While the consumer credit card market stagnates due to economic pressures, the small business card market has seen a noticeable uptake in activity. MasterCard is now taking a small business savings programme pioneered in the US and hoping to replicate its success in the UK. Victoria Conroy reports.
Although economic turbulence may have subsided over recent months, there is still enough uncertainty in the air to make both consumers and businesses more cost-conscious and wary about card-related spending. Consumers may have reined in their card spending in response, but in the small business sector, the reverse has happened.
Not only are small businesses showing more interest in using cards to manage their spending and budgets, they are also demanding that such cards incorporate the features more commonly found on consumer cards, like loyalty and rebate programmes.
A small or medium-sized enterprise (SME) is defined as a company with fewer than 250 employees; there are 4 million such businesses in the UK. Warwick Business School of the UK carried out a recent study of small and medium-size business finances, which used a sample of 2,500 companies.
The study found that business credit cards are the most widely-used financing tool for small and medium-sized companies. SMEs spend over £1.8 billion ($2.9 billion) on their business credit cards each month.
Most business credit card spending by SMEs is for everyday costs and bills, such as travel expenses and raw materials, although 12 percent of the study’s respondents said they used their corporate cards to buy equipment and vehicles.
Only a small proportion of the money spent on business credit cards is left outstanding as borrowing at the end of the month. Businesses using personal credit cards pay off an average of 79 percent of these debts in full each month. For business credit cards, the proportion is 95 percent.
MasterCard in the UK is hoping its most recent product launch will meet many SME needs – the MasterCard Business Savings programme, which allows small businesses to receive automatic rebates on essential and everyday purchases.
It is the first automatic rebate programme of its kind to be launched in the UK, and follows the template of MasterCard’s Easy Savings programme, launched in the US a couple of years ago.
Data from the Easy Savings programme found that small business cardholders enrolled in the scheme increased their spending by more than 60 percent at participating merchants from 2007 to 2008, and nearly 70 percent of these cardholders were new customers for these merchants.
Saving with everyday spending
MasterCard launched Business Savings in the UK in response to research it commissioned which showed that 81 percent of small business decision makers would value automatic savings of up to 10 percent on everyday purchases, regardless of which channel is used to make a purchase.
Given that a typical small business spends approximately £15,000 per month on small business-related needs, MasterCard is hoping that its new programme will attract a large portion of that spending, thereby boosting purchase volumes and the network’s penetration into the small business sector.
The first issuers participating in the programme are Clydesdale Bank and Yorkshire Bank, although MasterCard is in discussions with other issuers.
All carriers of a MasterCard Business card are eligible to enrol in the programme, and accounts are automatically credited with a rebate within days of spending at participating merchants. Initial launch partner merchants include vehicle hire firm Avis, computer supplier Hewlett Packard, software giant Microsoft, online recruitment firm Monster, Barcelo hotels, and internet server hoster Winweb.
Jason Ollivier, head of small business for MasterCard, told CI that Business Savings is a unique proposition in Europe and that the network has developed an infrastructure upon which a patent
is pending. MasterCard has also made the enrolment process as simple as possible to encourage uptake.
“If you have a small business card from an issuer participating in the programme, all you have to do is register your card once with us and it takes about 10 seconds to do that on the MasterCard Business Savings website or on the telephone,” Ollivier said. “Once you do that, if and when you spend at a predefined list of everyday spend business-to-business merchants, you will automatically get a rebate.
“The way the system works is that when you register your card, our system will flag your card number. When merchants sign up to participate in the programme we put a flag beside all of their merchant numbers. What then happens is that when you spend at a merchant, say for example you spend £100 at Hewlett Packard, on your statement it will say ‘Hewlett Packard £100’. Then, as that qualifying transaction goes through our systems, our system recognises two flags, and automatically initiates a rebate transaction.”
Ollivier added: “Every time you spend at a participating merchant, the message is being reinforced and you’re seeing that you’re getting something for nothing. It’s very clear and visible. All of the rebates come from the merchant.
