When John Garcia, assistant controller of Toyota Motor Insurance Services Inc. (TMIS), pays a local repair shop to replace a bad alternator on one of the cars his company insures, he uses a corporate purchasing card that is good only for that shop, only for the amount his claims people have agreed to pay, and only for a few weeks. No plastic changes hands–Toyota Motor Insurance just gives the shop the amount and a card number it can use to be paid through its merchant bank.

If this sounds like a substitute check, welcome to the wacky world of p-cards, where the market is getting broader by offering narrower applications of the product. Purchasing cards were invented to aggregate purchases, get around costly purchase orders and ultimately replace checks. Now, they’re being used instead to mimic checks, settle single transactions and work with purchase orders. Why? Because it’s a more fraud-proof way to use p-cards for larger transactions that require more controls, but can earn higher rebates.


Toyota Motor uses a service offered jointly by Pittsburgh-based PNC Bank and Works Inc. of Austin, Texas, which the bank markets under the name ActivePay and the processor calls Active Card Integration. “We directly connect to ERP systems,” explains Jerry Lester, Works’ president and CEO. “When they approve payments to suppliers, we get a file, real-time or [by] batch, indicating which ones to pay. We then load a card with the exact dollar amount of the approved payment and send the supplier a message that he can now collect x amount of dollars for invoice XYZ.” Once a card is used or expires, its number goes to the bottom of a stack in the virtual jukebox to be used again later. PNC has set aside 5,000 credit card numbers for Toyota’s insurance division. “Until last year, we used one ghost p-card to pay all claims,” Garcia says. “With no direct link between what was authorized and what was paid, we were open to fraud and had a reconciliation challenge. Since we have 9,800 transactions a year, it was hard to investigate each. Now, virtual cards are tied by numbers to claims in our system, which automatically reconciles the two. The vast majority of the time, the amount charged is identical to the amount approved.”

GE Corporate Payment Services, based in Salt Lake City, offers a similar program it calls vPayment. A virtual card (again, just the number) is created to match a specific purchase order and communicated to the supplier, explains Michael O’Malley, GE’s marketing manager. If A/P approves payment for a $1,000 order, the supplier gets a card number for an account that is capped at around $1,100 (the extra covers taxes and shipping), which is set to expire in days or weeks.

While such programs disaggregate spending, they are the key to getting larger transactions on the card, O’Malley argues. “Senior management likes the greater security around larger purchases and the ease of reconciliation,” he notes. And vPayment transactions “automatically extract purchase order information, so the p-card record includes full line-item detail,” he adds. The concept seems to work. The average size for vPayment transactions is double the national average for purchasing cards in general, he claims.

And as the transaction size increases, so does the need for the kind of systematic controls that these virtual cards provide. Increasingly, cards are being integrated into automatic accounts payable systems to ensure that cards are used for legitimate purchases and used with preferred vendors to get price discounts, reports Chris Pieroth, senior vice president of product and marketing for U.S. Bank Corporate Payment Systems. In fact, as Troy Baker, senior vice president for treasury management and head of the corporate payment business at PNC, points out, “The cutting edge today is using the card for the higher value transactions that come out of A/P. That means making it resemble the check in some ways.”


At Bethesda, Md.–based Lockheed Martin Corp., with $35.5 billion in annual revenues, more than $500 million worth of purchases are charged annually to corporate Visa cards. Here, the innovation involves a cardless electronic catalog program, which allows buyers to complete transactions (currently $30 million a year) without ever coming in direct contact with the mechanics of the card network, reports Rick Swartwood, Lockheed’s program manager. “We take the Lockheed orders, which often contain important accounting data, directly into our p-card system. Accounting information from the order is automatically captured and applied to the transaction, which is reconciled against the order when it comes through,” explains U.S. Bank’s Pieroth, whose bank issues the Visa cards and is the technology partner in the catalog venture. “The solution doesn’t depend on cardholders keying in accounting information or merchants capturing it and reporting it back.”

