Small Business Is Increasingly Big Business For Major Credit Cards

The commercial sector continues to be major credit card companies' biggest growth area, and small business cards offer the most potential within this hugely lucrative arena, according to the newly released edition of "Corporate Credit Cards in the U.S.," from the Packaged Facts (PF) publishing division of

Overall, commercial card transactions rose 11% last year, to $611.7 billion, and are expected to jump 18% this year, to $722.4 billion. By 2010, the projection is for $1.2 trillion (144% growth against PF's 2004's market estimate of $494.7 billion).

Small-business card transactions rose 10% last year, to $348.5 billion, but are expected to leap by 23% both this year and next, and by 18% and 19% in 2009 and 2010, to bring their annual total to $740.2 billion by decade's end. The overall commercial growth potential is tremendous because credit cards currently capture less than 3% of commercial spending (which totaled about $17.3 trillion last year, according to Visa's Commercial Consumption Expenditure Index). Both Visa and PF estimate that corporate spending will reach about $18 trillion by 2010.



Further, all corporate segments are expected to increase use of commercial cards going forward.

"For mid-sized to large corporations, card use is being driven largely by procurement issues," a Visa spokesperson told Marketing Daily. "E-procurement is automating strategic sourcing, consolidation of vendors and obtaining the best pricing, but the advantages end when these companies drop offline to write checks.

"They want to automate the entire process, get rid of labor-intensive back-end paper payments. They also stand to gain from having the data that comes with electronic purchasing - everything from being able to readily reconcile payment issues to readily quantifying their spending in various areas in order to facilitate price negotiation." Resource- and time-pressured small businesses are also seeking to streamline and garner electronic data advantages by adopting credit cards for purchasing and expenses, and are increasingly accepting credit card payments from vendors, in part to reduce collections.

Small-business card issuers are also jumping on the opportunity to market to niche segments that have high levels of reimbursable expenses. "While the businesses themselves may be small, they churn through high-dollar levels of purchases as they serve their customers," notes PF, which identifies niche marketing as "the greatest area of emerging competitiveness" among issuers of small-business cards. For instance, MasterCard has a card for the construction industry, and other issuers are already targeting healthcare organizations.

How attractive is the small-business market? Visa, which is the overall leader in business cards (see below) confirms that commercial cards are its fastest-growing business area (up 24.4% last year, to $193 billion in transaction volume) and while the company doesn't report data on specific commercial segments, it confirms that the small-business card segment led growth.

Other highlights from the PF report:

* Overall commercial card market growth is in part being driven by a resurgence of card use for T&E purposes (due to an uptick in business travel and higher hotel and airline fees) and growing use of purchasing cards. Visa estimates current annual travel card spending by North American businesses and governments at $120 billion, and this is expected to grow by about 8% annually over the next five years. Annual North American purchasing card spend grew, from $80 billion to $110 billion between 2003 and 2006, and is expected to grow by 11% per year over the next five years, to reach $185 billion by 2010, according to KPMG benchmarking surveys.

* Commercial card market growth is also being driven by the increasing popularity of two relatively new kinds of cards, payroll cards and healthcare cards linked to health savings and flexible spending accounts. Payroll cards, which give employees immediate access to their wages, have "suddenly caught fire," reports PF. The Aite Group consultancy estimates that "open loop" payroll cards (those with an all-purpose payment brand such as Visa, MasterCard and American Express) will grow to $27.1 billion in spending by 2009.

The percentage of healthcare transactions made by debit cards withdrawing from flexible benefits programs jumped from 46% to 76% between 2003 and 2005, and the proportion of dollars spent through card transactions grew from 38% to 71%, according to WageWorks.

*Simmons Market Research data show that 5.1% of adults (10.9 million) used business cards during the past 12 months, and 4.5% used business cards within the past month.

* Visa Business is the most popular (1.7% of U.S. adults are active users), followed closely by MasterCard Business (1.5%) and American Express Business (1.4%).

* Baby Boomers (ages 45 to 54) are the most active users of business cards, followed by those aged 55 to 64, then those aged 35 to 44. This marks a significant change from PF's last corporate credit card report in 2004, when business card holders aged 35 to 44 were the most active users.

* American Express is the favored card among those aged 35-44; Visa among those aged 45-54, and MasterCard among those aged 55-64.

* The Discover Small Business Card, introduced in July, is coming on strong, backed by a 34% increase in ad spend last year - up to $101.4 million, according to Nielsen Monitor-Plus. (More on this tomorrow.)

Overall ad spend on commercial credit cards for brands tracked by Nielsen Monitor-Plus was slightly down last year, at $3 billion versus $3.2 billion in 05. Visa upped its commercial card ad spend from $324.6 million to $432.5 million; MasterCard was slightly up, to $296.5 million; and American Express dropped from $439.9 million to $349.5 million.

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