A Comdata white paper. Taking Fleet Protection and Efficiency to Another Level Written by: Steven Murphy, Research Director, CEB TowerGroup

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1 A Comdata white paper Taking Fleet Protection and Efficiency to Another Level Written by: Steven Murphy, Research Director, CEB TowerGroup

2 Since the inception of the Fleet Card in the early 1980s and for the ensuing 20+ years, this set of industry specific payment solutions has steadily gained traction. Fleet cards have allowed the transportation industry to improve their business expense management by providing a platform to better manage fuel and maintenance expenses, reduce paperwork, increase reporting and audit capabilities, take advantage of Fleet discounts and reduce fraudulent fuel charges. Fleet Cards continue to gain traction in the United States as many organizations desire more reports and controls as it relates to the card spend and the tracking of fuel expenses for tax reporting. For many organizations, the type of fuel (including alternative fuel vehicles) is imperative data for reporting to the federal agencies and realizing expected tax benefits. As a result, in the United States, Fleet Cards capture 30% of the Commercial Fuel Spending (NAPCP). Additionally, fraud and the management of fraud continue to be a consideration in Fleet, as in other industries. It can be analogized as a game of cat and mouse, where the fraudsters take the lead in devising new schemes. Then, organizations and payment providers figure these out and gain a half step in advantage, only to learn that a new scheme has been developed. While there is no real consensus as to what constitutes an acceptable or manageable level of fraud, the ambition must always be to eradicate fraud. Without the ongoing vigilance of payment and technology providers around the industry, the risk of losing control is too great to entertain. Fraud poses not only a financial risk but also a reputational one. CEB TowerGroup conducted a global survey in early 2012 covering a comprehensive list of financial services technologies. The survey had the goal of understanding the current state of technology adoption and investment in all financial services sectors, across 90+ product areas, infrastructure and delivery channels. Respondents were asked about both the relative effectiveness of their fraud controls and what steps they have taken to address the fraud issue. As can be seen in Figure 1, 66% of firms say that their anti-fraud security controls are somewhat effective. Perhaps a more interesting finding was that only 10% say they are effective, and 18% think they have ineffective fraud controls. This points to a bar set very high as concerns around regulation and an increasingly electronic world remain at the forefront of executive pain points. Figure 2 illustrates the executive responses when asked to define the changes made at their firm that contributed to a decrease in fraud losses. In this case, 82% of executives said they enhanced their fraud monitoring system, followed by increased training and improvements to procedures. Clearly fraud remains a troublesome area of concern and firms are looking to enhance their fraud systems.

3 INVESTMENT IN FRAUD SYSTEMS DECREASES LOSSES Current Effectiveness of Card Fraud Percentage of Respondents, 2012 Changes Made Contributing to Decrease in Losses Percentage of Respondents, 2012 CEB TowerGroup 2012 The Corporate Executive Board Company. All Rights Reserved. 7 CEB TowerGroup has also studied the types of fraud found in the use of card products. There are six major categories of fraud in card products: Lost, Stolen, Never Received (NRI), Application Fraud, Counterfeit, and Friendly Fraud (the authorized user or someone they know). The difference between consumer and commercial card fraud is that categories such as NRI and Application fraud are not usually seen in commercial situations, where the company controls the process. The fraud category of the most concern in the Fleet industry has been in understanding and controlling Friendly Fraud. This can be relatively commonplace and typically involves drivers who run up non-business charges, directly sell services for cash and offload these costs onto a Fleet card or even collaborate with unscrupulous service station merchants/employees. Figure 3 illustrates the CEB TowerGroup estimate that Friendly Fraud (represented by Fraudulent Use in the graphic) has historically represented 20-40% of fraud losses for FIeets.

4 Third-Party Fraud as a Percentage of US Card Issuers Write-off of Debt by Component (2009) Stolen Not- Received Issued Application Fraudulent Lost Card Card Card Fraud Counterfeit Use Misc Percentage Range of Total Third-Party Fraud 60% A primary Fleet Card fraud pain point Recession Trend CEB TowerGroup One of the innovations in the Fleet payments space has recently been deployed by Comdata. It is a contactless payment system based on the use of radio frequency identification (RFID) tags, thus eliminating the need to swipe a card to begin the fueling process. The Comdata cardless solution automates the fueling process and data entry requirements with the use of a costeffective RFID tag. This allows drivers to spend less time at the pump and reduces the risk of fraudulent transactions by automatically shutting the fuel pump off when the truck pulls away. Comdata clients benefit from the same controls and limits that come with a physical Comdata Card when using the cardless solution. In effect, these transactions become asset driven rather than driver initiated. The RFID tag is currently used in two ways; one is a unit tag, deployed in the unit s window, and used for authorized purchases such as diesel fuel and additives. The other is a trailer tag, used for what is commonly known in the industry as reefer fuel for temperature controlled goods. An antenna at the service site will connect with the tags and ignite a real time communication with Comdata s authorization and processing systems. There are many benefits to this cardless payment system, including a significant reduction in fraud, as the transactions are controlled through the assets, not a driver. Additional benefits include faster fueling transactions, as well as fewer point of sale mistakes through the

5 elimination of manual keying. These benefits were expected and formed a large part of the goforward initiative. However, since deployment, a few additional benefits have become apparent as well. The first is gate control, whereby system tracking and analytics help to control the issues of stolen trailers and diesel siphoning at truck terminals. The second is trailer location tracking, which allows management to decipher asset location at specific points along a truck route. RFID can be a less expensive to maintain than GPS tracking as well. The third incremental benefit has been the use of RFID at scales, where the normal process has been historically paper-intensive and time-consuming. RFID tags allow for the scales to be linked electronically to the reporting systems, allowing faster movement along the vehicle route. Further advancements and benefits are sure to be realized through additional automation, such as tank monitoring and mobile fueling. These types of innovations are important to making automated fleet payments a more pervasive presence in delivering full electronic capture of commercial fuel spending.