A few weeks ago, the State Bank of Pakistan (SBP) announced that local companies would now be able to pay a maximum of $200,000 annually in favour of specified digital service providers, such as Facebook, Amazon, DocuSign, Shopify etc, covering a range of major software and other popular products.

The move was hailed by the industry as it eases the process of paying for white-listed services without having to go under the needless bank scrutiny regarding details of the transactions. However, its benefits would be mostly limited to mid-sized or large companies — the likes of Bykea or big software houses — given the size of the transaction and the involvement of financial intermediaries.

To an early stage startup with smaller operations, it would mean little as the process of payments for digital services is much different. If a small marketing agency, for example, has to pay for its subscription of SEMrush — a key tool for search engine optimisation — it will need to have a credit card to avail a monthly billing plan. But for a private limited company that distinguishes the owner from the entity, there are few ways to do that.

Why is that? As it turns out, a near-absence of corporate credit cards lies at the heart of this problem. Instead of directly paying for such subscriptions via a company account, the senior management has to often undertake these expenses on personal bank cards, which then have to be reimbursed, thus creating an unnecessary hassle.

‘Even the executives from big organisations have to pay travelling expenses from their own accounts and get reimbursed later’

It’s not just the startups either. “Even big organisations like Hubco or Engro have this problem when their executives have to travel for business purposes and pay the expenses from their own accounts to only be reimbursed later,” says Mubariz Siddiqui, who co-founded Wukla and now serves as general counsel of Sarmayacar, a Pakistan-focused venture capital firm. A corporate credit card allows the entity to manage not only digital subscriptions but also travel or general procurement services.

At the moment, only two institutions in the country offer corporate credit cards: Bank Alfalah and Standard Chartered. The question is: why have others not followed suit despite having the capacity (and funds) to do it?

“Corporate credit cards are a tech-driven product that requires an initial outlay of around half a million dollars. But unlike individual cards, the revenue streams here are limited, which make it not so viable as a commercial project,” says a relevant source at a big bank.

“Credit cards have basically two main revenue sources: fee income and markup. In the case of corporates, they would seek favourable terms — say, no charges on late payments — which would squeeze our income streams,” they explain, adding that “the third channel, per-transaction charge, wouldn’t help as it’s negligible and the volumes are too low.”

While there’s virtually no data on the number of corporate credit cards in issuance, the source adds that they can’t be more than a few thousand and even the potential addressable market is not more than 25,000 — that too is a wildly optimistic figure.

A high-ranking executive at Bank Alfalah gave similar estimates. Elaborating as to why his organisation ventured into the area while others didn’t, he said: “Since we already had the capability on the individual credit card side, we decided to pursue this as well with our core focus on small and medium enterprises.”

The bank’s website shows the card limit ranging from Rs100,000 to Rs5 million, but the executive says there is flexibility to that. On the unit economics of corporate credit cards, he was of the view: “The profitability model needs to be studied and their promotion should be part of a broader payments strategy.”

The first source, however, said that the options currently available in the market are rather makeshift. “The beauty of corporate credit cards is in its reporting and reconciliation that no one properly has at the moment.”

A tech entrepreneur who uses the corporate credit of Standard Chartered seemed to back those comments. “It’s linked to my personal Standard Chartered online banking account, and not our company S2B [Straight2Bank] account. So in order to pay the bill, the money has to be transferred to me first as there is no integration with S2B.

“It took around three months to issue the card and required multiple forms, a guarantee on stamp paper. We had to put a lien on our account in order to get this, which also determined the credit limit,” the founder added.

He is also the only one from the organisation due to have this card since the process is complex with requirements of locking in funds. “We need this card to pay for subscriptions, so we put up with it. But it’s not a pleasant experience,” he said, adding that the customer service is “rubbish”.

The Standard Chartered CEO was not available for comment.

Published in Dawn, The Business and Finance Weekly, September 14th, 2020