Corporate cards are starting to earn their place in the bank credit card family.

Though corporate cards still do not compare in numbers with those on the highly lucrative consumer side, bankers view the consumer card market as relatively saturated. Travel and entertainment, procurement, and fleet cards are just beginning what could be a long and profitable ride.

According to the newsletter The Nilson Report, only 40% of the 17 million small businesses in the United States, and 50% of the 200,000 midsize and large companies, use credit cards.

Most companies that do use credit or charge cards use them for travel and entertainment expenses. Even among the nation's largest firms, purchasing cards are only starting to catch on.

Nilson estimates the purchasing market alone at $400 billion and predicts "no factor will have a greater impact on growth of credit card dollar volumes in the United States over the next five years than spending on commercial cards."

The battle for market share is shaping up as a classic clash of card industry titans. While American Express Co., the longtime leader in the business card market, is revving its purchasing program into high gear, MasterCard and Visa are polishing up their rival products and urging banks to issue them.

The bank-owned associations "have really decided that this is a market segment they want to invest in," said Steve Putney, president of corporate payment systems for U.S. Bancorp, the leading Visa commercial card issuer. "They are both committing significant resources in staff and technology to let the issuers really make this market."

U.S. Bancorp-the Minneapolis-based superregional known until recently as First Bank System Inc.-got into the corporate business in the early 1990s. It is the only bank that competes squarely with American Express in the travel and entertainment realm. Now U.S. Bancorp is promoting purchasing cards and a newly minted fleet card, designed to streamline payments and tracking of vehicle fleets and drivers.

With other banks just rolling out their first products, U.S. Bancorp executives are smiling at their own precocity.

"I think there are a heck of a lot of wannabes out there," said Daniel Frate, U.S. Bancorp's president of payment systems. "For one thing, they're being pushed into it by their current customers. And just as importantly, they're experiencing a lot of strain and pain on the consumer side, and they see this as a potential growth area."

Travel and entertainment cards are considered the most mature products in the commercial market-they can be traced back to 1970, when American Express started putting company names on charge cards. Major companies tend to have travel and entertainment cards, smaller ones typically do not. Therefore, card issuers are looking to the small-business market as well as to the newer purchasing and fleet opportunities.

Small business is a "huge and underserved marketplace" that has been "growing for the last five years," said Steven Alesio, president of American Express' small-business services unit. "We call it the third- largest economy in the world," he said. "It accounts for 80% of the employment growth in the United States."

American Express has issued small-business cards since the early 1980s. It began to accelerate and enhance its effort two years ago, offering, among other things, revolving credit accounts. The company now has 1.7 million corporate charge card accounts and 500,000 credit cards in the hands of small-businesspeople, Mr. Alesio said.

Bank card issuers are strongly interested in capturing small businesses, too. Visa debuted its first national television advertising campaign for the Visa Business card in July. Further courting that market, Visa formed a partnership in June with the Service Corps of Retired Executives, which offers advice to business owners.

The mounting exuberance can be traced in part to the development of credit-scoring techniques for small-business prospects.

"The best analogy would be to look at the evolution of risk management tools on the consumer side," said Latimer Asch, vice president of Fair, Isaac & Co., San Rafael, Calif. Just as retail card issuers have honed their ability to size up consumer credit risks, so have corporate card issuers found new ways to target and evaluate their prospects.

Issuers have "realized that traditional commercial underwriting techniques were inefficient for the evaluation of commercial cards-it took too long," Mr. Asch said. "They looked to technology in credit scoring to increase their efficiencies."

With advanced credit-scoring software available, card issuers are looking to the next frontier, Mr. Asch said. "Now they want portfolio management tools, for monitoring the performance of individual accounts."

As the commercial card market has grown in sophistication, it has come to mirror the retail card market in other ways. Most issuers used to have a single card for all clients; now they have an increasingly diverse and specialized array.

"The market is evolving very rapidly," Mr. Putney said. "The industry started out with the corporate card, segmented into the purchasing card, and now we even have a product called the relocation card, that people utilize to pay for moves."

