MasterCard and Citi want government to pay

MasterCard credit card


Federal government agencies in Australia could easily shave $150 million a year from their non-strategic purchasing costs by shifting from clunky, paper-based purchase orders that frustrate suppliers to virtualised credit card transactions.

That’s the strong message on savings that senior government financial and procurement managers – and their ministers – are getting as global financial giants Citi and MasterCard begin to overtly target public sector organisations here as a core growth market for outbound payments.

Just a few years ago the government payments market used to be a sleepy backwater in terms of new products and competition for business.

But the swift disruption and innovation that brought payments online in the commercial world is now hitting government where no incumbent remains safe.

Citi and MasterCard this week jetted their public sector top brass into Australia to personally press the flesh with policymakers and senior public servants across jurisdictions at a closed room seminar and workshop in Canberra to spell out how their new and enhanced digital payments capabilities can save big bucks in the back office.

Australia might be a small market for the global money machines, but a raft of recent policy shifts here that control payments to suppliers to government have made agencies here sought-after trophy clients.

One senior executive leading the charge to shift public sector spending onto charge cards in Australia is Julie A. Monaco, Citi’s Global head of Public Sector who’s been repeatedly named on the American Banker’s List of “25 Most Powerful Women in Banking and Finance”.

“Government’s around the world have been trying to figure out how to cut spending in a way that’s going to free up financing for a lot of strategic investments, a lot of it infrastructure related,” Ms Monaco told Government News.

“Three years ago if I ever tried to talk about a commercial card program with the Minister for Finance their eyes would just glaze over. They are [now] willing to have that conversation.”

“We have seen other governments sharing best practices, setting up shared service centres, centralised procurement …and centralised administration of their procurement expenses that enables them to take advantage of what a procurement card program can offer them,” Ms Monaco says.

Of course corporate credit and government charge cards have been around for decades, with travel, accommodation and entertainment (T&E) spending being a staple purchase because hotels and airlines simply demand money up front whether or not you work for the government.

What’s changing very quickly is that the likes of MasterCard and Citi are now actively pursuing the myriad of other government purchasing activity that happens in the sub-$1 million market, purchasing that can range from paying contractor invoices to schools buying software and computers from approved supplier panels.

There have also been procurement rule changes – most notably in New South Wales followed by Canberra – that are designed to help small and medium businesses by letting them dictate payment by credit card.

Suppliers can now often charge back the cost of accepting card payments to government clients without penalty or prejudice, thus removing the so-called ‘cost of acceptance’ road block.

That means government agencies will need more card products, a potential bonanza for banks and card schemes.

The core sell to government from Citi and MasterCard down under is that by using their latest generation of card products, agencies and their financial managers get much deeper visibility over how spending occurs and can then police it far more thoroughly by applying controls that can be easily customised and automated.

That’s because the rich data that banks like Citi and schemes like MasterCard collect on card transactions can now be ported directly into government financials software like SAP and Oracle – often with detail down to the type of product purchase and spending authorisation that might otherwise have to be manually entered.

For transactions initiated using so-called ‘virtual’ card numbers – a single use only sequence of digits that proxies for a plastic card – payments can even be restricted down to the level of the merchant, location, time of day and product category.

Those kinds of guard rails let financial services companies take aim another pet peeve of the public service, the high manual labour cost and administrative barriers that unwieldy and disparate procurement and purchasing systems create for what should be straight forward transactions.

MasterCard and Citi reckon they can up the financial discipline and ease the fiscal pain.

“You are reducing the cost of processing a purchase order and invoice and automating that,” Ms Monaco says, adding that there are serious advantages to faster payments to suppliers.

“The major benefit to the government is that you have a way to control spending and put limits at an individual and department level and the information that comes off the back of the card is provides complete transparency of how that money is being spent, Ms Monaco says.

“That data allows you to understand across many agencies across government how you are spending money with certain vendors. You can aggregate that information to get purchasing power and get better pricing.”

Steve Shirley, MasterCard’s Senior Director for Public Sector for the UK and Ireland argues that it’s imperative to get the settings right at the top, so that the benefits can flow across agencies and jurisdictions.

“It’s very important that what happens centrally can be replicated across the wider public sector,” Mr Shirley says.

“In many markets central government hasn’t necessarily got complete control over spend.”

MasterCard’s Global Head of Government Procurement, Craig Driver, sees big opportunities for governments that are digitising and going down the ‘smart cities’ route to return some economic value to new and smaller businesses by improving the way they buy.

“Often small and medium businesses choose not to provide to the government … based on the amount of time it takes for them to be paid. Often times they would go out of business if they were to rely upon government remitting payment to them.”

Mr Driver contends that as solutions like virtual card numbers and digital payments in general take off, they help stimulate smaller businesses and economic growth which Mr Driver says is a function of financial inclusion.

“Across the digital payments spectrum in a city, part of what makes a city smart is city officials being able to procure from local businesses   but also citizens being able to remit payments for services whether they are taxes, fines, fees etc,” Mr Driver says.

“About 50 per cent of the world’s population are currently housed in the city states, but by the year 2050 it’s going to be close to 80 per cent.”

Like Citi, it’s clear that MasterCard is now intent on persuading as many governments as consumers to use their digital products   before someone else’s fills the space.

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