Citibank Purchasing Card Best Practices. GSA Federal Supply Service

GSA Federal Supply Service Citibank® Purchasing Card Best Practices 2004 Citibank Commercial Cards, Government Services ® The Sixth Annual GSA Sma...
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GSA Federal Supply Service

Citibank® Purchasing Card Best Practices

2004 Citibank Commercial Cards, Government Services ®

The Sixth Annual GSA SmartPay® Conference SHERATON CONFERENCE CENTER, NEW ORLEANS, LOUISIANA, AUGUST 24-26, 2004

Citibank Purchase Card Best Practices ®

Pat Gaydos, Kathy Borisko, David Cramer, Katherine Buchan August 24-25, 2004

Citigroup® Global Transaction Services Copyright © 2004 Citibank, N.A. CITIBANK, CITIGROUP and the Umbrella Device are registered service marks of Citicorp or its affiliates. Visa is a registered service mark of Visa International Service Association.

Goal and Objectives



To communicate proven approaches to Purchase Card program management that will support your agency’s goals

ƒ To provide a summary of the findings from the 2003

Purchasing Card Benchmark Study conducted by RPMG Research

3

Agenda



Social Security Administration – – – –

Program Statistics Best Practices Program Enhancements Program Expansion Challenges



Results of the 2003 Purchasing Card Benchmark Study



Questions

4

2004 Citibank® Commercial Cards, Government Services

Citibank Purchase Card Best Practices

Social Security Administration Best Practices Citigroup® Global Transaction Services

®

2004 Citibank Commercial Cards, Government Services

Citibank Purchase Card Best Practices

Pat Gaydos Kathy Borisko

Social Security Administration Citigroup® Global Transaction Services

SSA Program Statistics • Annual Spend: • Annual Transactions: • Active Cardholders: • Approving Officials: • Rebates since 1998:

$53,000,000 140,000 3,100 1,300 $2,300,000

Best Practices • Senior executive commitment and support • Policy training • Ongoing guidance • Controls

Best Practices • Senior executive support and decisions – Communicate positive benefits – Develop a standardized and structured program with some flexibility – Close collaboration between Acquisition and Finance • Daily invoicing and payments – Inform and update senior management

Best Practices • Policy training – Computer-based training • Replaced original training video • Implemented training requirement

Best Practices • Ongoing guidance – – –

Administrative Instructions Manual System (AIMS) Electronic Acquisition Alerts / informational bulletins Electronic Access System Manual and Quick Reference Guides – Customer Service Representatives

Best Practices • Controls – – –

Number of cardholders per office Number of cardholders per Approving Official Restrict the single purchase and monthly spending limits – Merchant Category Codes (MCC) – Control of separated employees

Program Enhancements • Use of technological processes – Certification process via the CitiDirect® Card Management System – Training – Implementation

Program Expansion Challenges • Reduction of Third Party Drafts • Inability to pay banks via the card • Inability to pay individuals via the card • Large Dollar Purchases • Level 3 data

2004 Citibank® Commercial Cards, Government Services

Citibank Purchase Card Best Practices

Results of the 2003 Purchasing Card Benchmark Study Citigroup® Global Transaction Services

2004 Citibank® Commercial Cards, Government Services

Citibank Purchase Card Best Practices

David Cramer

Visa Integrated Solutions

Citigroup® Global Transaction Services

Agenda „ 2003 Purchasing Card Benchmark Survey Background „ Study Findings – – – – –

Organizational Impacts and Changing Goals Emerging Trends and Success Drivers Misuse, Combination Cards Common Elements of Highly Effective Programs GSA SmartPay Findings

„ Conclusions „ Questions you haven’t asked yet

17

Visa U.S.A. – Confidential

2003 Purchasing Card Benchmark Survey Background

18

2003 Purchasing Card Benchmark Survey „ Survey was conducted by Professors Richard Palmer and Mahendra Gupta (RPMG Research)* „ Designed to improve knowledge about the progress of purchasing card use, emerging trends and industry-specific benchmark data „ Copies provided to: – Each business that responded

