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NEEDHAM, Mass. – Credit union credit card issuers can benefit by offering small business cards to their members who have small or even micro businesses, according to a report from the Tower Group, a consulting firm on card practices. Small Business Credit Cards in the US: High-Growth Segment or Limited Opportunity makes the case that despite the increased risk often associated with small business lending, small businesses have average transaction values significantly higher than consumer cards and generate more interchange income – even when they pay their balances off each month. Where the average value on a standard consumer card is $85, an average small business transaction is $169, just a little bit below the average $173 that commercial cards bring. On the downside, chargebacks from small business credit cards can be higher than consumers’ cards as well. The majority of the chargebacks are due to lack of cardholder authorization (e.g., a stolen card or a written dispute of transactions charged to the account), which accounts for 59% of small business chargebacks (vs. 73% of commercial and 54% of consumer chargebacks), the report found. Remote transactions such as from ecommerce account for over 11% of small business chargebacks compared to 3.6% of commercial and 6.9% of consumer chargebacks. Fraudulent processing (e.g., multiple transactions) also accounts for a sizable volume of small business chargebacks (4%) compared to consumer (0.2%) and commercial (2%) chargebacks. The report suggested that even though American Express is the market leader in the small business segment with an estimated 30% of the available market and other big bank issuers each take 5%, there is still plenty of room to grow in what is still an immature market. The untapped segment of small business credit card lending comes, and some of its appeal to credit unions, arises because of the growing tendency among small business entrepreneurs to make small business purchases on their personal cards and to be open to trusted card issuers who can offer them small business card accounts. This untapped need will drive much card activity from 2005 to 2009, Tower projected, and will yield an increase of 14% for small accounts compared to 6% growth projected for consumer cards. One problem confronting credit unions may be the difficulty in sizing the small business card market, the report found. “It is difficult to pinpoint the exact number of nonfarm small businesses in the United States, especially when it comes to sizing the market for small business credit cards,” the report said. “The SBA and the Internal Revenue Service both provide several metrics that can give some insight, including the number of tax returns, the number of nonfarm employer firms, and the number of self-employment (unincorporated) businesses. Based on SBA and IRS data, TowerGroup believes there were 24.7 million small businesses in 2004.” [email protected]

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