In contrast to the mature consumer card market, commercial as a whole and small business in particular represent massive untapped potential. As detailed in the new Marketresearch.com Packaged Facts report on corporate credit cards in the March 28 issue of Marketing Daily, cards are currently capturing less than 3% of total 2007 estimated corporate expenditures of about $722 billion ($1.2 trillion by 2010), and about 10% of small-business expenditures, estimated at $427 billion for this year and $740 billion by 2010.
All of the major issuers offer small-business cards touting a variety of reward points programs and other benefits, such as sophisticated data reporting tools. But the battle to differentiate has now gone well beyond speed of turnaround on crediting rewards purchasing points to include, for example, discounts linked with participating merchants.
As the PF report notes, Visa, MasterCard and American Express have all added allied merchant card points to their reward programs as a means of customizing their offerings, improving prospecting through segmentation and measuring, gaining access to partner databases, and increasing merchant buy-in.
And the Discover Small Business Card, launched last summer (and thus far Discover's only commercial card), upped the ante in this highly competitive and increasingly segmented market by offering small businesses cash rebates of up to 5% on office supplies, 2% on gas, and 1% on other purchases.
American Express responded by launching its SimplyCash business card - one of 16 Amex card offerings (some co-branded) geared specifically to small businesses. SimplyCash users get up to 5% cash back on gas, office supplies and wireless services, and 1% back on most other purchases.
Why did Discover choose the small-business sector as its entry into the commercial space? According to Discover Business Card Director Sastry Rachakonda, Discover consumer card customers who were small-business owners had been asking for a business card, and Discover's assessment was that small businesses' specific needs were being underserved by existing cards.
"As a brand, Discover has always been the card of Main Street America, so it made sense for us to launch into the commercial space with a small-business card," she adds.
One result of Discover's year of pre-launch market research was designing the Cashback Bonus purchasing rebates program to offer maximum rewards on small businesses' biggest expenditures (office supplies and gas), as well as eschewing a cap on how much businesses can earn and expiration dates, Rachakonda reports.
Other incorporated features include the ability to download the card's statements to QuickBooks; fee-free purchase checks with the same float as the credit card (for paying suppliers who don't accept cards); ability to change the card credit limits for individual employees online in real time; and primary protection on car rentals.
How is the Discover Business Card faring thus far against the titans already dominating the small-business sector? Rachakonda says policy prevents discussing performance specifics, but that "it is safe to say that the Business Card has been performing beyond expectations, and we are really heartened by the reception."
Recent financial statements from Discover parent Morgan Stanley - which in December declared its intention to spin off the Discover business in the third quarter of this year in order to enhance shareholder value and allow Morgan Stanley to focus its efforts on its Institutional Securities, Global Wealth Management Group and Asset Management businesses - show Discover as a whole performing well.
Discover had 45.3 million general-purpose card accounts as of the end of fiscal year 2006 (Nov. 30), and net revenues of $4.3 billion, versus $3.5 billion in fiscal '05. Discover's net revenues were down 6% in the fiscal '07 first quarter over '06 (ending February), but the business logged record transaction volume (up 13%, to $30.3 billion) and the fifth consecutive quarter of managed receivables growth.
Breakouts on the Business Card are not reported; however, Morgan Stanley cites "robust performance in corporate credit trading" as one factor driving its strong overall growth, including a 70% jump in net income in the first fiscal quarter, to a record $2.7 million.