It’s a mistake for financial institutions to not offer commercial and small-business card programs. If businesses don’t obtain the desired card program from their current institution, they’ll seek it elsewhere—and this not only jeopardizes the immediate relationship but also opens the door for competitors to capitalize on the opportunity.
During a recent PaymentsJournal podcast, Bob Zeena, Head of U.S. Credit Solutions at FIS, and Albert Bodine, Head of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed how offering commercial and small-business card programs as part of a financial institution’s comprehensive service offerings can lead to new business and increased profits.
Strategies for Offering Business Card Programs
When card programs are offered, it’s important to have a dedicated strategy that considers a company’s customers and how to best serve them.
“If your customers primarily consist of small businesses, you should consider a card program that is similar to consumer cards,” Zeena said. “This could include rewards-based features that allow smaller businesses to make transactions easily, whether it’s in-person (card present) at places like Home Depot or online (card not present) at platforms like Amazon.”
However, for larger or midsize businesses—such as commercial enterprises—the approach is different. According to Zeena, organizations will need to provide compelling reasons for their customers to choose their card program over alternatives.
“Consider the three R’s for commercial and small-business cards: rewards, rebates, and reporting,” Zeena said. “You may offer all three or a combination of them to make your program attractive.”
Business Cards Offer an Attractive, Longer Payment Cycle
Small businesses value having a longer period to pay their bills rather than instant payments that take money out of their accounts in just a few seconds. It’s important for financial institutions to remember this, especially as they develop strategies for the SME sector.
“Working capital is a key concern for small businesses,” Bodine said. “They want to manage their cash flow effectively, which means having the flexibility of extended payment terms.”
Although instant payments may be popular, working capital is a vital component for small and larger businesses.
“Card programs can be a great solution because they typically offer a pay-in-full option within a 30-day window,” Zeena said. “However, for smaller small businesses, a revolving credit product may be more suitable. It’s essential to consider working capital as a crucial factor in your offerings because that’s what your customers will be looking for.”
Measuring the Success of Card Programs
Once a card program is established, businesses will want to measure its success, and a few factors bear consideration.
Because financial institutions benefit from the revenue generated through interchange fees, they can measure success by focusing on purchase volume. However, as Zeena notes, it’s important to go beyond revenue.
“Implementing a card program opens up opportunities to expand the overall payments strategy of the institution,” Zeena said. “One option is to offer an integrated payables product, which combines various payment methods like ACH, checks, and wire transfers, all supported by a file feed system.”
By presenting these additional payment solutions to business clients, the institution increases its value proposition and customer retention. The more payment options available, the stronger the relationship with customers and the less likely they are to switch to a competitor.
“Customers today seek choices in payment methods, and the entire payables ecosystem is expanding,” Bodine said. “Offering ACH, wire transfers, and other payment options alongside a card program doesn’t necessarily mean cannibalizing the card business. Instead, we’re observing growth in all payment instruments as customer preferences diversify.”
When it comes to the payments spectrum, financial institutions earn the most revenue from card transactions. However, although card payments are prioritized due to their revenue potential, it’s crucial to acknowledge that not everything can be transitioned to cards, Zeena said.
“ACH and check payments still have their place and are widely used by many businesses,” he said.
A well-rounded strategy considers all payment methods and allows for smart supplier enablement efforts to drive spending in the desired direction. Ultimately, card payments take the lead in terms of revenue for financial institutions.
Looking Ahead
Many financial institutions haven’t fully embraced small-business or commercial card programs. Small businesses are a great entry point for financial institutions, and even consumer banks have many small-business customers. Commercial programs are more complex, but larger institutions are recognizing their importance and either considering or already implementing them.
“The key message is not to let another financial institution or third party take away your customers by not offering a simple yet effective tool for managing their business expenses,” Zeena said.
It’s surprising to see how little penetration there is in this area, but it’s a significant growth opportunity.
“There are partners, such as branding and processing partners, as well as consultants who can assist with credit underwriting and other aspects,” Bodine said. “Don’t be afraid of it, but instead, consider the potential revenue and the competitive advantage it brings to your institution.”