Capitalize on Business Card Opportunities Barb Hunter, Senior Vice President Credit Card Services
Agenda Business card landscape Business card product performance Business card strategies and features 2
Business Card Landscape
The Small Business Opportunity is Growing Rapidly $15 Trillion global opportunity2 $5 Trillion U.S. opportunity3 27 Million U.S. small businesses1 + 20% 5 yr average annual card spend growth4 Source: 1) U.S. Small Business Administration, 2008,; 2) Boston consulting Group, 2008;3) Dove Consulting, Migrating Small Businesses Invoice Payments from Paper to Plastic 2008and 4) Nilson Report 2002-2008 4
U.S. Commercial Opportunity Small Business contributes $4.8T or 23.8% to overall U.S. CCE. 2008 CCE Segment Distribution 100% = $20.3T Government $1.4 6.9% 23.8% Small Business $4.8 Large Market $10.2 50.3% 19.0% Middle Market $3.9 Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, June 2008. Results include retail and wholesale intermediate inputs and are estimates only; government sources typically publish actuals within two years of estimates. U.S. CCE index data sources include ` the Bureau of Economic Analysis (BEA) and U.S. Census Bureau which conducts the Retail and Wholesale Trade Surveys. 5
The Small Business Opportunity Small Business card opportunity is significant and relatively untapped. Small Business Commercial Consumption Expenditure (CCE) 2008 Total = $4.8T Non-Business Card Spend (92.9*%) Total Business Card Spend* (7.1%) Challenges Barriers to card acceptance Inefficient card acceptance practices Limited awareness of cost benefit of card payments relative to other payment methods Barriers to card payment Limited understanding of card payment benefits Perceived difficulties of integrating card into business payment processes Perception of increased/additional costs associated with payment by card *Total small business card spend does not include spend on consumer cards; Small Business Defined as Businesses with annual revenues less that $25M Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, 2009. Results include retail and wholesale intermediate inputs and are estimates only; government sources typically publish actuals within two years of estimates. U.S. CCE index data sources include the Bureau of Economic Analysis (BEA) and U.S. Census Bureau which conducts the Retail and Wholesale Trade Surveys 6 Source for Business Card Spend: Visa Operating Certificates; Amex Earnings Supplement; The Nilson Report #931; Analysis and Calculations by Visa.
The Small Business Segment There are 27.2M small businesses in the U.S.. Number of U.S. Small Businesses (2008) Employer Firms by # of Employees 21.2M 5.98M 61.5% 17.5% 0 to 4 5 to 9 10 to 19 20 to 99 100 to 499 500+ Non-Employer Businesses "Self-Employed" Employer Businesses "Firms" 0.3% 1.5% 8.7% 10.5% Source: US Census Bureau: 2005 Data Source: U.S. Small Business Administration data and U.S. Census Bureau; The Small Business Economy Report, 2009 Note: SBA defines small business as up to 500 employees; Visa defines small business as up to 100 employees and up to $25M in annual revenue 7
Payment Methods Two-thirds of small business settlement is still on checks. Small Business Spending by Payment Type* Consumer Spending by Payment Type* Bank DDA 9% Non-Bank DDA 10% Other 3% Private Label Cards 2% ATM 1% ACH 9% Other 2% Check 28% Debit Card 3% Debit Card 20% Credit Card 6% Cash 2% Check 67% Cash 13% Source: 2008 Visa Small Business Payment Panel and Visa Consumer Payment Panel. Note: Share of spending is based on $ spent (versus # of transactions). Credit Card 26% 8
Bill Payments And Small Business Card Business Bill Pay continues to grow with significant card-based spending. Bill Pay 12% T&E 11% Emerging 5% QSR 1% Other 5% Spending with utilities and wireless communications providers could migrate to card. Ticket values in these categories tend to be strong for small businesses: Gas 11% Retail 34% Cable/satellite: $136 Utilities: $330+ Telco: $150 B2B 14% Restaurants 4% = $616+ possible monthly spend for small business bill pay Note: Sourced from Visa SB payment panel 3Q07. For the purpose of this report, share of spending represents share of dollars spent 9
Small Business Payment Trends Business and consumer customer cross-selling is gaining momentum. There is greater emphasis on small business rewards value propositions. Online products and services, like bill payment and reporting, are growing in adoption and usage. Invoice-based spending continues to represent one of the largest, untapped areas of business growth (Accounts Payable Automation). Financial Institutions and community banks are becoming more aggressive in the small business space. Source: Visa 10
The Economy Today CHALLENGES Lack of credit in the small business sector SBA guaranteed lending down Tightening standards Reduced demand due to continued slow economic growth Large issuers pulling back on credit card lending to small businesses Cash flow issues for small businesses Difficulty collecting receivables Less lenient payment terms on payables OPPORTUNITES Small business growth historically increases after a recession and provides a major growth prospect for issuers Issuers that can create relationships through frequent servicing or branch-based product relationships are best positioned to grow when the economy recovers Source: Mercator Advisory Group, Inc. 11
