MasterCard International is aiming at middle-market companies with a new commercial card offering some of the benefits at a lower cost that issuers provide to large companies.
The first issuer of the card will be Chicagos Bank One Corp., the parent of the Visa issuer First USA.; Visa U.S.A. introduced a similar product last year.
Large issuers didnt focus on this segment of the market until recently, said Steve Abrams, a senior vice president of corporate payment solutions at Purchase, N.Y.-based MasterCard. They couldnt cost-effectively deliver a solution to this segment of the market. It is too expensive versus the return.
MasterCard defines middle-market as companies with sales of $10 million to $250 million and 100 to 250 employees too small for corporate card programs as originally designed. What it and Visa did was develop a pared-down version of the large-company card.
MasterCards middle-market product, launched two weeks ago, includes a means of making secure crossborder transactions, the Global Trading Program. Mr. Abrams said the program helps small and midsize companies get around such hassles as having to obtain letters of credit for international transactions.
Companies signing up for the trading program will get a chip card version of the MasterCard that will work with a reader connected to the purchasers computer. There will be a flat fee of $150 for transactions up to $50,000, and transactions will take place at a secure Web site that both parties must use. Mr. Abrams said the cost would be less than middle-market companies typically pay.
Both associations say these products will be popular with banks, but only two have come out with cards for middle-market corporate accounts.
Visa was first to market with the product, which Bank of America Corp. has offered since last year. A Visa executive said 12 more banks are readying a Visa middle-market offering.
We have done some refining since the original launch, said Michael L. Dreyer, senior vice president of commercial products and services for San Francisco-based Visa. A second issuer is slated to announce a middle-market Visa card within the next few months, and the other issuers later.
What we did is we looked at the attributes we could use at the middle market while keeping it cost-effective for everyone involved, Mr. Dreyer said. Features in the Visa card include the ability to restrict spending to certain merchants and systems integration allowing corporate customers to access card information.
The two associations trail American Express, which says it has the largest market share in corporate cards in most countries where it offers the product, including the United States, Canada, and most of Europe. Most years, 20% to 25% of Amexs card billings are generated by corporate card users.
All three issuers say that the middle market has been neglected for years and that it will get extra attention in the next few years. American Express estimates that less than 30% of U.S. middle-market companies have corporate card accounts.
Visa and MasterCard are chasing American Express Co. in the business card market. According to The Nilson Report, a payment systems newsletter based in Oxnard, Calif., Visa has a commanding lead over MasterCard in commercial bank cards, with a 66.7% market share for purchases in 2000, but 35.1% of charges on American Express cards were business purchases, compared with only 5.1% for Visa and MasterCard combined in 2000.
