BETTER DATA, BETTER CONTROL THE BENEFITS OF CLOSED LOOP NETWORKS

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1 BETTER DATA, BETTER CONTROL THE BENEFITS OF CLOSED LOOP NETWORKS A

2 GAIN CONTROL OVER YOUR FUEL BUDGET Introduction Now more than ever, fleet managers must tightly monitor and contain costs. Doing so requires the right information presented in the right way. With their ability to electronically capture data, payment cards make it easy for fleet managers to track and record spend. But the type of network the card uses to process those expenditures matters more than you might think. Cards on a closed loop network may capture more in-depth transaction data than those on open loop platforms, in turn leading to tighter security and greater administrative flexibility. In this paper, we ll examine the benefits of closed loop networks for managing fleet expenditures, including, How closed loop cards excel at setting limits on who buys what How closed loop networks implement fraud prevention techniques How greater reporting flexibility reduces resources needed for administrative tasks Why broad-based acceptance across all merchant types may be problematic on open loop networks 1

3 Open vs. Closed Loop: What s the Difference? Forget cash and checks; these days, the bulk of all purchases more than two-thirds occur with a payment card. 1 In 2013, branded consumer and commercial credit, debit and prepaid cards generated $4.08 trillion in purchase volume up nearly 8% from Two main types of payment card exist, each classified by the back-end network they use to process transactions. Open loop cards utilize established credit card networks to process payments. They can be used at any merchant accepting that credit card brand. Open loop cards are commonplace; examples include credit cards, credit card-brand gift cards and bank cards. Just because open loop is common, however, doesn t make it ideal for all users. After all, credit card networks were designed with consumers in mind, not businesses, meaning open loop bank cards must piggyback on platforms built for other purposes. As such, open loop card operators are typically limited in how much they can regulate card usage. They can limit purchases via use of MCC (Merchant Category Code) controls, which govern merchant types. This means that they can turn on or off specific categories of merchants, and disable card use at those locations. This is usually as granular as they can get. Closed loop cards, however, don t use a third-party credit card network, but a proprietary, custom-built platform. These cards may only be used at certain merchants and for predetermined purchases. Examples of closed loop cards include prepaid phone cards, store or mall gift cards, metro transit cards, and proprietary fleet cards, like the WEX Fleet Card. Because closed loop cards run on the rails of a custom-built network, operators can negotiate terms of use with merchants directly, without needing to involve credit card companies. As a result, card users have far more control over purchases than with open loop platforms. 1 The 2013 Federal Reserve Payments Study. Federal Reserve System. 2 The Nilson Report. February

4 TM MOST COMMON FEATURES OF OPEN LOOP AND CLOSED LOOP NETWORKS OPEN LOOP NETWORK Designed for consumer use WEX CLOSED LOOP NETWORK Designed for business use Can control use at merchant level (MCC) Ability to control merchant participation Typically cannot limit product types Potential for misuse Ability to limit product types Higher security features: Driver ID, Vehicle ID, Pump Shut-off Payment Merchant type WEX Closed Loop System Payment method Product type Purchaser 3

5 Product Type Controls vs Merchant Type Controls Fleet cards allow for tighter, more granular purchasing controls at point-of-sale terminals, which helps to minimize abuse and inappropriate spend. This is because fleet card networks organize data by Product Type Controls, or PTC s. A PTC is as it sounds: a grouping of like products separated by type: services, fuels, fluids, food, and so on. Credit card networks rely on Merchant Type Controls, which are identification numbers based on the kinds of products and services a business provides. A merchant picks up its Merchant Category Code (MCC) when they sign up to participate in the network. WHAT S THE DIFFERENCE? Product Type Controls enable access to specific product categories (fuel, fluids, service, etc), within a specific merchant network. Merchant Type Controls offer the ability to limit transactions to a merchant type (gas station, drug Credit card networks can provide some purchase controls, but store, etc). they aren t tailored for a fleet customer. The ability to control by product type is inherent in proprietary fleet cards. WEX, as a leading fleet card provider, has worked with the Petroleum Convenience Alliance for Technology Standards (PCATS) to help standardize many of these product-based codes in order to help fleets better control their purchases, and to aid with reporting and accountability OPEN AND CLOSED LOOP: MERCHANT TYPE CONTROLS JUST CLOSED LOOP: PRODUCT TYPE CONTROLS FUEL STATION CONVENIENCE STORE RESTAURANT DEPARTMENT STORE 4

