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Incentives are nothing new to credit card companies. Credit card companies understand that designing specific incentives for different markets of consumer credit can attract new customers and retain loyal ones. On the horizon, then, for credit card companies is targeting small businesses.
In case you did not already know (and there is really no reason why you should), only twenty-one percent of small businesses are currently using business credit cards to help shoulder some of their expenses. In 2005 this equated to $300 billion in small-business spending (which is tiny when compared to the total $4.7 trillion that small businesses spent that year).
This is somewhat surprising when you consider that major corporations consistently use credit cards to access expense accounts and to help track their daily spending. Small companies do not have access to large amounts of capital like major corporations do so without credit cards they have to simply rely on other things like loans, which are far less rewarding in the long run. Similarly, small companies usually have more trouble finding investors with deep pockets or sponsors with a wide base because they are a greater liability.
This generation is one of niche markets. One of the reasons why small businesses are thriving right now is because of all these niche markets. A niche market is a small population of consumers who have a singular thing in common, like an interest in movies or sporting events or interior design.
Usually this market cannot be reached by large retailers because they are trying to market their goods to as many people as they possibly can. Their attempts to reach everyone simply pass by niches because these markets only look for products and services that address their specific needs.
Because small businesses cater to small markets they have very specific needs that mass marketing simply cannot satisfy. This is something that credit card companies are looking into so they can learn how to best offer specific benefits to particular businesses.
In the long run, then, the goal is to find new ways to approach small businesses while still offering the most comprehensive benefits possible. It should not be too difficult, though, because credit card companies have been developing creative strategies in terms of incentives for many years now; the key is just to focus on incentives that address each niche singularly.
Even companies like MasterCard, who have had a small business credit card for 20 years, have made changes to their credit card programs in order to cater to small businesses. For example:
- MasterCard has implemented the PayPass program which tracks receipts for small business owners while not requiring a signature
- MasterCard also offers a credit card to construction companies with an extra month grace period for payments because construction companies always need to pay vendors before they can receive their payment (and thus pay their bills)
Of course, other credit card companies are following suit with their own iterations of small business credit cards:
- The Discover Business Card, a leader in CashBack rebates, offers a 5% cashback bonus on office supplies
- VISA can link credit cards and debit accounts for business credit card carriers
- American Express offers no preset spending limits, better rewards programs, and more networking events (including an evening with Richard Branson of the Virgin Group) for its Open card members
- Capital One recently launched new SPARK Business credit card line with improved benefits package
The Future of Small Business Cards
According to VISA and the SCORE Association (a nonprofit small-business counselor), the future of the credit card industry rests in designing new credit card products that will cater to more and more of these small businesses (and niche markets).
As you can see from the examples provided small businesses do not use their credit cards in the same way that regular consumers do (nor do they use their cards the same way that corporations do). At the same time increased competition between the various credit card companies should help to develop more creative strategies that will benefit more small businesses.
Credit card companies can benefit greatly by developing new credit card products that will attract small business customers. This is a market that is largely untapped but it is poised to break if new financial products will fit their particular needs.