Small Business Credit Card Market Heats Up

With the consumer credit card market maturing, companies are looking to small businesses to continue their growth. In fact, the fastest growing segment in the broader commercial credit card market is small business. According to marketingresearch.com, credit card companies are only
capturing 10% of small business spending - $427 billion this year and $740 billion by 2010.

How are the credit card companies going after the SMB market?

The big three, Visa, MasterCard, and American Express, have all created small business programs such as reward points, sophisticated data reporting tools, and allied merchant card points.

Discover, the new kid on the block, launched its only commercial card, the the Discover Small Business Card, last summer and is aggressively going after new business. They have increased the rewards to include cash rebates of up to 5% on office supplies, 2% on gas, and 1% on other purchases.

In response, American Expressed launched the SimplyCash business card to match the Discover Small Business Card cash back features.

Discover has also made it easier for small business owners to sign up and use their card. Other 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 do not accept cards); the ability to change the card credit limits for individual employees online in real time; and primary protection on car rentals.

In Q1 of 2007 (ending February), Discover had record transaction volume up 13% to $30.3 billion and the fifth consecutive quarter of managed receivables growth. While detailed revenue or income figures are not provided for Discover, parent company Morgan Stanley had a 70% increase in first quarter net income to a record $2.7 and cited "robust performance in corporate credit trading" as one of the reasons.

Offering a better product by listening to their customers and making it easy for small businesses to sign up and use their credit cards has proven so far to be a winning combination for Discover.

Small Business Confidence Steady

CNN.com reported yesterday that business owners' confidence in the economy remains in line with January, but higher gas prices are a big concern.

According to a recent Morgan Stanley survey /Discover Small Business confidence measure, small business owners' confidence in the economy stayed steady in February as optimism about their own business fortunes was offset by an increase in concern about cash flow.

The good news:
Optimism was reflected on the hiring front: 17 percent of owners plan to hire more workers in February, up from 14 percent last month; 39 percent also plan to spend more on business development, which is up from 35 percent in January.

The bad news:
However, concerns about cash flow also rose. Forty percent of business owners who sell products reported a significant jump in cash flow concerns, up from 24 percent in the previous month, the survey said.

Thirty-nine percent of respondents said that changes in gasoline prices affect profitability, while 48 percent said the effects are minor and 13 percent said they were of no consequence.

When asked to name their largest energy expense, 36 percent of small business owners cited gasoline, but an unexpected 42 percent said they have no significant energy expenses. Of the remaining respondents, 13 percent named electricity, followed by fuel oil, 6 percent, and natural gas, 3 percent.

The survey reached out to 1,000 small business owners to gauge their opinions.