6 The Level III Advantage Closed loop payment networks can offer these advantages because they capture Level III data. All payment cards collect data about their purchases, but not all data is equally valuable to a fleet manager. These purchase details can be categorized by granularity into Level I, Level II and Level III, with Level III being the most in-depth transaction information. ACCOUNTABILITY INFORMATION CAPTURING CAPABILITIES SAVINGS ODOMETER (COST PER MILE, MILES PER GALLON, EXCEPTIONS/UNAUTHORIZED PURCHASES) VEHICLE ID NUMBER (WHICH VEHICLE PURCHASED WHAT, WHEN, AND WHERE) DRIVER ID NUMBER (WHO BOUGHT WHAT, WHEN & WHERE) PRODUCT TYPE AND DESCRIPTION LEVEL 3 WEX FLEET CARDS LINE ITEM DETAIL (NON-FUEL PURCHASES) MERCHANT TYPE FUEL GRADE COST PER GALLON SALES TAX NUMBER OF GALLONS PURCHASE DATE AND TIME MERCHANT ADDRESS MERCHANT NAME TOTAL PURCHASE COST ACCOUNT NUMBER LEVEL 2 CORPORATE CARDS DEBIT CARDS Level I data are the barest-bones transaction details, such as: date of purchase, merchant name and total purchase amount. Level II data provides more depth, including details such as merchant type, fuel grade, sales tax and so on. Most corporate credit cards capture at least Level II data. Level III data is the deepest level of detail, helping managers identify not only the when and where behind a purchase, but also the who, what and how. Examples of Level III data include: Driver ID number Vehicle ID number Odometer reading Product category and description In addition, Level III data capture requires cardholders to input a driver or vehicle ID number every time the card is used. This two-step verification process helps safeguard the card against fraud or misuse. Because they use consumer credit card networks, most open loop platforms lack the infrastructure to fully leverage Level III data capture. Some open loop platforms fail to collect all available Level III data, such as odometer reading or job number; or Level III functionality is not available at all locations within their network. Consequently, these transaction details are lost forever, as well as the opportunity to protect purchases with additional stringent security measures. 5

7 Closed loop networks, however, construct their own Level III-compatible back-end platforms, working with each merchant individually to ensure they meet the necessary software specs. Therefore, closed loop cards can capture Level III data on virtually every purchase. For example, the WEX Fleet Card can collect Level III data on 99.8% of purchases, and can often collect Level III data at locations where other cards are limited to Level II. Fight Fraud and Abuse with Closed Loop Cards Card fraud remains a significant source of commercial loss: Credit and debit card fraud topped $11.27 billion in 2012, a 14.6% rise over the previous year. 3 These losses were driven by fraud of branded credit cards, which averaged losses of 6.13 for every $100 spent. 4 Closed loop cards, however, avoid these vulnerabilities by implementing proprietary payment platforms. They also leverage Level III data to reduce unauthorized and fraudulent card use, namely through the use of two-step verification and purchase controls. WEX TWO-STEP VERIFICATION PROCESS Driver ID Odometer Reading Authorization Confirm Decline Two-Step Verification Requiring a driver to enter ID numbers before every purchase creates a paper trail linking all expenditures back to their sources. Whenever a transaction occurs, fleet managers know exactly what was bought, and by whom. Therefore, inappropriate purchases, such as using a fuel card to buy food or cigarettes, can be easily sorted out and stopped before they occur through use of purchase controls. If a cardholder doesn t input a valid driver or vehicle ID number, then the transaction won t authorize. This prevents the card s use by prohibited users, such as former employees or drivers lacking security clearance. The driver ID can be shut off, preventing its use across all issued cards. Even if cards are lost or stolen, fleet accounts remain safe and inaccessible. Increasingly this kind of two-step verification has become the gold-standard of security across many industries, including banking and internet commerce. Contrast this with most open loop credit cards, which are simply swipe-and-go. There is a higher potential for card misuse. 3 The Nilson Report August ibid 6

8 Purchase Controls Level III data empowers fleet managers to set purchase controls on their fleet cards, so that they may be used only at certain times or on certain product types. For example, a closed loop card can be set to accept fuel purchases only; or only fuel and fluids; or even fuel, fluids, service and food. Should drivers attempt to use a fuel-and-fluids card to purchase general merchandise, such as liquor or cigarettes, the card would be declined. * Additional restrictions can be set on dollar amounts, dollars per transaction, number of transactions in a day or week, and more. But purchase-level controls aren t the only restrictions available; the custom-built software behind closed loop networks allows for additional purchase security, including: Automatic Pump Shut-off: Fueling is blocked whenever a card hits a predetermined dollar limit. Real-Time Alerts: s or text messages can be customized to send alerts based on preestablished card profiles which inform managers of unusual or unauthorized purchases, such as when drivers exceed a dollar threshold at the pump. TYPES OF PURCHASE CONTROLS By hours of the day Dollars per day of the week By days of the week Dollars per transaction Product category Moreover, these various controls can be implemented in tandem, allowing managers the tightest possible security over their purchasing power. Generally, open loop credit cards can t offer purchase controls based on product category. Instead, restrictions are based on merchant category, meaning that these cards can be set to work only for certain businesses, such as fuel and service merchants. However, once inside these locations, cardholders can buy any product the store offers, including food, beverages, liquor, cigarettes, digital music players, and so on. This exposes the fleet to unauthorized expenses and program abuse, particularly in the case of lost or stolen cards. * This is contingent on the merchant properly applying the correct product code to the purchase. 7

