Small Business and Big Incomes

  The leading card brands and the issuers of their products are always looking for new markets to grow revenue. Small businesses offer that potential. Wealthy consumers do, too.
  As this month's Cover Story on page 38 points out, the card industry initially ignored small businesses, preferring instead to focus on card acceptance and consumer card rollouts. Now that the consumer market has matured and most major merchants take their cards, Visa, MasterCard, American Express and Discover all now are targeting small businesses to extend their programs further.
  While the small-business card market is growing, to what extent issuers can profit from it remains to be seen. Just as it was with consumers, the difficulty they face is convincing small-business owners to give up old habits, which include paying vendors with checks. Problems on the acceptance side could be even trickier to overcome because the larger the invoice, the greater the interchange expense the biller ultimately would have to pay. It is for that reason few vendors may want to accept cards.
  The small-business market potential is sizable. According to Visa USA, small businesses earning up to $25 million in revenue annually used cards toward only about $225 billion worth of expenditures in 2005. While that may seem a hefty sum, it represents only 5% of their total spending of $4.7 trillion.
  Lofty annual household incomes also are a growing target. In September, MasterCard launched MasterCard Elite, a card platform designed for consumers with annual household incomes of $250,000 or more (see story, page 8). MasterCard's goal is to go after market share now held by AmEx and Visa. While most wealthy consumers have and use credit cards, MasterCard is hoping that special perks such as free airline tickets and exclusive access to travel services will convince them to embrace Elite cards.
  Both small businesses and wealthy consumers spend a lot of money. So it makes sense for the payment-industry players to try to attract their interest. Something tells me, though, that unless the merchants get a piece of the action through co-branding or other revenue-sharing relationships, they won't want to subsidize, through interchange expenses, issuers' efforts to go after those markets.
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