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
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
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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%
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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%
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© 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%
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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
Support your agency’s goals by using proven best practices in managing your Purchase Card program
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 Thank you for attending this session! 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
Visit the Citibank Technical Demonstration Center – Napoleon Ballroom D1, on the third floor at the Sheraton
Citibank hands-on training – Grand Ballroom C, on the fifth floor at the Sheraton
Please take a moment to complete your GSA survey for this session 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.