Small Business Credit Card 2008 Update: Issuers and Customers Seek Order amid Chaos

Abstract

This report examines recent developments in the highly competitive small business credit card marketplace. Small business credit, charge, and debit purchase volume is approaching an estimated $330 billion annually in the United States, and the market has offered above-average growth for issuers targeting the segment. While the final numbers for 2008 are not in, it has been a challenging year for issuers seeking to maintain control of credit quality, and for small businesses to maintain financial control in the midst of a challenging economic environment.

In the small business credit card segment, 2008 has been a year for issuers to optimize specific abilities they are already good at, such as branch-based relationship products and rewards. But 2008 has also been the year for focusing on small business debit and charge products, as both businesses and issuers strive for financial responsibility (and control).

Highlights from this report include:

• The small business credit card market continued to offer above average growth opportunities to issuers through 2007.
• In spite of the declining economic outlook, small business credit and debit still have room to grow and displace personal payment products and checks in the segment.
• Businesses are moving to reduce their own credit, debit, charge products, plus an array of payments features may come to the aid of all stakeholders.
• With a darkening outlook for business conditions in 2009, issuers best able to create relationships through servicing and/or broader business relationships will be best positioned to grow when conditions improve.

Ken Paterson, Director of the Credit Advisory Service at Mercator Advisory Group and the author of the report comments that, “From our viewpoint in December ‘08, ‘09 looks pretty challenging. Yet it is also apparent that if issuers wish to grow in the small business segment, there is still very much room to do so. The real question is whether lenders will have the appetite and ability to continue to grow their portfolios in the next year. Just, as important, issuers best able to retain their clients' loyalty will be best positioned to retain their business when the good times roll again.”

Table of Contents

TABLE OF CONTENTS

• TABLE OF FIGURES

Introduction

I. Small Business Segments and Issuing: Last Year' s Picture

• Size Segment Recap
• Small Business Payment Product Growth Was Strong (through ' 07)

II. Everyone Seeks Control

• Small Businesses Have Their Own Crunch
• Issuers Seek Control, And Positioning For The Rebound
• Products Offer Choice and Control
• Growing Business Debit: Addressing Pay-In-Full-Now Opportunities
• A Timely Resurgence For Charge?

III. Card Network and Issuer Developments

• American Express Developments
• Discover Development
• MasterCard Developments
• Visa Developments
• Wells Fargo
• Advanta

IV. Crystal Ball For ‘09

TABLE OF FIGURES

• Figure 1: The Estimated 26.7MM Small Businesses Skew Toward The Very Small
• Figure 2: Small Business Credit Maintains Its Volume Growth
• Figure 3: Small Business Credit Maintains Its Growth Rate
• Figure 4: U.S. Small Business Products Represent A $329B Volume Market Overall
• Figure 5: Both Credit and Debit Have Room To Grow- And Displace Checks
• Figure 6: Many Firms With Under 5 Employees Use No Commercial Loans Other Than Cards
• Figure 7: Crunched Between Collections And Payment Terms
• Figure 8: Issuers Move To Control Credit Risk
• Figure 9: SB Owners Focus On The Web For Apps
• Figure 10: Pay Now To Pay Later: Control It Your Way