Commercial cards: Saudi Arabia’s untapped $40 billion market opportunity
One in five respondents to a 2019 survey in Singapore said they would rather get a cavity filled than complete an expense report and I am certain most of us here in the region can relate.
If you have ever sat at your desk late in the evening at the end of the month spending hours filling an Excel sheet and stapling or gluing them to a Mount Everest of receipts, then you've felt the same pain.
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Despite living in the digital payments era, far too many large companies in our region still rely on this cumbersome manual system as they continue to make cash, cheque, and electronic transfers for most business transactions such as business travel, petty cash, and purchasing activities, rather than using commercial payment cards.
In Saudi Arabia commercial cards remain largely underutilized which continues to create an overhead for most organizations.
The concept, while attempted by banks several times over the past decade, never quite took off in the Kingdom, primarily because of operational issues, limited digital offerings and off-the-mark positioning.
A commercial payment card consolidates various business expenses into a single payment platform to easily monitor transactions and reconcile payments online. This streamlines processes to give companies greater control over spending and purchasing limits for employees based on seniority and role, and most importantly, reduces financial risk.
Commercial cards also represent great financing options for businesses with easier access to capital, along with access to card rewards, loyalty points and benefits.
Dealing with commercial cards is different than the retail business and back in the day, some bank call centres treated their corporate clients much like their individual retail customers which did not sit well with the C-level executives.
A CEO kept waiting at a hotel by a bank, being asked trivial admin questions as part of the validation process for a defective credit card, certainly isn't acceptable or convenient for a business leader spending a large amount globally.
But as more businesses shift towards digital payments in Saudi Arabia, and more foreign firms already accustomed to corporate card spending enter our market, massive demand will need to be met.
The opportunity for banks and FinTech platforms is substantial because the commercial card is at the heart of business-to-business (B2B) transformation. Banks can expect to see significant demand for all types of commercial cards for corporate spending, petty cash, procurement and so on in the coming years, as companies continue shifting to more efficient and hassle-free expense management processes.
The size of the opportunity is evident in the sheer value and growth of business transactions globally.
In a Global Payments report, McKinsey & Company estimated global transaction values – the amounts being transferred between parties – to be $816 trillion, with more than 85 percent of this, or $705 trillion, being commercial (business-to-business) transactions, which include payments made to other businesses and payments related to employee expenses.
A 2019 report from Juniper Research found that the annual value of virtual cards used by businesses, which are temporary card numbers only available for a single transaction or limited time, will grow 90 percent over the next four years; exceeding $1 trillion by 2022.
Future Market Insights said in a report that global sales of the virtual cards market in 2021 was held at $338 billion. With 12.2 percent projected growth during 2022 – 2032, the global market is expected to reach a valuation of $1.3 trillion by 2032.
And a Visa Commercial Payments Opportunity Study found that outside of expense categories like travel, entertainment, and fuel-related expenses, currently, our region sees cards capturing less than 20 percent of total corporate expenditure.
Banks have been competing for decades on retail customers where the opportunities are now comparatively modest.
The commercial card market, however, is still relatively untapped and presents new revenue growth areas.
In my conservative estimation, the commercial card market size in Saudi Arabia is over $40 Billion (SAR ~150Billion) – an opportunity that banks have yet to tap.
Growth will be fuelled by the increase in the number of new established firms, including by entrepreneurs and direct foreign investment, driven by the growth of the Saudi economy which was confirmed lately by The International Monetary Fund (IMF). It forecast that Saudi Arabia was highly likely to be the fastest-growing economy in the world in 2022.
In addition, tremendous growth is attributed to the recent direction for foreign companies to move their regional offices to Saudi with over 9,700 new foreign investment licenses issued in the first half of the year - a number higher than the previous six years. The confluence of these factors further confirms that growth in the corporate business is expected and will remain substantial.
This makes a strong case to help financial institutions in the Kingdom expand card categories and introduce commercial cards faster while reducing their overhead and operations.
Also, most meaningfully, the introduction of commercial cards will help individual employees focus on the things they should be focusing on – running and growing the business, rather than wading through mountains of receipts.
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