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Fleet Card Issuers Get Competitive With Technology

Fuel cards today have become virtually ubiquitous among U.S. fleets, driven in large part by their providers’ ability to negotiate discount deals with fuel companies seeking more visits to their stations. But issuers today realize the need to step up their game by introducing new technologies to address growing marketplace competition.

When Canada’s Element Financial Corp. in June signed a definitive agreement to acquire PHH Arval, PHH Corp.’s fleet-management services business, for $1.4 billion in cash, it represented an important acknowledgement: the fleet business is highly desirable.

Interestingly, however, when Element’s executives discussed the deal with analysts, mention of fleet cards was limited to one sentence. “I think we can see penetration in our card business, where we encourage governments to use our card-only service business,” said Steven Hudson, Element Financial Corp. chairman and CEO.

While Element views fleet cards simply as a value-added service, other companies, such as Fleetcor, Wex, Comdata, FleetCards USA and Fuelman, view them as core business offerings. They’re specialists, and the demand for their services is growing.

When Canada’s Element Financial Corp. in June signed a definitive agreement to acquire PHH Arval, PHH Corp.’s fleet-management services business, for $1.4 billion in cash, it represented an important acknowledgement: the fleet business is highly desirable.

Given the benefits fuel cards provide, their popularity is unsurprising, as up to 90 percent of fleets were using some form of fuel card by 2011, according to Stiel Direct’s report  “2011 Trends in Fleet Card Payment Solutions.”

Many fuel companies, such as Shell, ExxonMobil, BP, Phillips 66 and Sunoco, offer their own branded fleet cards, but they increasingly are turning to third parties to support their programs. In May, for example, Wex signed a multi-year extension  to provide private label and universal fleet card services for Phillips 66.

Indeed, the fleet card market has been bustling of late, with partnership activity and fuel contracts taking on increased importance.

Tech Moves
As companies look for new fuel card contracts, their ability to attract interest increasingly will depend on the technology they can provide through their card-processing arrangements. Unlike gas cards, whose sole purpose is to purchase fuel, fleet cards support fuel purchase and maintenance among authorized fuel and maintenance merchants within a network, and they provides detailed per-transaction reporting.

Unable to control what gas costs at the pump, companies have turned en masse to the use of fleet cards to mitigate some of calamitous effects of spiking prices. Such payment cards allow managers to track costs, negotiate pricing and lower fleet overhead by eliminating inefficient paper-based reimbursement processes.

When drivers use a fuel card, it’s crucial that fleet managers have access to all data connected with that transaction. Approximately 30 percent of that data is lost because it’s simply not captured. This is where being able to see Level III data comes in handy, WEX’s Michael Lingman said in a recent PYMNTS.com interview .

“Level III data identify not just the when and where behind a purchase, but also the who, what and why, which represents the most important details,” he said.

“Most credit cards can extract when a driver fuels and how much he purchases, but Level III enables fleet card users to capture that and more,” Lingman said, noting that details such as odometer readings also can be recorded.

Purchase cards that have this level of security also require driver and vehicle identification numbers, which set it apart. At the point of sale, drivers must enter their ID number or the transaction cannot be completed.

Properly used tools create what Lingman calls a “closed loop” network. Generic bankcards may put some limitations on purchases, but the closed-loop option can specify what a driver buys at different locations. For example, a fleet manager could restrict purchases at a specific fuel station to only include fuel, oil and service charges. If the driver attempted to buy a drink, that purchase would be denied.

Telematics
More recently, fuel cards increasingly have been tied to an emerging technology called telematics that can help businesses operate fleets more efficiently by enabling them to save on fuel and driver costs.

According to a recent Fleetbeat report  from Fleetmatics, telematics helped decrease fuel consumption by 573 million gallons per year, resulting in $2.2 billion in savings. Moreover, carbine dioxide emission dropped by 5 million tons annually, and payroll hours dropped by 1.3 billion, resulting in a total savings of $34.9 billion in payroll savings.

