Marqeta + JPMC = Commercial Card $
Commercial Cards is fun now !
Commercial cards is a segment of B2B Payments that does not get the attention it should. Well today Marqeta announced a partnership with JPMC that just might drive more interest in the Commercial Card space.
Here are quotes on the announcement from each side:
“Marqeta’s modern card issuing platform to deliver commercial card tokenization for J.P. Morgan”
Omri Dahan CRO of Marqeta
“This is another way of getting virtual company cards into the hands of those who need them very quickly,”
John Skinner, head of commercial cards at JPMorgan.
Commercial Card Tokenization — you may recall I covered this lightly in a previous B2B blog on tech in B2B Payments. What is a token and why is it important?
Tokenization is when you substitute an important data element with a non-sensitive data element that has no value or meaning. Like a token in place of money at at an arcade, outside the arcade the token is useless but within the arcade it is like gold.
As the commercial card market grows security via tokenization becomes more important as it solves the security issue and allows quick issuance. From the press release:
“In 2016, Marqeta was the first payments platform to bring technology to market allowing virtual cards to be instantly provisioned and tokenized into a mobile wallet.”
So this is not an overnight success, Marqeta has been working at this for quite some time. It should be noted too that JPMC is the number one issuer of commercial cards in the US, so this is a huge win for Marqeta.
A question that is not clear from the announcement is does TSYS still have JPMC’s commercial card processing business?
Having worked on a study of Commercial Cards in 2015, I looked it up and TSYS had JPMC’s commercial card business back then. I should note that TSYS at that time had over 50% market share of commercial card processing and I doubt it is much different today. Another point about TSYS back then is they had two different systems TS1 and TS2. Supposedly they were no different but then Apple Pay came along and only worked on TS2.
Flash forward to 2019 and Global Payments and TSYS merge. I doubt this mega merger is going any better than most and there are likely integration issues that come out as a decline in service to clients.
So is this Marqeta announcement a big loss for TSYS or just more functionality for JPMC’s commercial card clients? I don’t know, but either way it is a big move in the Commercial Card market.
Commercial Cards
So why is the JPMC — Marqeta announcement so important. Because Commercial Cards are important.
Let’s look at this schematic of Commercial Cards from Mercator, one of the best in the business covering commercial cards. Commercial cards are obviously cards used by commercial entities as compared to personal cards. P-Card is a purchasing card and is used for purchases of goods and services. Note that it is separate from a T&E Card which is primarily due to taxes being applied differently for each. Also a P-Card it is not a fleet or fuel card which is a space dominated by WEX and Fleetcor.
According to a Credit Suisse report on payments from early 2020 Commercial Payments is a $125 Trillion market opportunity. Most of those payments are moved as Checks and ACH with only $2 Trillion as possible card opportunity according to Credit Suisse. ACH’s $84 Trillion in accounts payable money movement could easily be moved to the card networks. (not at today’s prices, but with discounts and rebates for sure)
A great report that is free, just search for this: Credit Suisse — “Payments, Processors & Fintech, If Software is Eating the World…Payments is Taking a Bite.” January 2020
You might be thinking, why do I care about commercial cards, since consumer card spend is so much bigger. Well good news you are correct about the volume of consumer spend, it is nearly 3 times the volume of commercial.
But I believe the macro trends are going to favor commercial cards as companies want to move away from the paper (Procure to Pay) processes to a more digital experience.
Also at some point consumers are going to slow down spending. The card networks operate as a large pipe or utility that needs to be optimized so the volume from commercial transactions could fill the pipe.
Accenture looked at the commercial card market in late 2018 and they predicted a CAGR for Virtual Cards of 21%. While Plastic Corp card is flat and Plastic P Card grows slowly. Overall lots of growth in commercial cards.
All of the data sited above from Credit Suisse, Accenture and The Nilson Report were done BEFORE COVID19.
If you had to guess what COVID19 will do to Tokenized Commercial Cards would you guess
a. Increase the volume
b. Decrease the volume
Of course you would rightfully presume an increase. So all the numbers sited above will increase, how dramatically will depend on a number of factors. But we can expect to see a dramatic shift to virtual commercial cards as finance teams continue to work from home and as buyers do not want to carry plastic.
I do not expect this to be the last interesting Commercial Card announcement this summer as there is just too much going on for the incumbents or the Fintech challengers to ignore.