In another parallel with the retail world, corporate card fees are rising. American Express recently announced it will raise late-payment and bounced-check fees on Oct. 1.

Fees can be a sensitive issue. Employees who fall behind on payments they are responsible for might have problems performing their jobs if they are unable to travel. Companies might chafe at higher costs and decide to switch vendors.

Although the few top issuers have the luxury of competing for large corporate accounts, most banks find themselves scrambling to meet demand from current customers. The bank card associations are trying to keep up.

Visa, which has the larger purchasing card share, is now developing fleet capabilities. Its core products are being "better defined to meet specific corporate needs," said Robert Stock, senior vice president of Visa U.S.A. credit products.

"We find that a number of our banks are very interested in, or have actively put in place, programs over the last five years to issue corporate and purchasing cards," Mr. Stock said. "They see it as a good revenue- builder and an opportunity to broaden their significant commercial relationships."

MasterCard was the first major brand to bring a stand-alone fleet card to market. The product came out in March after a year of development and now is being touted on the association's Web site.

Through the Internet and other means, the association is trying to reach out to small businesses. MasterCard estimates 30% of them use a card product and another 30% are interested in getting one.

"Over all, the corporate products market offers a tremendous opportunity for corporations to save money and become more efficient," said Steve L. Abrams, senior vice president of corporate products for MasterCard International. "It's also an opportunity for acquirers and issuers to obtain additional volume, at a time when other markets might be more mature."

Meanwhile, American Express is beckoning banks to break ranks with the associations and offer its brand-one that many executives already associate with the corporate market.

"Every midsize firm has a relationship with a bank, but few banks have a total solution set for that client's need for managing T&E and other nonstrategic purchasing," said Edward P. Gilligan, president of corporate services at American Express. "We do."

American Express spent 18 months on research and development before ushering in procurement cards in January 1994. Mr. Gilligan said volume is "doubling every year."

At a National Business Travel Association conference in June, Mr. Gilligan reiterated his company's persistent call for banks to flout Visa and MasterCard's rules against issuing American Express cards. None have taken up the offer so far, Mr. Gilligan said in an interview, but "there are a variety that are thinking about it."

What American Express has to offer, among other things, is a "closed loop merchant network" and access to "Level 3" information, which provides greater transaction detail, Mr. Gilligan said.

The corporate market is "a different world" from retail, Mr. Gilligan said, and one in which few banks have expertise.

"It's the difference between selling products, which you do on the consumer side, and selling solutions to companies," he said. "We're saying to banks that they are missing opportunities with their customer base."

David Robertson, president of the Oxnard, Calif.-based Nilson Report, said the potential for business cards is so vast that American Express might soon find its competitors catching up.

"We think Amex's future is fairly bright in the commercial card business," he said. "However, it's simply a matter of time before Visa and MasterCard volume takes over. The fact that Amex does well is much to its credit and a testament to how large the market is."

While companies are eager for the cost savings promised by more electronic movement of data and payment information, banks have a variety of vested interests, from profits to customer loyalty.

"In a broader way, (commercial) cards serve to help differentiate one regional bank from another," Mr. Robertson said. "They can serve to increase loyalty on a commercial account to a bank as a whole, not just on the card side."

Citibank, which owns Diners Club and is the second-largest issuer of Visa and MasterCard commercial cards, markets business card products to corporate banking clients.

"With the growing popularity and growing press, people immediately start to say, 'Let's consider putting some of our procurement on a card,'" said Cathy Raffaeli, executive director of Citicorp commercial cards.

The growth of Citi's commercial business has been "pretty extreme," Ms. Raffaeli said. "One year it grew 200%. The trend over the last six years has been 50%, and we expect it to exceed 50% over the next five years."

As card executives on the retail side worry about how to widen their business-the customer base does not seem to be growing, but credit problems do-their counterparts on the corporate card side fret about keeping pace with demand.

"Purchasing today is a $300 billion market, and the card penetration right now is only at two and a half percent," said Ms. Raffaeli. "We believe that the card will be replacing cash and checks in the marketplace- that's where we see the growth coming from."

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