reporting systems for
variety of business reasons such as cost savings, streamlined processes, enhanced
data management and increased controls

Process Improvements and Cost savings

Lower expense report processing cost (employees) The overall processing time
for expense reports decreases as it becomes easier and faster for employees to
create, submit, and approve expense reports, resulting in cost-savings.
Lower expense report processing cost(Accounts Payable) Electronically available
expense reports decrease manual processes such as data entry in Accounts Payable.
Increased savings from supplier negotiations Companies that pre-populate
employee expense reports with corporate card data find that their employees have a
larger incentive to purchase via the card. Employees appreciate the reduced manual
entry of data on card purchases.
Aggregating T&E spend on the card program provides a comprehensive view of travel
spends for supplier negotiations.
Enhanced Data Management and Increased Control
Greater control and compliance with policies Card integration allows management
to run detailed compliance reports to confirm commercial card use is within
preferred supplier and spend policies.
Detailed data for spend analysis and decision-making � By integrating
commercial card data into an Expense Reporting system, companies have access to
detailed data for various analyses.
� Detailed Level 3 data can be used to improve negotiations with suppliers by
doing a spend analysis.
� Companies can also use the T&E spend information to ensure they are meeting
spend targets by supplier in accordance with supplier contracts.
Increased savings from supplier negotiations � Companies that pre-populate
employee expense reports with corporate card data find that their employees have a
larger incentive to purchase via the card. Employees appreciate the reduced manual
entry of data on card purchases.
� Aggregating T&E spend on the card program provides a comprehensive view of
travel spends for supplier negotiations.
Increased Employee Satisfaction
Reduced manual entry of data � Many companies have stringent guidelines on the
level of detail required in expense reports.
� Integrating card data into the Expense Reporting system by pre-populating the
detail makes this process less cumbersome for employees.
Faster reimbursement � An automated Expense Reporting process, pre-populated
with corporate card data, enables faster expense report completion. The automated
workflow enables faster approvals.
� The more efficient submission and approval process results in faster
reimbursement of employees� expenses.

P-Cards � Integration with E-procurement and ERP Applications

With the widespread adoption of e-Procurement and Enterprise Resource Planning
(ERP) technologies over the past five years, companies have become increasingly
interested in how to integrate the corporate card with Procure-to-Pay applications.
The following is the sequence of activities that occurs on use of card for
procurement
� Buyers are assigned a limit and spending profile
� Orders are placed in the usual way
� The purchase is charged to the card
� Purchase details are submitted by the supplier to the bank with the financial
transaction
� The bank pays the supplier within 2 to 3 days
� The cardholder receives a monthly statement and pays the bank
� Electronic reports are available for reconciliation.

End-to-end commercial card integration with Procure-to-Pay technology systems

entails integrating the card utility and data with the applications used for
purchasing, reconciliation, and payment processes. The card integration process can
be divided into four distinct steps: Integration Planning, Purchase,
Reconciliation, and Payment and Settlement.

Source: www.usa.visa.com
The key to success is integration of data and processes, between the supplier, the
Bank and the buyer. To integrate a purchasing card into existing business
processes, end-to-end data management is required, from requisition/order/purchase
to payment and reconciliation.
Benefits for Buyer
A. Reduce cost of purchasing and payment.
� Cutting out unnecessary administration and reducing accounts payable to one
monthly statement and one payment.
� Replacing manual processes with electronic ordering, payment, reconciliation
and cost allocation - e.g. receiving statements and reports by e-mail and online
enables instant information sharing and processing.
B. Improve control and accountability
� All purchases are authorized electronically.
� With flexible transaction spending limits as well as supplier restrictions,
cards can be configured to match the needs and usage profile of corporation and
help reinforce purchasing best practices.
� Management reports are provided to reconcile transactions, raise queries and
resolve discrepancies
C. Gain up-to-date purchase data and tax information daily
� For expense reconciliation, cost accounting and to integrate with general
ledger and accounts payable systems.
D. Productivity Improvements
� A shorter �cycle� from the purchase to payment and more efficient use of
resources
� Consolidated statements, a single monthly payment and easy refund (credit)
procedures which streamline financial administration and accounts payable.
E. Strengthen relationships with suppliers
� The prompt, electronic payment guarantee by the bank is an incentive for
quick and accurate delivery.
� Both purchases and returns are easily processed and audited using the card
data. Therefore queries or disputes can be efficiently handled with the bank�s
assistance.

Benefits for Supplier

A. Cash flow improves
� This is because the bank guarantees payment to the supplier within 2-3 days
of the transaction, compared with an average payment period of 45 days or longer
and the payment happens electronically.
� Better cash flow and lower financing costs is of major benefit to small
businesses that are often dangerously exposed to cash flow fluctuations and slow
payment.
B. Much lower administration costs
� As the bank guarantees payment in full to the supplier, the cost and effort
of collecting on accounts receivable and outstanding debt is virtually eliminated.
C. Enhanced customer relationships
� Processing purchase orders quickly and efficiently on the card
� Eliminates disputes, as each transaction will be authorized electronically
before fulfilling the order.
� Providing purchase details (line-item-detail) with the financial transaction,
which improves customers� payment and reconciliation processes.
� Opening up the business to any customer who chooses to pay by card and to do
business electronically.
D. Create new business opportunities
� Using software provided by the bank or certified vendors, suppliers are able
to accept Purchasing Cards as well as other credit and charge cards that are
already widely in use. In return for these benefits, the supplier pays the bank a
commission, which is a percentage of the transaction value.

The payment solution provided by service provider should be generic and open-ended.
It would be simply too expensive to develop customized interfaces for specific
systems used by suppliers and buyers. The integration would involve partnerships
with ERP and e-procurement vendors, and integration specialists

7.0 References
[1]. www.usa.visa.com
[2]. www.tsys.com
[3]. www.gtnews.com
[4]. www.paymentnews.com
[5]. www.mastercard.com
[6]. www.corp.americanexpress.com
[7]. http://www.ebilling.org/EIPP/Payment_options.pdf