Factors that Improve the Situation for Small Businesses Government intervention Federal Stimulus Bill offers some help to small businesses struggling to survive the recession Some states creating stimulus programs or providing assistance to the small business sector Small Businesses can react more quickly to financial issues than larger businesses Choose to take home less pay Make pricing adjustments Borrow from personal funds or from family members Reduce variable expenses because they are generally a larger portion of overall expenses 12
Business Card Product Performance
U.S. Visa Business Cards Business cards offer issuers portfolio revenue diversification. Indexed average ticket 3.5 Indexed number of transactions per active card per month 1.9 2.1 2.6 1.0 1.6 1.3 1.0 Consumer Credit Consumer Debit Business Credit Business Debit Consumer Credit Consumer Debit Business Credit Business Debit Indexed average spend per active card per month 3.0 3.1 Indexed average interchange revenue per active card per month 4.9 5.2 1.3 1.0 1.8 1.0 Consumer Credit Consumer Debit Business Credit Business Debit Consumer Credit Consumer Debit Business Credit Business Debit Source: Visa USA Opcerts as of 2006 Q4, Consumer and Small Business Debit is only Offline, Visa Interchange group 14
Credit and Debit Card Utilization Card utilization drops as size of transaction size increases; checks dominate larger ticket purchases. Debit Cards Credit Cards 14% 27% 7% 6% 5% 4% 7% 11% 14% 16% 3% 6% 5% 17% 21% 17% 17% 2% 3% 2% 5% 6% 7% 1% 1% 20% 22% 26% 1% 1% Cash 10% Other (DDA) 12% 54% 59% 65% 67% 70% 68% 68% Checks 36% Transaction Size Less than $100 $100- $249 $250 $499 $500- $999 $1,000- $1,499 $1,500- $2,499 $2,500- $4,999 $5,000+ Source: 2008 Visa Small Business Payment Panel. Note: share of spending represents share of dollars spent. 15
Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Visa Business Card Growth Trends Growth rates had been declining as small business discretionary spending declined due to the slowdown in the economy. We appear to be recovering. Early 2010 growth rates look even better. 60% 50% 40% 30% 20% 10% 0% -10% -20% Year over Year Growth Rates Visa Business Credit Card Visa Business Debit Card ($) Source: Visa Base II 16
Business Card Strategies and Features
Small Business Card Strategy Retain and grow existing base Penetrate, activate and optimize through portfolio segmentation and by offering incentives like rewards and discount programs. Cross-sell to get card products to your existing Small Business owners (existing relationships). Drive portfolio activation and usage through marketing strategy using range of tactics. Enhance spending ability Small business authorization and pending limits strategies should not mirror your consumer strategies. Deliver strong value message Create awareness of existing features including zero liability and liability waiver programs. Explain how your card products fit with your DDA services. Highlight the benefits in your Communication and Marketing strategy. 18
Create Awareness of Product Features Security Zero liability protection against unauthorized card use including provisional credit Fraud monitoring to watch for early signs of suspicious activity Liability waiver An issuers company s clients are protected from possible card misuse by employees who are ultimately terminated. Automatic enrollment Coverage up to $100,000 per cardholder Record keeping Online reporting tools that facilitate record keeping and payments Small business owners use check writing process as a monthly business review. 19
FIS Business Card Features FIS commercial card solutions provide the financial insitutiton with the ability to meet the needs of their small business customers. Business card hierarchy Each company is issued one master account for each product type. The company may select the product to be issued to each of its employees. Each master account / company provides four levels of hierarchy. Customizable authorization criteria Can be defined for each product / sub-product Velocity controls by: Daily / weekly thresholds Number of transactions Dollar amount of transactions Companies can have different spending restrictions. Create a separate product / sub-product with the desired restrictions. Set up cardholders for a company, and assign the cardholder the product / sub-product with the desired restrictions. Merchant funded rebate programs* Free discounts for employees at frequent usage merchants Visa SavingsEdge *Launching soon FIS scorecard Packaged rewards to incent usage and compete in this space Access to marketing collateral Turnkey material to help the Financial Institution and target small business Visa online 20
Typical Small Business Card Hierarchy Most businesses have only one to a few employees and do not require a complex hierarchy. Sample FIS - TBS Platform Hierarchy ABC COMPANY (12345) ABC DIVISION (00100) DEPARTMENT (00101) MASTER ACCT XXXX-XXXX-XXXX-1251 CARDHOLDER #1 CARDHOLDER #2 CARDHOLDER #3 21
Launching and Supporting a Business Card Program is Not Cost Prohibitive Same fee structure as consumer card Very small additional cost for Reporting Services Enhancement products Marketing investment Higher average ticket Higher spend Increased interchange 22
Small Business Recap The opportunity to grow revenue for your Financial Institution in small business is readily available with your existing cardholders Consumer card market is saturated commercial card market is wide open. Only 7% of all small business spend is on card today. Existing cardholders win if they move their check spend to card spend. The timing is right with small business showing a rebound in commercial consumption expenditure. FIS already has over 100K small businesses running on our solution today, and is ready to help you capture this opportunity now. 23
Thank You Barb Hunter 727.227.2642 barbara.hunter@fisglobal.com