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Procurement Cards: Will They Become Part of a Strategic Payments Arsenal for Banks?

Procurement Cards: Will They Become Part of a Strategic Payments Arsenal for Banks?

As purchasing cards continue to gain popularity in the realm of supply chain procurement, their revenues are expected to grow from US$1.7 billion in 2006 to US$3.6 billion in 2010.

Boston, MA, April 9, 2007 – In a new report, Procurement Cards: Will They Become Part of a Strategic Payments Arsenal for Banks?, Aite Group explores the factors contributing to the adoption of procurement cards (also known as purchasing cards or p-cards), as well as the challenges that need to be overcome in order to integrate their functionality into the broader procurement supply chain. The procurement card is a business-to-business payment mechanism that facilitates businesses' procurement functions and creates straight-through-processing from purchase order to payment and account posting.

Aite Group estimates that procurement card revenues will reach US$3.6 billion by 2010, as banks recognize the competitive differentiator these cards offer and begin to promote them beyond use as a controlled payment mechanism and into the realm of supply chain procurement. However, the report recognizes that changes will have to be made to procurement cards' supporting infrastructure in order for the model to be adopted by merchants, as interchange fees on large purchases may prove prohibitive, and the introduction of card payments may be disruptive to the pre-arranged shipping and payment terms that exist between buyers and suppliers.

"In order to promote this model, issuers will have to demonstrate a case to the supplier side," says Nancy Atkinson, senior analyst at Aite Group. "Success will depend on the flexibility of the industry. P-card issuers need to adjust the pricing model to make it beneficial for suppliers as well as buyers, and they need to effectively articulate those benefits."

This 24-page Impact Note contains 21 figures and tables. Vendors mentioned in this report include American Express, MasterCard, Visa, TSYS Solutions, First Data, TradeCard and TradeBeam.Clients of Aite Group's Wholesale Banking services can download the report.