Wooing Small Business With Business Credit Cards
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Wooing Small Businesses with Business Credit Cards
Overview
In April 2007, Discover Financial Services introduced a new business credit card offering frequent flyer miles to small business owners. Discover was one of the last major credit card brands to enter this market, joining a growing wave of business credit card options tailored for small enterprises.
Why the Sudden Interest?
Research indicates that in 2006, the small business sector spent around $4.9 trillion, yet only 5% of that was paid via business credit or debit cards. Recognizing the potential, credit card companies aim to persuade small business owners to not only utilize these cards but to increase their spending on them.
Expanding Card Usage
To capitalize on this market, card companies need to shift the perception of business credit cards from being used predominantly for travel and entertainment to everyday expenses. This transition is supported by new cash-back rewards cards offering 5% discounts on necessities such as office supplies, gas, and courier services. MasterCard, for instance, has introduced a card specifically for the construction industry and was the first to offer zero-liability protection for small business cardholders.
Innovations and Competitions
Discover's new card allows small businesses to access checkbooks, enabling payments to vendors who don't accept credit cards, while tapping into the credit card's spending limit. Visa offers a similar competing program. Meanwhile, American Express sponsors networking events and provides extensive business resources to assist its cardholders in managing their operations effectively.
Market Potential
The potential market for business credit cards is vast. If small business card spending increases from 5% to 10% of the $4.9 trillion total, it could mean an additional $245 billion in transactions. Charging a 15% interest on this amount could lead to a $74 billion boost in profits. Market forecasts predict double-digit growth in small business credit card usage, with total charges expected to reach $740.2 billion by 2010.
Challenges and Considerations
Despite the potential for growth, encouraging small businesses to expand their use of credit cards has been challenging. A significant hurdle is their preference to pay off balances monthly, which reduces interest revenue for card companies. Addressing this preference presents an opportunity for card issuers to better align their offerings with the needs of small businesses.
In summary, while the journey to integrate business credit cards into the daily operations of small businesses is gradual, there are significant rewards for both cardholders and issuers willing to adapt and innovate.
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