„ Report highlights: – – – –

Market trends Best practices Card misuse Data & reporting

– Combining uses – Barriers to program growth – Common Elements of Successful Programs

19

Visa U.S.A. – Confidential

Survey Profile Number of Issuers

Participating Issuers

2003

2001

19*

14

− Bank of America** − Bank One** − Bank of Montreal − Bank Branch & Trust − Citibank** − Comerica − Commerce Bank − GE Corporate Payment Systems** − JPMorgan Chase** − First Tennessee − MBNA − Mellon Bank** − National Bank of Canada − PNC Bank ** − Scotiabank − SunTrust** − US Bank** − UMB Bank − Wells Fargo**

−Bank of America − Bank One − CIBC − Chase Manhattan − Citibank − Firstar − National City Bank − GE Capital − Mellon Bank − PNC Bank − SunTrust − US Bank − Wachovia − Wells Fargo

Number of Responses

579

329

Response Rate

20%

12%

* Surveys were also sent to members of the National Association of Purchasing Card Professionals **Participated both years

20

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Survey Respondents Types of Organizations

Universities 15%

Private Corporations 21%

City/County 11% State 5%

Public Corporations 36%

Federal 3% Others 9%

21

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Survey Respondents Size of Respondents Large Market 30% Middle Market 27%

Small Market 1% Fortune 500 38%

No Sales Data Provided 4%

22

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Purchasing Card Program Experience

33% Less than 2 Years

36%

5 or more Years

31% 3 to 4 Years 23

Visa U.S.A. – Confidential

Market Size, Trends and Opportunities „ North American Market – – – –

Total transactions under $10,000: $456 billion Transactions between $2,000 and $10,000: $217 billion Transactions under $2,000: $185 billion 90 percent of transactions under $10,000 are less than $2,000

„ Organizations that expect to “radiate” spending to two or more new types of spending project growth almost 3 times greater than those that indicated they would not expand card usage to new categories „ Purchasing card use is generating overall transaction cost savings of over $23 billion per year, along with – –

74 percent reduction in cycle time 57 percent reduction in number of petty cash accounts

„ Large untapped potential lay between $2,000 & $10,000 purchases 24

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Where is the Purchasing Card Opportunity and Potential? 1200

300

1000

250

800

200

600

150

400

100

200

50

0

0

Transactions (in millions) Under $2,000 $2,000 to $10,000

Spending (in $ billions) Under $2,000 $2,000 to $10,000 25

Visa U.S.A. – Confidential

Study Findings Organizational Impacts & Changing Program Goals 26

Savings and Efficiency Average Cycle Time Per Transaction Using purchasing

Average Cost Per Transaction

card generates equivalent of 29% reduction in cost of goods.*

80 70

$80 11.2 days (100%)

60

$91.13 (100%) 50 40

U.S. Dollars (billions) 30 20 10 0

$23 $21.79 (23.9%)

Purchasing Card Spending

2.9 days (25.9%)

Transaction Cost Savings

Without Purchasing Card

With Purchasing Card

*Based on 335 million transactions at $69 savings. 27

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Current Payment Method by Transaction Amount

Paper checks

60.6% 77.9%

Purchasing Cards have captured 30.7 % of transactions below $2,000 ACH transfers Wire transfers & others

30.7% 30.7% PCards 5.5% 5.5% 3.3% below $2,000

There is a lower penetration rate (8.5 percent) of Purchasing Card use on transactions between $2,000 and $10,000

8.5% 8.3% 5.3% between $2,000 and $10,000 28

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Best Practice

Framework for understanding purchasing card spending

Transactions per card

X Spend per transaction

=

Purchasing Card Spending

X Number of active cards

„ Petty cash account reduction – 57% „ Reduction in MRO supply base – 42% # of Employees