9 Streamline Reporting with Level III Data With open loop networks, large fleet management can be a timeconsuming slog through invoices and bank statements. Closed loop networks can streamline the process considerably. Because proprietary platforms like WEX automatically capture Level III data with every purchase, accounting departments no longer need to spend weeks untangling relevant details from individual receipts, or manually verifying driver purchases against their cards. Instead, data is quickly and electronically transmitted to back-end procurement systems without any manual intervention necessary. SAVINGS THROUGH STREAMLINED PROCESSES Fuel Consumption Security Reporting LOSE THE PAPER, SAVE THE PAPER TRAIL Still buried under paper receipts? On many open loop platforms, accounting departments have no choice but to require drivers to submit physical receipts to verify purchases and track expenses. Wading through paper can be time-consuming and tedious. Closed loop networks, however, can eliminate the need for physical receipts. Transaction detail is sent instantly to your Driver Metrics Vehicle Maintenance online reporting platform. Line item detail is included, and breaks out different product categories. This enables quick and easy reporting, and allows In addition, in a closed loop network, managers can establish card profiles attached to vehicles, drivers or both; and assign multiple prompt ID s to a vehicle or driver. These profiles let fleet managers identify and isolate purchasing and consumption patterns, by driver or vehicle. the fleet to get rid of the paper without erasing the paper trail. For example, gas-guzzling vehicles or drivers who consistently refuel at above-average prices stand out, as do opportunities to improve miles per gallon. Inappropriate expenditures, such as fueling a vehicle with more gallons than its tank can hold, become immediately obvious. Managers can even use odometer readings to optimize maintenance schedules, and decide which vehicles can be retired from the fleet. Compare this to an open loop network, which doesn t have the infrastructure to recognize or exploit these cost-saving opportunities. 8

10 R Tax Exemption Reporting One more benefit to closed loop cards is their ability to simplify tax recovery efforts, such as filing for state or federal fuel tax exemptions. Fuel taxes can add up fast: As of July 2014, the federal excise tax on unleaded gasoline was 18.4 cents per gallon (CPG), while state and local taxes averaged CPG. 5 Most exemption requests require accurate numbers for the gallons and fuel grade purchased, both of which are inherent in Level III data capture. With a click of a button, it s easy to generate the specific reports necessary to obtain tax relief. WEX can also exempt state and local taxes at the pump, depending on merchant participation. This also eliminates the need to save paper receipts, which are often required for tax reimbursement. Open Loop Doesn t Go Everywhere You Do It s easy to assume that because open loop cards are accepted by any merchant who takes that credit card brand, they must offer the greatest usability. But this acceptance is misleading, as not all merchants that accept open loop cards can also offer Level III data capture. Depending on the software specifications in place, many stations that accept open loop cards can only capture Level II data. For example, one major branded open loop network card program offers Level III at only an estimated 50-60% of stations in its network. Fueling at these stations sacrifices crucial transaction information; over time this lost data reduces the accuracy of mileage reporting, throws off maintenance flags, and introduces exceptions in accounting software. It also sacrifices management s ability to levy two-step verification and purchase controls, thus diminishing efforts to proactively combat fraud and loss. WEX ACCEPTANCE NETWORK (PARTIAL LISTING) TIRED OF KEEPING MANUAL RECEIPTS? CLOSED LOOP FLEET CARDS enhance reporting reduce costs free up resources Card acceptance is subject to independent owner/operator participation and subject to change without notice. 5 American Petroleum Institute, July 2014 State Motor Fuel Reports 9

11 That said, it is still critically important for closed loop cards to be widely accepted. Acceptance rates vary by operator and brand. The WEX Fleet Card, for example, is accepted at over 90% of fuel stations nationwide, with a 99.8% Level III data capture rate. Conclusion Crunch the numbers, and the advantages of closed loop networks become clear. Closed loop cards offer the option of better control, stronger security and greater flexibility than their open loop counterparts. Closed loop cards were designed with fleets in mind, particularly those with: Multiple drivers and/or vehicles Drivers that operate on a given schedule A wide geographical base A high priority to reduce loss from fraud or card misuse A thorough analysis is needed in order to choose the features and benefits that provide your organization with the most value. Often, advanced feature and benefit functionality can provide a higher level of savings. 10

12 CASE STUDY: The Case for Closed Loop Construction Lane Construction Name: Kelly Lacilla Company: Lane Construction FAST FACTS Industry: Highway and civil construction Area of operations: Eastern seaboard, Texas and Dubai Fleet size: 3,000 vehicles Kelly says: Our monthly reports used to be so unmanageable that I actually had to double check all 249 of them before sending them out. Every month I lost at least one full day just searching through these separate reports. Then we switched to WEX. Now I can pull everything into one report and quickly filter it to whatever driver or vehicle type I need. Switching to WEX has definitely saved us money and helped increase our reporting efficiency. WEX s closed loop network greatly helped us combat fraud. When we used a competitor s generic credit card, we always ended up catching fraud after the fact. But with the WEX Fleet Card, we can immediately identify fraudulent purchases, so if we need to get law enforcement involved, we can do so before losing thousands of dollars. Kelly Lacilla Lane Construction TM For more information, visit

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