How the fleet card industry became a fast lane for innovation
In an era where everything is moving to digital, the concept of a dedicated product for long-haul truckers feels decidedly analog. But the category has spawned one of the most highly contested markets for digital innovation.
There’s been a recent explosion of innovation in fuel cards, with major U.S. players including FleetCor and its Comdata subsidiary competing with rivals WEX and U.S. Bank Voyager. All of these companies leverage mobile and digital technology to improve efficiency and minimize fraud in fleets’ spending for fuel, lodging, highway tolls and related expenses.
But with fuel card volume and transaction growth in the U.S. fuel card market relatively flat, payment providers in this niche are looking for revenue in international markets. Allied Market Research predicts the $600 billion global fuel card market will reach $843 billion in the next five years.
This story is the first in a four-part series on innovation stemming from the fleet card market.
FleetCor, which built a $2 billion company in less than 20 years, aims to capitalize on this growth by leveraging several recent acquisitions, following a pattern that began in 2000 when it purchased Fuelman, a regional commercial fuel card provider. Peachtree Corners, Ga.-based FleetCor has completed 70 acquisitions to date and now reaches 53 countries with 7,000 employees.
Its biggest deal so far was its $3.45 billion purchase in 2014 of Brentwood, Tenn.-based Comdata, a major player in US.S. trucker fuel cards that has seen significant growth this year. One factor is a new card with expanded spending capabilities that's increasing Comdata's interchange revenue. But FleetCor's more recent purchases of companies outside the U.S. could prove to be more pivotal for its global growth ambitions.
Brazil is a major focus for FleetCor this year. In 2016 the company paid $1 billion to buy São Paulo-based STP, which handles electronic toll payments for fleets operating on state-owned highways. STP issues its Sem Parar RFID tags and stickers to more than 4.5 million individual Brazilian users—including within fleets—most of whom use the product for paying tolls.
Just 18 months in, STP accounts for 15% of FleetCor’s total revenue, said Charles Freund, the company’s executive vice president of global sales.
“Our operations in Brazil are growing like mad and we see more ways to expand the market there,” Freund said.
Like many RFID stickers used for tolls, STP tags automatically deduct toll fees so vehicles need not slow down to pay. Demand is high with thousands of cars and trucks in fleets traveling major Brazilian highways.
FleetCor has boosted sales and marketing for STP's Sem Parar stickers—including adding kiosks to dispense them—and this year the company expects to expand those services to a more Brazilian tollways.
STP currently derives about 80% of its revenue from mobile toll payments, with the rest coming from mobile parking and fuel sales, but the plan is to expand its mobile payment products in Brazil to a whole new group of users, Freund explained.
The same RFID stickers may be used to pay for parking and fuel, leveraging STP's existing contracts connecting its technology to fleets. Examples include a major agreement with Shell Oil and a contract FleetCor recently signed with Brazil's Petrobras Distribuidora enabling mobile payments at hundreds of BR gas stations in São Paulo and Rio de Janeiro.
The strategy already is reaping positive results, FleetCor CEO Ronald Clarke told analysts May 3, 2018, when discussing the company's first-quarter results. "The big idea is to reposition STP from being a toll-dominant company to an RFID-dominant company," he explained.
Brazil’s car theft risks are so high that car insurance providers give consumers a 10% to 15% discount on insurance premiums if they prove ownership of an RFID tag providing access to a secure parking lot, according to Freund.
The RFID tags also improve security at gas stations in Brazil, where credit card skimming is common, Freund said.
If successful, FleetCor’s STP expansion plans could eventually increase the unit’s revenues tenfold, Clarke told analysts earlier this year.
The U.S. still accounts for 60% of FleetCor’s revenue, and fuel cards drive the bulk of its earnings. These cards rely on specialized processing systems to monitor and control for the location, time, type and amount of all types of fleet purchases.
But of the four major areas where FleetCor concentrates—tolls, lodging, corporate payment and fuel—its fuel cards that have the slowest growth rate, and FleetCor is working to squeeze more profits out of the niche by expanding sales to nonfuel purchases.
Fuel and fleet card platform providers are under constant pressure to best the competition with better tools, and controlling processing and other elements of payments ecosystem is a big advantage, said Sarah Grotta, director of debit and alternative products at Mercator Advisory Group.
"To capture the rich data and create usable analysis would be much more difficult if the provider didn’t own much of the processing environment," Grotta said.
FleetCor has greater control over its own ecosystems than most of its rivals, operating proprietary fuel and fleet card acceptance networks, issuing cards and handling processing and merchant acquiring for merchants within its network, according to Freund.
In one initiative, FleetCor is trying to persuade corporations that use its fuel cards to buy other types of merchandise, such as construction materials.
"Workforces driving trucks to delivery construction materials need fuel, which is just one example of where we’re aiming to get a bigger market share from existing relationships, by expanding into select merchant categories to help our clients adjust their payment or spending rules to better suit their business model," Freund said.
Apart from Brazil, FleetCor’s biggest non-U.S. markets are the U.K., Canada, Mexico, Germany and Russia, and the company is working to enhance systems to expand global payment services.
Last year FleetCor paid $675 million for Cambridge Global Payments, a Toronto-based cross-border B2B payments provider, to power more payments capabilities across the board. Another key purchase last year was Creative Lodging Solutions, a Lexington, Ky.-based provider of billing, payment and reporting tools for long-term hotel stays.
FleetCor also maintains partnerships with dozens of B2B payments players including travel and fleet operators. Uber has been a partner since 2014 with a fuel card that offers discounts to drivers.
"The runway we have here is enormous, with the company’s goal of expanding across industries and to new verticals," Freund said.
FleetCor on May 3 said hackers gained access to some of its systems, exposing some closed-loop gift card data. The company said customers' personal information was not affected, and it froze affected gift card accounts.