# of Cards

# of Cards Used

„ New way to look at cost savings – in relation to the total spend, not just sharing of revenue 29

Visa U.S.A. – Confidential

Program Goals, Old and New 87.9% 79.3%

Reduce process cost Increase process efficiency

79.3% 77.4%

Increase convenience for employees

79.0% 75.9% 65.6% 63.0%

Reduce time to obtain goods/services 36.5% 36.0%

Reduce number of paperwork errors occurring in the purchasing process

2000

29.9%

Obtain better data about spending

45.7% 29.1% 36.7%

Increase control over spending Leverage spending to reduce prices Generate rebates

2003

26.0% 31.5%

Emerging Goals

24.9% 39.1%

30

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Study Findings Emerging Trends & Program Success Drivers 31

Market Trends – All Respondents 1998

2001

2003

Average Monthly Spend - All Respondents

$633,000

$801,000

$1,642,705

Median Monthly Spend per Respondent

$134,000

$194,000

$300,000

Average Monthly Spending per Card

$777

$1,053

$1,243

Average Transaction Size

$201

$227

$239

3.8

4.6

5.2

Not Available

762

1,322

6%

10%

11%

Average Monthly Transactions per Card Average Number of Cards Average Card to Employee Ratio

32

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Tr en

ct es sio

nd

nt

al

ip

2.0% 3.0%

Ot he r

3.9%

es

24.4%

Ut ilit i

ts

ng

2.7%

en

pi ym

sh

3.9%

pa

nd

es

s

1.6%

re

ht a

vic e

ch as

er

y)

1.5%

eig

ls

en to r

ur

na

in v

2.9%

Ca pi ta lp

of

ls (

als

s

9.4%

Fr

pr

ria

se

he r

en

8.5%

ea

or

at e

ip

xp

pe r

te

s

s

ct

go od

ep ro du

RO

12.0%

Le as

tra

ct m

en

nd

ra

ta in m

te

pu

te r

Co m

nd

Of fic

al M

14.3%

Di re

el a

er

18.7%

Co n

av

Ge n

Card Penetration by Spend Category 34.8% 2001 2003 24.5%

19.0%

12.0% 7.3%

5.8%

1.2% 1.0%

33

Visa U.S.A. – Confidential

© Copyright 2003 R Palmer & M Gupta

Anticipated Sources of Future Growth Use p-card more frequently to buy same types of goods

72% 56%

Increase types of non-inventory goods bought Increase number of employees given a p-card

55% 42%

Begin using p-card to pay for e-procurement transactions

34%

Increase average transaction size or monthly spending limit Begin using p-card to buy direct material

23%

Begin using p-card to pay for T&E expenses

22%

Other

17%

Begin using p-card to buy capital assets

16%

Begin using p-card to pay for fleet expenses

16%

34

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Use of Spending Limits and Impact on Volume „ The majority of respondents (92 percent) reported using per transaction spending limits „ Higher transaction limits correlate to both increased usage and higher average tickets Percent of Respondents

Median Transactions per Card

Median Transaction Amount

Median Monthly Spending per Card

$2,000 or less

63%

4.7

$175

$812

$2,001 to $4,000

22%

5.4

$250

$1,262

Over $4,000

15%

6.6

$281

$1,707

Transaction Spending Limits

35

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Impact of Card Distribution on Volume „ Excluding centralized programs with very few cards and high spend, there is a strong correlation between – Number of cards/ratio of cardholders to employees – Total program spend Below Average Group

Above Average Group

Cardholder to Employee Ratio

4%

26%

Transactions Under $2,000 on Card

18%

43%

Transactions between $2,000 and $10,000 on Card

9%

18%

When asked to rate barriers to further dissemination of purchasing cards, the greatest response was that the company believed “employees who do most of the requisitioning already have cards” 36

