Credit Card Companies Aim to Shore Up Profit with Small Business

Congress has regulated and re-regulated the financial services sector in the wake of the recession.

Banks and companies that provide credit and debit card services have also been the subject of new legislation, notably provisions in the Dodd-Frank financial reform bill that limit the amount banks can charge merchants for swiping debit cards and, earlier, provisions in the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act), that went into effect in 2010 and protected consumers from arbitrary interest rate increases while also limiting fees that credit card companies can charge.

To shore up the potential profit that they stand to lose from these relatively recent regulations, banks and card companies have made inroads into business credit, where card behavior is less strictly governed. Recently, two major card providers stepped out with new card offers aimed directly at the needs of small businesses, with Capital One Financial Corp. announcing the launch of the Business No Hassle Cash Premier card and American Express OPEN, the card giant's small business division, announcing a new Business Gold Reward Card.

Capital One's business card offers small business users 2% cash back on every purchase and lacks any expirations or spending minimums. American Express' card users can rack up double points for online marketing spending, positioning the card as both a source of credit and something of a business partner. "What small businesses need more than anything else is demand for their products and services," said Doug Tabish, vice president of charge cards at American Express OPEN. "They are pushing us to help them think more holistically about how to generate demand. We're responding by offering maximized benefits with Business Gold Rewards, allowing entrepreneurs to reinvest the points they earn to better their existing businesses."

While these add-ons and perks are likely to entice many small business customers, they're also built to encourage those businesses to rely on the cards for payment, meaning that vendors to these small businesses could see an increase in requests to pay via credit card.

A previous NACM survey indicated that a large majority of companies already accept credit cards for payment, but many still consider it a necessary evil, fraught with occasionally debilitating costs. Credit card providers often rely on offers similar to the ones recently launched by Capital One and American Express to get small business buyers to use credit cards more frequently, while levying a hefty interchange fee on vendors who want to accept that particular type of card.

In other words, merchants accepting credit cards should keep an eye on their interchange fees as banks and card companies aim to make up for the profit they'll lose from the regulatory pendulum swinging back in their direction.

Jacob Barron, CICP, NACM staff writer