Evolution of credit cards as a business tool: How to effectively manage credit cards
In part one on the history of credit cards, we explained how credit cards have evolved over the last 70 years. Since its conception - as a date-night mishap - credit cards have transformed into an important tool for businesses around the world. In this next part, we will explore the emergence of credit cards as an essential business tool, the key technological advances of the 21st century, and how both can be used to effectively manage company spend.
How did credit cards evolve into a business tool?
Multi-purpose credit cards were once used as a personal form of currency for individual cardholders to make purchases on a multitude of items. Over time, credit cards became the standard for business transactions. So how did this happen?
In the 1970s, the Diner’s Club unveiled its version of a corporate credit card - issuing over 40,000 in the first year. There was one major difference between the credit cards of this time period and the cards of today. Credit card companies required cardholders to pay off the amount in full each month, rather than in small payments over a long period of time.
Enter: Bank of America. While the idea of revolving credit was not a new concept, Bank of America can be credited with its increasing popularity in the 80s with the BankAmericard.
Led by the BankAmericard, the 1980s saw credit cards become a household staple and people began to see the purchasing power of revolving credit for business needs. Companies began issuing employee cards for business expenditures at a steady pace - replacing floats, petty cash tins, checks, and other aging transactions.
However, it wasn't until the late 90s that businesses began to take complete advantage of credit cards - whether using corporate cards or reimbursing personal card spend for business expenses.
While both corporate credit cards and personal credit cards ultimately serve the same purpose, the key difference is how they are reconciled. For corporate cards, the business directly pays the bank, and for personal cards, the business pays the employee who then pays their bank.
In 1998, less than 40% of small businesses reported that they were operating with a credit card. This percentage of businesses utilizing credit cards would see a significant increase over the next 10 years, thanks to advancements in technology decreasing the cost of information technology, and thus making it easier for banks to issue cards. This wouldn’t be the only technological advancement that aiding the evolution of credit cards for businesses
Technological advancements ripen the landscape for credit cards
Throughout the 1990s and into the early 2000s, mobile phones became more portable and powerful - Buzzfeed showcases the different structures of phones of the early 2000s, showing the many interesting forms. And in 2007, the iPhone was released, redefining mobile phones forever.
The idea of an app store was not new - the first traces came from Apple in 1983 when Steve Jobs allowed for software to be purchased through phone lines. In the 2010s, mobile applications took the portable business to the next level. There was an emerging market for mobile app technology that grew and transformed business operations.
As mobile (and desktop) apps grew in popularity, phones became equipped to handle intricate work tasks utilizing all components of the phone - including the camera. For example, optical character recognition, (OCR). The technology emerged in the early 2000s and completely transformed the business by streamlining its financial and administrative processes.
How credit cards can be used as a digital tool for business
The combination of credit cards with modern technology has transformed the credit card process into a streamlined finance tool for companies. By utilizing cards in combination with apps, businesses can access numerous functions and benefits compared to traditional methods.
For example, the traditional method was a tedious task:
- The cardholder was sent a paper statement of all transactions for the month.
- Users would have to fill out an itemized Excel spreadsheet of spend
and had to attach receipts for each item
- Submit to approver - which was either accepted or rejected and sent back remedy the issue and resubmit
- And finally reconciled/reimbursed
This manual method - which is still used by companies today - comes with a set of downfalls as well. Including lost receipts for users and file cabinets full of expense reports for finance managers. Plus, with corporate cards, getting employees to submit their reports on time can be a particular challenge since transactions are made with company money - which is not motivating enough for employees to get the reports done in a timely manner.
Credit cards, when used in tandem with an expense software to manage them, become a powerful and effective credit card management tool that ease issues caused by traditional methods for both spenders and approvers, such as:
Receipt tracking: Losing a receipt is like losing money when credit card transactions are tracked manually: no proof of purchase means no reimbursement. After making a card purchase, receipts can be digitized using optical character recognition (OCR). Using a phone camera, OCR scans receipts to create a digital copy, inputs the data into a claim automatically, and attached to the transaction. The need to save receipts is eliminated, while room for error is reduced. Plus, OCR will work on the multitude of ways a credit card receipts exist nowadays, e.g. text, POS screen, email, paper.
Policy compliance: Staying within the policy for card spend is also automated with the pairing of an expense software with built-in custom compliance. With this, the system automatically flags any card purchases that are out of policy.
Credit card reimbursement: For business spend on personal credit cards, this process from spend to reimbursement is significantly faster. Employees can avoid late fees or having to ‘float’ money for the business due to the real-time nature of an automated credit card management process.
Corporate card reconciliation: For corporate cards, the business tool is taken one step further. Technology, like intelligent matching, eases the corporate card reconciliation process even further. Statement transactions instantly match with receipts entered into the system via OCR - automated previously manual processes for both user and financial teams.
Expense reporting: Utilizing cards as a business tool cand provide finance teams more power and control over financial transactions by increasing visibility overspend. Pairing credit cards with an expense software to aid in the process means custom reports can be generated at the tap of a button. This increases visibility for finance teams and provides greater transparency with reporting. Plus, an easy-to-access and sortable digital library of all credit card spend at the touch of a button.
It is a nearly natural progression that as credit cards and technology grew together, that they would eventually combine to become a valuable tool for businesses. The benefits of which are boundless, but include: 1. Significant time savings for both users and approvers, 2. The ability to track spend and within categories spend, and 3. improved efficiency in reconciliation and reimbursement.
So what's next for credit cards?
Credit cards have seen numerous upgrades and technological advances over the past 60 years, its purpose stays clear. Providing business of all sizes with the means of properly functioning through funding and establishing a healthy line of credit for their next business venture. While the future of the corporate credit card is undetermined, it is safe to say that when used as a tool for business, the credit card is here to stay.