Fintechs are using several services to grow the pie of commercial cards, but one in particular stands out, according to Packaged Facts’ just-released Commercial Payment Cards: U.S. Market Trends, 12th Edition report (January 2022).
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Even though small businesses make up more than 35% of total commercial card spending in the U.S., some businesses are too small or new for traditional commercial cards. This is particularly challenging for issuers if the entrepreneur is too young to have a strong personal credit history from which to make an approval decision to open a line of credit.
Fintechs are confronting that challenge by extending short-term credit to new businesses so they can make purchases using a plastic card or a virtual card and pay their issuers each day there are charges. Fintechs are watching those payment behaviors and then using actual card data to ultimately offer a longer-term line of credit to their customers.
This allows the fintech to gain 100% of the wallet-share of the organization with little credit exposure, explains Packaged Facts financial analyst Elizabeth Rowe. If, or when, the new company grows, the fintech’s cards are scalable with the cardholder’s operation and are now fully integrated into their payables process.
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This kind of targeted offering is only possible because of a confluence of technology prowess, innovative thinking and changing consumer receptivity. When micro-businesses hear that Uber drivers are being paid at the end of each shift, the notion of daily payments is introduced, and an issuer can tap that receptivity without the heavy dollar lift of explanatory and persuasive marketing.
For the commercial card industry, this exemplifies using consumers’ personal experience to develop new business services options.
That is, the personal is commercial. Every single person who works for a card issuer or network was young and new to the world of unsecured credit. Maybe that person was told to open a store credit card to build a credit history. Maybe that person was given other guidance. But the truth holds that a young business owner faces the same challenges an issuer or network’s employee faced as a consumer.
The opportunity, Packaged Facts reports, is meshing the personal with new app technology to bring fresh solutions to the commercial market.
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