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Study Findings – Misuse

37

Card Misuse „ 70 percent of all misuse dollars in sample are associated with less than 4 percent of respondents „ 65 percent of card misuse was identified through either internal controls or internal audit „ Programs with “low misuse” significantly outperform organizations with “no” or “high misuse. They also have higher expectations of future growth. Overall

Corporations

State & Federal Agencies

City, County Government

Universities

Average Dollars per Incident

$932

$905

$599

$450

$690

Median Dollars per Incident

$500

$575

$400

$100

$325

Misused Dollars as a Percent of Annual Purchasing Card Spend

.027%

.020%

.017%

.091%

.032%

Annual Incidents per 1000 cards

4.2

3.5

2.5

14.7

5.2 38

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Percent of Under $2,000 Transactions Captured

Trade-offs On Spending and Misuse 45%

Optimal point of use and control

40%

35%

30%

25%

20%

No Misuse Misuse $ to Pcard Spend

Low Misuse Misuse Incidents per 10K Transactions

High Misuse Misuse Incidents per 1k Cards 39

Visa U.S.A. – Confidential

Study Findings Common Elements of Highly Effective Programs 40

Best Practice

Common Elements of High Performing Programs

O rg an izatio n al M easu re S ales revenue (in $ m illions) N um ber of em ployees A ge of program (years)

A ll R esp o n d e n ts

Top Q u artile S p en d in g p er E m p lo ye e

B o tto m Q u artile S p en d in g p er E m p lo yee

$4,776

$ 1 ,7 4 9

$3,343

12,332

4 ,209

15,564

3.7

4.0

2.9

41

Visa U.S.A. – Confidential

Best Practice

Common Elements of High Performing Programs

C a rd P ro g ra m P e rfo rm a n c e M e a s u re

M o n th ly p -c a rd s p e n d in g M e d ia n m o n th ly p c a r d s p e n d in g N u m b e r o f c a rd s N um ber of c a r d h o ld e r s P - c a r d - to -e m p lo y e e ra tio C a r d h o ld e r- to e m p lo y e e -r a tio

A ll R e s p o n d e n ts

Top Q u a r t ile S p e n d in g per E m p lo y e e

B o tto m Q u a r t ile S p e n d in g per E m p lo y e e

$ 1 ,6 4 2 ,7 0 5

$ 2 ,0 2 8 ,0 9 5

$ 3 6 1 ,0 0 4

$ 3 0 0 ,0 0 0 1 ,3 2 2

$ 5 2 0 ,0 0 0 1 ,2 9 9

$ 7 4 ,7 8 8 571

1 ,0 7 9

1 ,0 5 9

486

1 1 .0 %

3 0 .9 %

3 .7 %

8 .9 %

2 5 .2 %

3 .1 %

Note large difference in percentage of employees with purchasing cards. 42

Visa U.S.A. – Confidential

Best Practice

Outcomes of High Performing Programs

O u tc o m e M e a s u re s

M e a n m o n th ly p -c a rd t r a n s a c t io n s T r a n s a c t io n s u n d e r $ 2 , 0 0 0 p la c e d o n p c a rd T r a n s a c t io n s b e t w e e n $ 2 ,0 0 0 a n d $ 1 0 ,0 0 0 p la c e d o n p - c a r d A v e r a g e P u r c h a s in g & A c c o u n t s P a y a b le F T E h e a d c o u n t re d u c e d o r r e d e p lo y e d d u e t o p c a rd s C u r r e n t ly c o n s id e r in g s w it c h in g c a r d p r o v id e r s

A ll R e s p o n d e n ts

Top Q u a r t il e S p e n d in g per E m p lo y e e

B o tto m Q u a r t il e S p e n d in g per E m p lo y e e

6 ,8 8 8

6 ,3 5 2

2 ,1 4 1

32%

47%

15%

11%

21%

3%

2 .6

4 .5

1 .9

20%

14%

23%

Top quartile organizations get about 3X the benefit, less likely to switch. Visa U.S.A. – Confidential