“The savings almost double amongst fleets that have focused idling-elimination programs in place,” Fleetmatics said. “Fuel savings represent one of many avenues by which significant savings can be achieved with the use of commercial telematics. When you add this to the savings derived from reduced payroll hours, increased fleet productivity and utilization, and minimized harsh driving and idling, for example, the monetary savings can far exceed $45 per vehicle.”

Wireless Fueling
Some emerging technology is displacing actual cards for payment and the tracking of fuel purchases. By the end of this year, for example, the drivers of some 120,000 commercial vehicles in the United Arab Emirates will be paying for fuel at Emirates National Oil Co. (ENOC) stations using wireless technology.

The radio frequency identification-based service thus far has been installed in 10,000 vehicles from more than 50 companies. The Vehicle Identification Pass (ViP) system from Turpak, a Turkish company, uses an electronic chip mounted over the fuel tank inlets of registered vehicles that communicates with technology on the nozzle of the pump. A secure ENOC database logs the transactions.

The service only permits the accepted amount and fuel type based on the limits and restrictions fleet owners set, enhancing users’ efficiency. ENOC deducts payments from the customer’s account and delivers account updates immediately.

By the end of this year, ViP will replace Select Cards, the current commercial refueling system, ENOC says.

“The automation drive implemented across our network will further streamline the fundamental aspects of purchasing fuel, making it a secure experience for our commercial customers and fleet owners,” Saeed Khoory, ENOC CEO, said in a statement. “The new electronic services represent a firm step forward towards our commitment to innovation and ensuring superior service standards.”

Expansion Strategy
U.S. fleet card issuers also are looking to expand their footprint, especially in Canada, Europe and the Asia Pacific region. Like all processing businesses, volume is key to building economies of scale to keep prices down, and as the market is maturing, the bigger companies are picking off the lower hanging fruit and seeking bigger contracts to increase their transaction flows.

It’s not too difficult to illustrate where fleet card companies are getting the needed income to pursue acquisitions and growth opportunities. Their profitability is helping in that cause.

Fleetcor, for example, saw its net revenues jump  31.1 percent year over year during the first quarter, to $253.9 million, driven by big-business performance and acquisition revenue. Net income rose 16.1 percent, to $75.1 million from $64.7 million.

Similarly, Wex reported first quarter net income of $36.1 million, which represented a 26 percent gain from a year earlier. Total revenues were up 10.1 percent, to $182.1 million.

International Growth
Both North American fleet card companies have found themselves emerging as key competitors in Europe . On May 1, FleetCor announced it is acquiring Shell’s small and midsize enterprise fuel card portfolio in Germany, and last fall, Wex announced its intention to acquire ExxonMobil’s European commercial card portfolio.

Not surprisingly, the top executives from both companies see the deals as key strategic-growth drivers in the region.

“Exxon will be a key strategic addition that we anticipate will build out our fleet presence in Europe, a critical element to our international strategy,” Melissa Smith, Wex president and CEO, noted during a call with analysts to discuss first-quarter earnings. Similarly, Ronald Clarke, FleetCor chairman and CEO, commenting on the Shell deal during his company’s own earnings call, said, “We’ve been at it quite a long time trying to secure a meaningful full outsourcing deal in Europe that could serve as a launching pad for us, and now we have it.”

North America’s fleet card market is both maturing and gaining in sophistication. As competition grows, technology will play a key role in who wins contracts, and who doesn’t. And as pricing similarly takes on increased importance, volume growth, too, will become necessary to maintain economies of scale and stay competitive.

By Jeffrey Green, Pymnts.com


Jeffrey Green is a Senior Editor at PYMNTS.com, and he has covered the payments industry in various leadership and other capacities for 18 years. Prior to working for Pymnts.com, Mr. Green has held roles as the director of the Emerging Technologies Advisory Service at Mercator Advisory Group and as the Editorial Director of the Payments Group at SourceMedia Inc.

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