Corporate credit cards have long been favored for expenses, but are not appropriate for all situations and are not available to all employers and employees. Just as prepaid cards have brought more of the unbanked into the financial system, stored-value cards could also push past the limitations on credit card-based expense systems.
By offering a prepaid card for company expenses, the employer would get access to more transaction data than is typically provided on a paper credit card receipt. Corporate spending is also an opportunity for prepaid card issuers to break into a market that is dominated by credit.
For large corporations, corporate purchasing cards can amount to 42% of card spend annually, while the range is closer to 25% for smaller businesses and below 18% for businesses with revenues between $100,000 and $1 million annually, according to data from Javelin Strategy & Research.
Introducing prepaid cards to the mix "makes cards available for employees that may not have a robust credit history and where daily stipends are more controllable from a centralized corporate body," said Nick Holland, senior payments analyst with Javelin.
Business expense software provider Tallie, of San Francisco, offers a cloud-based expense management system that now connects with the PEX Card and can handle expenses on a PEX Visa-branded prepaid card.
At its core, Tallie's software addresses the problems of matching expenses to credit card receipts and statements that often lack needed details, said Chris Farrell, CEO of Tallie.
The prepaid card can complement corporate credit card programs. "Penetration of prepaid cards in the business environment is clearly low, but this can be added to a business without taking anything away from an Amex, MasterCard or Discover corporate card," Farrell said.
JPMorgan Chase's research indicates use of corporate travel and expense cards to be on the rise, mostly because of the reward programs offered and the growth in automated expense reporting offered by companies like Tallie and Concur.
Corporate card spending is expected to rise to $186 billion in 2015, an increase of about $5 billion over 2014, JPMorgan said.
Farrell expects other card brands to more readily include prepaid cards as an option for employee expenses, especially for those using their personal cards for business expenses.
But companies favor corporate credit cards because of the controls they provide, and these controls may be absent from some prepaid options, said Brian Riley, senior research director and analyst with Boston-based CEB TowerGroup.
Still, the PEX Visa prepaid card in combination with Tallie's management software could be helpful for many small businesses, Riley said.
"Tallie has a niche to fill, though you are not going to find a Fortune 500 company interested in this," he said. "But there are tons of small companies and stores on Main Street where the solution could fit in well."
Because the IRS requires documentation of purchases, Tallie software helps build algorithms that match payment card statements, Farrell said. Using a Tallie mobile app, employees can take a photo of a receipt, and the software will read the date and amount and automatically categorize it and pair it up with the card statement.
A prepaid card addresses the problems a professional service company may encounter with young employees who have not established a credit card history, yet are expected to travel around the country for their jobs, Farrell said.
"An accountant would have the employee fill out cash advance paperwork, write them a check, and keep track of all of this," Farrell said. "If you have a prepaid card in your wallet, the employer tells you what the budget is, and that the money is now on the card."
The magnetic-stripe PEX Visa prepaid card also allows businesses to set controls on spending, such as only allowing gasoline purchases. Visa did not respond to inquiries about the PEX prepaid card.
Accountants using Tallie would mostly work from the desktop portal, while employees using the mobile app would take photos of receipts and send to management for approval before the data moves on to the accounting department.
Tallie charges a $9 monthly fee per active user, Farrell said. If an employee does not have expenses during a particular month, he is not considered an active user that month.
Employees are not using their own money when using the prepaid card and Tallie mobile app, Farrell said.
"It really is amazing how long companies have had their employees floating expenses and waiting to be paid back," he added. "This helps companies not take so much time to put payment pieces together and the employees are not waiting to get paid."