The growth of next generation “hybrid” cards and their integrated expense management platforms is going to transform the Fleet landscape.
There was always a choice
Fleets, both corporate and commercial, have always had a choice to make: the convenient universality of a scheme-based corporate card, or the greater control of a fuel card.
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Gradually, corporate cards have developed a strong position in the company car market, where fuel accounts for only 3-5% of the overall operating costs of a mobile workforce and where the ability to pay for mobility-related services at a wide variety of merchants has been prized.
At the same time, heavily discounted fuel cards have amassed high penetration in the commercial transport sector, where fuel constitutes between 35% and 38% of operating costs and where restriction is worth more than driver convenience.
Simple. Isn't it?
That was then
In truth, neither solution meets the growing demands of fleet customers and neither group of issuers has done much innovation around the core proposition.
The “schemes”, essentially VISA and Mastercard, were historically unwilling to compromise universal acceptance (the essence of their brands) by offering merchant category code restriction (or selection), and – even if they had been willing – the associated IT cost and complexity of MCC restriction/selection were not worth the trouble.
For years, the expense management software needed to support a corporate card, break out product-level purchase data, handle VAT compliance and compare transactions to company policy was at best embryonic, and at worst non-existent.
There’s also been the “level three data conundrum”: to face off the perceived threat of open loop scheme cards entering the closed loop (and closed shop) fuel card market, fuel card issuers have clung on frantically to level 3 merchant data – seeing this as an impenetrable barrier to competitive entry.
And most of all, with very few exceptions, much of the issuing constituency simply failed to recognise the evolution in customer expectations,and the growing demand for flexible control AND convenience in the same package.
Or worse: they recognised it, but dismissed it. Let’s put it in the “too difficult” or “inconvenient” folder, and keep things just as they are.
So what’s changed?
Everything.
First of all, the schemes are both technically capable and commercially willing to license “hybrid” cards, offering the ability to select and/or restrict merchant category codes or even merchants themselves. These products have taken hold in the US, and are growing in Europe.
Secondly, major fuel retailers have largely sold off their networks to brand licensees and dealer groups, losing a great deal of control over card acceptance strategy and – critically – over their “holy” level 3 data (which belongs not to them, but the merchant). Sure, they still fight to include card and transaction processing clauses in their retail licence contracts, but in doing so, they are ultimately fighting a losing battle. And they know it.
Thirdly, as open API technology has developed, expense management software has matured and evolved and is now capable of seamlessly integrating card transaction flows, holding company policy, interfacing with a fleet company’s general ledger, and providing a platform for expense management workflow.
Fourthly, the growth in penetration of full service leasing companies across fleet markets has driven heightened demand for integrated mobility solutions and dramatically changed the competitive landscape. As leasing companies build out their “mobility as a service” bundles, seeking new income streams beyond their core finance leases and looking for new ways both to enhance customer loyalty and to grow service “footprint”, they are the natural integrators of fuel and mobility payments, and the natural providers of solutions offering both flexible fleet control and driver convenience.
And last but not least, the rapid emergence of mobile app technology is playing a key role in driving demand for both control and convenience “at the fingertip”.
This is no longer a choice.
Gathering momentum - irreversible change
The straws have been in the wind for some time. We know that Shell studied the evolution of the US fuel card market as early as 2001, and made up its mind that the next generation b2b fleet proposition lay in the integrated mobility payments space. Although they went before the market was ready, even before the existence of hybrid cards and supporting payments technologies, Shell piloted its “Xpense” solution in Germany almost twenty years ago. It knew the direction of the prevailing wind.
Innovative young companies like XXImo of the Netherlands and C2A of France have set the ball rolling in the last decade, achieving rapid European growth on the back of their VISA- and Mastercard-backed hybrid card solutions. In a market valued at well over €1bn, penetration of integrated, hybrid solutions is still under 5%, meaning that growth potential is huge.
Most recently, Total’s launch of its “Mobility Corporate” proposition should be seen as a high-profile validation of the hybrid card concept. No fuel retailer/fuel card issuer has as high a domestic market share as Total in France, and you might think there would be little need to launch a hybrid proposition when retail network and fuel card/loyalty fundamentals are so strong. The fact that Total has gone this way tells its own story.
Build, bridge or buy?
As both Shell and Total would no doubt testify, organic development of a workable hybrid mobility solution is complex and expensive. It isn’t impossible – but you wonder whether shareholders will have the patience to indulge multi-dimensional projects with heavy up-front investment and long payback periods.
Those companies who have done the “hard yards”, built the platforms and launched the propositions are, however, natural partners and/or acquisition targets for fleet players with the imagination and determination to sail on the prevailing wind.
There’s little, if any doubt that b2b fleet demand for intelligent, flexible and integrated hybrid mobility payments solutions is going to intensify. It's even more certain that this transformation is irreversible.
The game is on.
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PHC is the world's leading specialist energy, transport and mobility consultancy, with expert pratitioners across the globe. If we can help your organisation figure out and implement its integrated mobility payments strategy, then please get in touch with us here to organise an exploratory conversation.