Category Archives: Payments

Bank of America launches suite of small business charge cards

Earlier this week, Bank of America introduced of a suite of three small business charge cards. Up to now, Bank of America has only issued small business credit cards.

This new suite will compete in the small business charge card space with leader American Express, as well as Chase, which now issues an Ink Bold charge card as part of its Ink small business card suite.

This new charge card suite will also compete with small business credit cards.  Leading small business credit card issuers retrenched significantly following the financial crisis in the second half of 2008.  Since then, some leading issuers have returned to the market, but small business cards are now marketed less as sources of working capital, and more as payment vehicles.  And there is significant spending growth potential for small business credit and charge cards, as card’s share of overall small business spending is much lower than card’s share of consumer spending.

Marketing such cards also enables issuers to maintain relationships with small business customers, who can then be cross-sold additional products and services, including lending products as confidence returns to the market.

Card networks report strong growth in credit and debit card spending

Visa and MasterCard both reported quarterly financials this week, which enables us to develop a picture of how the four main U.S. card networks (Visa, MasterCard, American Express and Discover) performed in terms of card volume.

See the table below for details on the card networks’ total U.S. card volume for 1Q11, with comparisons to 1Q10. Note:

  • Strong year-on-year (y/y) growth in both debit card (+12.0%) and credit card (+9.2%) spending.  Even though credit card spending growth continues to trail debit cards, growth rates have recovered in recent quarters, following significant declines in 2009.  This reflects the efforts of leading credit card issuers to promote spending, as outstandings continue to decline.
  • Strongest credit card volume performance came from American Express, which enjoyed double-digit growth in all customer segments (13% in consumer, 14% in small business, and 18% in corporate).  Its share of total credit card spend rose from 24.6% in 1Q10 to 25.9% in 1Q11
  • Discover reported 24% debit card growth through its Pulse PIN debit network.  Visa also reported double-digit debit volume growth.
  • Visa’s share of total (credit and debit) card spend among the four networks rose 46 bps y/y to 51.9% in 1Q11

Credit card “versioning” to target different user segments

American Express recently launched two versions of its Blue Cash Card.  The Blue Cash Everyday has tiered reward levels (3% at supermarkets, 2% at gas stations and drug stores, and 1% on other purchases) and carries no annual fee.  Blue Cash Preferred features higher reward levels (6% at supermarkets, 3% at gas stations and drug stores, 1% on other purchases), but carries a $75 annual fee.

This continues a trend seen in recent months, with leading credit card issuers launching different versions of the same card, with one version offering greater rewards and/or bonuses, as well as higher annual fees.  These leading issuers believe that heavy credit card users will be willing to pay the annual fee in exchange for the potential to earn the greater rewards.  These heavy spenders generate significant interchange income for the issuers.

The following table is a comparison of different versions of the same card, which have recently been introduced.  In most cases, the premium card offers higher reward levels as well as bigger incentives (for their first purchases, reaching spending thresholds, or for anniversaries).  And in the case of Citi, there is also variation in the APR for its three ThankYou cards.

As credit card issuers seek to generate additional noninterest income, we should expect to see more credit card versioning.  Issuers must carefully set pricing, rewards and incentives for the different versions of the cards, and clearly communicate the benefits of each version to appeal to different cardholder segments.