here is the future...
Debit cards help small firms
Cards can help small businesses manage
finances, popularity is surging
January 21, 1999: 3:37 p.m. ET
NEW YORK (CNNfn) - Debit cards marketed
especially for small businesses have only been available
through MasterCard and Visa for a couple of years, but
their popularity is skyrocketing.
While the business owner gets a convenient way to
keep track of expenditures and other perks, card issuers
gain entry into another lucrative market.
Banks that issue the cards say small businesses are
snapping them up. Hibernia Bank, headquartered in
New Orleans, introduced small-business debit cards in
April 1998.
The new program met the bank's first-year goals by
November. "Small-business centers tend to mirror retail,
where the debit cards have been very successful. It's
added convenience with the fast pace of small business
today," says assistant vice-president Bridey Meinecke.
Money drawn immediately
Just as with consumer debit cards, business debit
cards are linked directly to a checking account. Use one
to pay for a purchase and the money is immediately
deducted from the account. That means the user misses
out on the 30-day grace period credit cards usually
offer. But experts say the trade-off can be worthwhile.
"Debit cards are meant to complement credit cards
-- not be a substitute for them. Credit cards give you a
30-day float and short-term credit at a cheap rate. You
don't have to keep applying for credit," says Bill
Dunkelberg, chief economist with the National
Federation of Independent Business. "Debit cards are
an added convenience. There are no checks to cut and
you get good record-keeping. At the end of the month
you know where the money went and it's easier to keep
business and personal expenses separate."
The programs of Visa and MasterCard are geared
toward businesses that have fewer than 100 employees
and less than $10 million in annual sales.
"Debit cards are meant to complement credit cards
-- not be a substitute for them."
Perks and growth
Cardholders can get perks that previously were
reserved for large companies, according to Craig Card,
director of Visa's business "Check Card" program. That
includes discounts geared to small-business needs for
everything from car rentals and computer purchases to
reduced rates at copying centers and discounts on
shipping costs.
Visa began its small-business debit card program in
January 1998. The incentive is huge. Card says small
businesses spend approximately $359 billion annually,
and the number of small businesses is supposed to
increase by 1 million by the year 2001. "Clearly, there's
a tremendous opportunity to switch these businesses
from using cash and checks to a more secure,
convenient tool like the Visa business check card," he
said.
A MasterCard survey shows small businesses make
89 percent of their total company purchases with cash
or checks.
Fewer worries
Hibernia Bank's Meinecke says that with the debit
card, companies don't need to worry about places that
don't accept checks. It also eliminates check-handling
fees, and companies can pre-set spending and set
cash-access limits for employees.
MasterCard figures show the average business debit
cardholder spends three times as much as a consumer
debit cardholder. Credit-card companies make a
processing fee every time there's a transaction and
those fees are usually higher on business transactions
than they are on consumer transactions. In addition,
card issuers can make money by charging an annual
membership fee
-by Bank Rate Monitor for CNNfn |