Lockheed is also targeting spending that goes through the A/P process, using a hybrid model to bring together the A/P and p-card worlds, Swartwood explains. “We’re targeting the purchase-order suppliers and trying to reduce process costs in that area, maintain controls and let the supplier get paid through the Visa network when they ship.”

What’s special about the Lockheed program is the level of data integration between the p-card system and the order management system embedded in its electronic catalogs, says Pieroth. Order and settlement are matched by order number when possible, or, less precisely, by merchant name and dollar amount when an order number is missing. According to business rules set by Lockheed, a transaction can be approved automatically if the transaction amount matches or nearly matches the order amount. (A tolerance of 5% to 10% is common.) Exceptions are then routed to Lockheed for its review, Pieroth adds. “As companies get comfortable using p-cards for small purchases, they start moving up and integrating them with order management systems,” Pieroth notes. “Lockheed is further along with that process than most large corporate users.” What U.S. Bank built for Lockheed is now available for other customers, he adds.


Even with these systems, larger transactions tied to purchase orders and A/P processing still can pose uncertainties for buying organizations trying to use p-cards. For instance, do they pay for products on order that have been charged to p-cards or do they delay payment until they receive the goods, confirm that they were shipped what was ordered and then inspect what was purchased? Traditionally, buyers using purchasing cards have been expected to pay within 48 hours in exchange for a discount. Today, the p-card world is becoming more of a pay-upon-receipt situation in which buyers wait to receive and inspect the goods and match the shipment to their purchase order before approving payments.

Pieroth sees a danger in delaying p-card settlement, even though Visa has in fact reduced the discount provided for fast payment. “We don’t recommend it as a best practice. It deteriorates the value proposition for the merchant,” he says.

With or without delayed payment, the discount rate–which continues to rise–is a sore point with sellers. Rebating is “a shell game,” says Richard Palmer, Lumpkin professor of business at Eastern Illinois University in Charleston, Ill. It takes money out of the supplier’s pocket in the form of the discount and gives it to the buyer in the form of rebates. The more buyers try to move large-ticket transactions to cards, the stickier the discount problem becomes. A supplier who shrugs off a 2% haircut on a $100 transaction will usually balk at doing so on a $1 million transaction. “Some suppliers will take a card for a $5,000 purchase but won’t take it for a $20,000 purchase,” Lockheed’s Swartwood says. “If the purchase were broken into four $5,000 transactions (something Lockheed does not do), the supplier would pay more interchange than they would for one $20,000 transaction.” Ultimately, clout still settles most such disputes. “If you’re a big buyer and you ask to pay suppliers by p-card, there’s not much pushback,” observes Gary Schneider, managing director and global business manager for commercial cards at Citigroup.

For larger ticket items, the trend is to reduce interchange and rebates, reports Richard Erario, senior vice president for supplier/payer payment channels and business executive for card solutions at JPMorgan Chase. Discussions are underway about creating a midsize ticket interchange rate for transactions of perhaps $2,500 to $5,000, he adds.

When Lockheed surveyed suppliers earlier this year, it found that 61% accepted card payments because they saw advantages like prompt, certain payment and no need to fund invoicing and collection efforts. Those suppliers who accepted card payments reluctantly because customers forced them to was just 14%. The other 25% did not accept cards. The survey had almost a 20% response rate, Swartwood reports. Lockheed is not trying to delay payment on its e-catalog purchases.

Regardless of discount rate or payment timing, growth in p-card payments is strong. Nationally, paper payments are declining by 3% to 6% annually, while ACH payments are rising 5% to 10% and p-card payments are growing by 15% to 20% annually, measured either by transactions or dollar volume, PNC’s Baker reports. “We can go through a company’s payments systematically. Everything that can be paid by card should be. Then everything not paid by card should be moved to ACH. Checks are the last resort,” he concludes.