Over the past few weeks, the government has released multiple reports suggesting the economy is slowing. The Commerce Department said this week that retail sales were roughly flat from March to April. The latest employment statistics from the Department of Labor were quite weak. And GDP in the first quarter was significantly lower than the previous quarter.
American Express recently shed some light on its sobriety when it reported its latest quarterly results. Business spending in particular has been quite weak, with spending by small businesses on business credit cards increasing by just 1% compared to the same period last year, the company said.
But American Express also said there are many opportunities in the small business sector. And despite today's subdued consumption environment, competition for business owners' wallets is intensifying.
Business credit cards essentially work the same way as personal credit cards. Cardholders use their cards to buy things, accumulate balances, and pay them off when possible. However, the average business tends to use cards much more than the average consumer.
“Credit card charges can exceed $800,000 a month,” said Jeff Keiley, owner of Worldwide Cyclery, a mountain bike shop in Newbury Park, California.
Kayley said she plans to charge everything possible to her store's Capital One credit card, from inventory and travel expenses to internet charges and lounge snacks. That's because the card has incentives.
“They give you unlimited 2% cash back on all purchases,” Kayley said. “And we haven't found anything better than this yet.”
For consumers, 2% cash back may mean a few dollars here and there. But for Worldwide Cyclery, one month's spending could net him more than $10,000. Mr Cayley said this would significantly reduce the company's costs.
“When you’re running a business, you look at your income statement religiously,” he said. “And if you can get some cash back on that credit card spend, that goes right back into the bottom line of your business, which is really helpful.”
One reason Capital One is able to give him some cash back is that every time he purchases a new item for his store from one of its merchants, the merchant charges a fee for accepting the credit card transaction. in order to pay.
However, Tony DeSanctis, senior director at consulting firm Cornerstone Advisors, says credit card companies make more fees from people making everyday purchases than they do from small businesses. It is said that there are many. That's because there are many more consumer credit cards out there.
“From a consumer perspective, anyone who wants a credit card probably has one, maybe four,” DeSanctis says. “In the small business space, less than half of small businesses actually use credit cards on a regular basis.”
As a result, credit card companies are leaning toward reaching the other half, said Andrew Davidson, head of credit card marketing at research firm Compere Media.
Another reason is the growing number of small businesses, Davidson said. According to the Census Bureau, the number of new business applications filed last year hit a record high.
Davidson said banks aren't the only ones continuing to introduce new products into this space. The same goes for smaller fintech companies. Many new cards offer services such as tax and accounting support. Davidson said business credit cards are also becoming more specialized.
“For example, products that target influencers,” Davidson said. “There are companies that have launched small business cards specifically for content creators. There are cards aimed at small business owners who need to build a credit history.”
The success of these cards will depend on the comfort of executives like Marcia Saint-Hilaire-Finn in using them. She runs Bright Start Her Early Care and Preschool in Washington, D.C., and dials back spending through American Her Express business cards.
St. Hilaire-Finn said registrations are stagnant and prices for goods are still rising.
“We only buy the essentials,” says St. Hilaire Finn. “We don't buy what we want or want. Therefore, we only cover what we need to provide the service.”
By the second half of this year, Saint-Hilaire-Fin hopes to be able to start spending money on what she wants and at least one thing she wants: a machine to make foam for a foam party.
“It would be really fun and I'm like, 'I'll give it a try,' but I can't do it right now,” she said.
St. Hilaire Finn said she expects enrollment and spending to increase when the school year begins this fall.
There's a lot going on in the world. For everything, Marketplace is here for you.
You use the Marketplace to analyze world events and communicate how they affect you in a factual and approachable way. We rely on your financial support to continue making that possible.
Your donation today helps power the independent journalism you depend on. For as little as $5 a month, you can help sustain our marketplace. This allows us to continue reporting on the things that matter to you.