43

Best Practice

Controls of High Performing Programs

S p e n d in g C o n tro ls

M ean per tra n sa ctio n p -c a rd sp e n d in g lim it M e d ia n p e r tra n sa ctio n p -c a rd sp e n d in g lim it M e a n m o n th ly p ca rd sp e n d in g lim it M e d ia n m o n th ly p ca rd sp e n d in g lim it

A ll R e s p o n d e n ts

Top Q u a rtile S p e n d in g per E m p lo ye e

B o tto m Q u a rtile S p e n d in g per E m p lo ye e

$ 2 ,3 3 1

$ 3 ,4 7 1

$ 1 ,5 0 1

$ 1 ,5 0 0

$ 2 ,4 9 9

$ 1 ,0 0 0

$ 1 1 ,8 3 3

$ 1 6 ,4 1 4

$ 7 ,5 0 3

$ 7 ,5 0 0

$ 1 0 ,0 0 0

$ 5 ,0 0 0

Higher per transaction and monthly spending limits characterize top quartile programs. 44

Visa U.S.A. – Confidential

Best Practice

Association between transaction limits, card distribution, and card spending. 6,583,959

7,000,000 6,000,000

4,764,479

5,000,000 4,000,000

2,570,081

728,550

2,000,000

221,096

472,173 94,054

361,662 0

high

1,000,000

59,369

high N um ber of P-cards

m oderate low

moderate

3,000,000

low

M onthly Spending

Transaction Lim its

45

Visa U.S.A. – Confidential

GSA SmartPay Findings

46

Purchase Card Spending/Transactions by U.S. Federal Government Agencies: 1989-2003

(Millions) (in billions $) 30

Total Annual Spending

Number of Transaction

18 16

25 14 12

20

10

158 6

10

4 2

5 0

1989

1991

1993

0 1989

1991

1993

1995

1997

Fiscal Year 1995

1997

Fiscal Year Visa U.S.A. – Confidential

1999 1999

2001 2001

2003 2003 47

Number of Cardholders and Spending per Cardholder ( in thousands) $ 700 60,000

600

Spending Cardholder Total number ofper purchasing card cardholders

50,000

500

40,000

400

30,000

300

20,000

200

10,000

100

0 0 1989

1989

1991 1991

1993 1993

1995 1995

Fiscal FiscalYear Year Visa U.S.A. – Confidential

1997 1997

1999 1999

2001 2001

2003 2003 48

Transactions per Cardholder

Transactions per Cardholder

90

$

80 70 60 50 40 30 20 10 0 1989

1991

1993

1995

1997

Fiscal Year Visa U.S.A. – Confidential

1999

2001

2003 49

Spending per transaction $

700

Spending per Transaction

600 500 400 300 200 100 0 1989

1992

1995

1998

Fiscal Year Visa U.S.A. – Confidential

2001

2003 50

GSA SmartPay Benefit Analysis Millions $

$ 1,898,000,000

2,100 1,800 1,500 1,200 900 600 $ 110,451,704 $ 19,081,373

300 0 Administrative cost savings

Rebates Visa U.S.A. – Confidential

Total Inappropriate Spending

51

Characteristics of High Performing Programs „ Require mandatory training for new cardholders „ Mandate use for certain purchases – Take away other payment options!

„ Provide a web site that answers purchasing card questions „ Use card for direct materials and capital items „ Send reminders from accounts payable staff when an invoice is submitted when a card could have been used „ Charge departments for lost savings when a purchasing card is not used

52

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Characteristics of High Performing Programs „ Monitor vendor spending patterns to identify areas for increased purchasing card use „ Utilize ghost or cardless accounts „ Use purchasing card data to negotiate discounts and reduce the size of their MRO supplier base „ Permit use by a variety of employees by not limiting to just managers, supervisors or administrative personnel only „ Allow spending without manager pre-approval „ Permit spending at both preferred and non-preferred suppliers

53

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Best Practice Summary

„ There are many different components of top quartile purchasing card spending. „ Most key components include high card distribution and high transaction limits to drive large purchasing card programs. „ Barrier to high ticket spending are “non-trivial,” but rewards large. „ Multiplier effect of high transaction limits. „ “Professionalized” administrative activities.

