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Business credit cards are an untapped opportunity for credit unions

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The U.S. small business sector represents a huge and growing market opportunity for credit unions—one that is largely underserved by big banks and other financial institutions. Business credit cards can be a win-win, providing small- and medium-sized businesses (SMBs) with much needed funding to support operations and growth, while giving credit unions a new revenue stream and opportunity to accelerate portfolio growth.

“As more people try their hand at owning their own small business,” says John Patton, Co-op Senior Payments Advisor. “The SMB sector is ripe for credit unions to build stronger partnerships that will outlast the coming economic slowdown.”

Capturing Market Share with Business Cards

The number of small businesses grew significantly over the past five years, from 29.6 million in 2017 to an estimated 33.2 million in 2022.

According to NPR, applications to start new businesses reached 5.4 million in 2021, a new record. And the 2021 New Business Insights report from Intuit forecasts 17 million new businesses to be formed in 2022, a third consecutive record year.

By offering a business card program to their members, credit unions can capture some of this growing market opportunity while benefitting from higher interchange income, larger average revolving balances and an average ticket size that is 2.4 times that of a consumer transaction.

“Many credit unions don’t offer business cards because of the perception that additional resources are needed to manage the program,” Patton says. “The truth is that business cards are simply another program offering that can leverage the same card management infrastructure while helping to diversify and grow the portfolio.”

Business cards also offer issuers the opportunity to cross-sell related business services, like checking accounts, equipment and vehicle leases, working capital loans, and commercial real estate mortgages. They can also serve as the launching pad for a larger, more profitable relationship that often includes the business owner’s personal banking relationship, as well.

To illustrate the impact that business cards can have on a credit portfolio, a recent SmartGrowth review of a large Co-op client card program revealed that transitioning the segments of personal credit cards that are being used like business cards would positively impact card program financials to the tune of:

  • A 25% increase in interchange income,
  • A 55% lift in average revolving monthly balances, and
  • A 207% higher average transaction amount.

Of course, offering business cards to your membership isn’t just about growing your card portfolio. It’s also about people helping people.

Business cards offer significant benefits to business owners, including the ability to conveniently track business and personal expenses separately (a practice recommended by most accountants and the IRS), along with special features like:

  • Travel benefits
  • Concierge services
  • Discounts at select business merchants
  • Business reporting and tracking tools

How Credit Unions can Take Advantage

Credit unions have an opportunity to leverage this trend and this audience by marketing their credit cards to small businesses. To get started in offering business credit cards to your membership, follow these steps:

  1.  Review your portfolio data: Even if you don’t yet offer a business credit card, it’s likely you have some members who use their personal credit for business purposes. Run an analysis on your current portfolio, looking for members that are using their personal credit as a “prosumer” card. Take special note of frequent purchases at office supply stores, monthly subscriptions to business applications like QuickBooks, payments going to eCommerce sites like Etsy, Shopify, SquareSpace and Wix, and ACH deductions by merchant services firms like Square or PayPal.
  2.  Develop a compelling business credit card product: To be successful, you can’t simply slap a “Business Card” name on your existing Visa or Mastercard credit offerings. A true business card has special attributes and benefits that are attractive to small business owners, like travel perks, cash flow reporting and enhanced loyalty rewards programs.
  3.  Create targeted campaigns: Create specific campaigns targeted at micro-audiences including SMBs, home-based businesses, solo-preneurs and moonlighters, and include an attractive offer to convert or cross-sell them to a true business card. You may wish to try promotions that include bonus rewards points or cash back, no annual fee for the first year or a limited-time balance transfer rate offer.
  4.    Deputize your branches: Many small business owners visit your branches on a regular basis (even more often than your personal accountholders). Provide your branch staff with training and marketing collateral to help identify those members who might be strong candidates for a business credit card, and reinforce this message on a regular basis.
  5.    Get your business card on file: Once they apply, encourage your business members to provision your business card on file with their favorite business websites and subscription services. We recommend running a SmartGrowth campaign that encourages and incentivizes business owners to load your business cards in their preferred digital and mobile apps, like Apple Pay, Google Pay or Samsung Pay. 

Rising Competition in the SMB Space

Although the SMB market has long been underserved by traditional financial institutions, the competition is starting to heat up, as a number of new offerings and partnerships have recently been announced focusing on this highly lucrative market.

PayPal began offering its first business credit card in mid 2022. The product enables cardholders to earn cash back on their business to business spend.

And in November, American Express and eCommerce juggernaut Square announced a partnership to offer a Business Credit Card designed specifically for Square merchants. In the joint press release announcing the effort, Square Banking General Manager Luke Voiles claims that Square’s offering is designed to help SMBs that “have historically struggled to find fair and simple solutions for their credit needs.” 

The best time to begin engaging your business members is today. Once you have a business card product in your toolkit, make sure to offer it to sole proprietors, micro-businesses and home-based businesses to build interchange income and grow your portfolio for the future.

Ready to get started? Talk to Co-op’s SmartGrowth experts for help with analyzing your data, and creating effective campaigns targeting business card portfolio growth. Contact us to learn more.