If you read that headline and decided to read further, congratulations, you are officially a B2B payments nerd!  Welcome to the club.

A few weeks ago, I wrote one of my periodic guests posts on PYMNTS.com, on the increasing use of virtual (a.k.a., “single use”) cards in the corporate payments space (here).  This is a fast-growing business for a couple of reasons:

  • Single use/virtual cards are relatively secure and offer granular spend data and
  • Single use/virtual cards are increasingly being used to settle payments on larger ticket invoices.  This settlement mechanism allows buyers to hold on to their cash until an invoice is due and still enjoy a sizeable rebate from the interchange paid by the (poor) supplier.

This latter tactic, has been given a nice, euphemistic name by the gurus of P-card research (RPMG):  Electronic Accounts Payable (EAP). According to Business Travel News:

“RPMG defined EAP as “non-plastic purchasing card accounts used to pay for goods and services after an invoice has been received for those goods or services,” a category that includes “single-use or a rotating pool of accounts,” virtual or dynamic ghost accounts maintained by either suppliers or buyers, and “straight-through” processing, push payments and buyer-initiated transactions.”

In my PYMNTS.com article, I highlighted the rapid growth of this business using virtual card offerings from MasterCard issuers such as WEX and Comdata (now Fleetcor) and traditional procurement card issuers (e.g., Amex, JPMC, Citi).  After writing that piece, I wondered how much rebate buyers are “earning” from these programs and how much interchange are card providers keeping? What are the economics of this business?

This kind of data is not easy to find.  Issuers are not eager to share rebate information.  And most of these virtual card businesses are buried deep within large, public companies.  The best data I have found on the virtual card business comes from “The Other Payment Solutions” segment within the public company WEX.  For you old-timers (like me), WEX is the former fleet card company, Wright Express.

The WEX Virtual Card Business (“Other Payments”)

The Other Payments Solutions segment of WEX  is mainly a specialized virtual payments business focused in travel and healthcare.  Here is how WEX describes this segment in their latest investor presentation.

WEX Other Payments Business

(NB:  I think the word “fleet” above is a typo leftover from the rest of their business as this business does not seem to involve fleet. Also, it appears they may have decided that “Travel, Health, and Employee” sounds better than “Other Payment Solutions.”  Nice call.)  As you can see, this is a payments processing business, not a financing business.  (Charge-offs are negligible, as are finance fees.)

The prime use case WEX provides in their investor deck regarding virtual cards is from the dominant business in this segment, travel.  The transaction involves settlement between online travel agencies and travel providers.WEX Virtual Card Use Case

From their website, we can see WEX plays in other specialized markets, namely healthcare and insurance.  WEX also appears to want to play in the burgeoning EAP space in several industries, including education and media.  (It appears that Comdata is the more aggressive player in EAP.  Alas, we only have data on WEX’s Other Payments Solutions segment.)

And what data it is!  The data show, as expected, a rapidly growing business–37% CAGR growth for the past 5 years.   The data also show that, while WEX is increasingly under pressure to rebate much of the interchange (about 150 bps or more of 240 bps or so), WEX is still netting about 85 basis points.  This net yield for a transactional business with limited financial exposure should make a lot of people jealous.  Here’s the data from their quarterly reports:

WEX "Other Payments" Net Interchange

Conclusion

Eighty-five bps on a $15-$20 billion spend base growing at nearly 40% annually, should draw the attention of a lot of folks in the e-invoice, payments, and supply chain finance space.  It will be really interesting to see if WEX can sustain this net revenue as they get larger and defend this profit pool from the hordes!

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