54

Visa U.S.A. – Confidential

Conclusions „ Purchasing card programs are moving/have moved from best practice to common practice „ An increase in the transaction spending limit has a “multiplier effect” …increasing both: – Number of transactions – Average amount spent per transaction

„ Main barrier to the use of cards for higher ticket goods and services has been the “inability to obtain detailed information needed” „ The most successful programs lave “low misuse” NOT NO or HIGH levels of misuse „ Purchasing card using organizations received transaction cost savings, on average, 37 times greater than any rebates received

55

Visa U.S.A. – Confidential

© Copyright 2003, R.Palmer & M. Gupta

Summary

ƒ Support your agency’s goals by using proven best practices in managing your Purchase Card program

ƒ The Purchasing Card Benchmark Survey is a comprehensive guide for all card programs with an insight for:

– Benchmark guidelines – Emerging trends – Common elements of successful programs

56

Citibank Purchase Card Best Practices

Questions?

57

Reminders ƒ Thank you for attending this session! ƒ Visit the Citibank Welcome Center – The Maurepas Suite, on the third floor at the Sheraton – Pick up and complete a Citibank survey during your visit – National Industries for the Blind will have a display of products

ƒ Visit the Citibank Technical Demonstration Center – Napoleon Ballroom D1, on the third floor at the Sheraton

ƒ Citibank hands-on training – Grand Ballroom C, on the fifth floor at the Sheraton

ƒ Please take a moment to complete your GSA survey for this session ƒ Citibank’s Mardi Gras party is tonight! – Parade line-up outside the Sheraton & Marriott at 6:30 p.m.

Citigroup's Global Corporate and Investment Bank ("GCIB") maintains a policy of strict compliance to the anti-tying provisions of the Bank Holding Company Act of 1956, as amended, and the regulations issued by the Federal Reserve Board implementing the anti-tying rules (collectively, the "Antitying Rules"). Moreover, our credit policies provide that credit must be underwritten in a safe and sound manner and be consistent with Section 23B of the Federal Reserve Act and the requirements of federal law. Consistent with these requirements, and the GCIB's Anti-tying Policy: You will not be required to accept any particular product or service offered by Citibank or any Citigroup affiliate as a condition to the extension of commercial loans or other products or services to you by Citibank or any of its subsidiaries, unless such a condition is permitted under an exception to the Anti-tying Rules. GCIB will not vary the price or other terms of any Citibank product or service based on the condition that you purchase any particular product or service from Citibank or any Citigroup affiliate, unless we are authorized to do so under an exception to the Anti-tying Rules. GCIB will not require you to provide property or services to Citibank or any affiliate of Citibank as a condition to the extension of a commercial loan to you by Citibank or any Citibank subsidiary, unless such a requirement is reasonably required to protect the safety and soundness of the loan. GCIB will not require you to refrain from doing business with a competitor of Citigroup or any of its affiliates as a condition to receiving a commercial loan from Citibank or any of its subsidiaries, unless the requirement is reasonably designed to ensure the soundness of the loan. This presentation is for informational purposes only. Citibank USA, N.A. and its affiliates does not warrant the accuracy or completeness of any information or materials set forth herein. This material does not constitute a recommendation to take any action, and Citibank USA, N.A and its affiliates are not providing investment, tax or legal advice. Citibank USA, N.A. and its affiliates accept no liability whatsoever for any use of this presentation or any action taken based on or arising from the material contained herein.

Copyright © 2004 Citibank, N.A. CITIBANK, CITIGROUP and the Umbrella Device are registered service marks of Citicorp or its affiliates. Visa is a registered service mark of Visa International Service Association.

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