“Unlike some of the other programmes out there, 100 percent of that rebate is passed on to the cardholder. With many of the traditional programmes out there, the merchant has to stump up an amount and then someone will take a cut and then someone else will take a cut and the cardholder gets left with a little less. That is not the case here.”
A unique loyalty proposition
Although loyalty programmes are by no means new, they have up until recently been rarely found within the small business card sector. Where they do exist, they typically take the form of promotional codes or coupons. And, according to Ollivier, these have proven to be difficult for small businesses to redeem.
“Because small businesses are what they are, and they behave in the way they do, our research has shown that they really do not have the time to go around trying to get a promotion code or coupon or whatever else. They don’t have the time or the inclination to play those games,” he explained.
“The challenge for us is to get the merchant brands into the heads of our cardholders. As soon as that job’s done, they know that they’re going to get the relevant rebate on spend at the merchants listed. That’s the way the programme works. With the traditional programmes their very infrastructure means that there are a load of hurdles in the way preventing the cardholder from obtaining the benefit. What we’re doing is smashing those hurdles away so that it is very easy with no hassle.”
Are there any spending limits, or minimum or maximum amounts that cardholders need to adhere to?
“No, and this is integral to the overall philosophy of the programme,” Ollivier said. “The philosophy is to strip out as much of the complexity and the small print. Obviously there are a few minor conditions around each different offer, but as far as we can possibly do it, I know that if I spend at merchant X with my enrolled card, I get money back.”
Business Savings was born out of market research undertaken by MasterCard in the UK, with recurring themes emanating from small businesses.
“We’ve been listening to UK small businesses, both cardholders and non-cardholders. We understand what it is that influences them and what motivates them,” Ollivier told CI.
“Pretty consistently now we’re getting three messages – ‘I want cashback, I want rewards, I want something back for the loyalty that I’m showing.’ We are hearing that they also want security and control over their spending.
“If I have a card or a series of cards I don’t want them to be abused. Finally, I want availability of funds, and especially now, I need liquidity. The control piece and the availability of funds we are addressing through separate features and separate products, all of which are able to be linked in with Business Savings.
“For me the three main points are that number one, we’ve been listening to our cardholders. Number two, we have leveraged some global infrastructure in a way that is hugely pertinent to our particular market. Therefore we have created a product which has sufficient resonance, it’s simple and it’s automatic so it is going to create a change within the buying behaviour of the small businesses. Number three, it works and it’s proven,” Ollivier added, alluding to the ‘Easy Savings’ scheme which was pioneered in the US in 2007. Having initially launched with six merchants, it is now up to 20.
“It is a proven concept and the results have been quite spectacular.”
Getting the right marketing message
What lessons has MasterCard taken from the roll-out of Easy Savings in the US?
“We’ve learned how best to position the programme with regards to the marketing,” Ollivier told CI. “The key challenge that we have is to get these brand names in front of the cardholder base. And the brand names need to have resonance. So Bob’s hardware store on the corner, with all due respect to Bob, it isn’t going to cut the mustard.
“Number one, make sure you have the right names and make sure you have the right offers – offers that people are going to get out of bed for. When you merge the right offers, with the right names, when you merge that with the ease with which the product works, then you’ve got something which has credibility and is going to do something.
“With regards to lessons, we have some excellent calls to action the way in which we work with the issuers to help provide them with the copy that we know has had results in the US.
“We know the statement inserts and collateral which has resonance and we know the material that does not. We also know the media that has resonance and the media that does not. If you do statement inserts properly, and do them well, and you don’t dilute the message that they’re saying, and you’ve got the right calls to action, we found in the US that doing that is far more effective than some other perhaps more sexy means of getting the message across.”
In the UK, the scheme has launched with six partner merchants, although Ollivier told CI that more are coming on board each month.
“We have some pretty advanced and exciting additional contracts which we’re just closing off now,” he said.