Using Credit Card Payment Behavior to Segment Small Businesses

Boston, MA, May 14, 2008 – A new report from Aite Group, LLC reveals an opportunity for financial institutions to use small-business credit card payment behavior as a way to segment small businesses and gain insight into the likely size and product behavior of the segment.

The report - based on an online survey conducted in November 2007 of 303 U.S. small businesses - indicates that segmenting small-business customers is a challenge for some financial institutions. While most segment this group by revenue, two problems exist in this approach: 1) Revenue is not always a good predictor of financial product need among small businesses, and 2) Many banks don't have accurate revenue data on either small-business prospects or existing customers. As a result, many financial institutions struggle to effectively target small businesses with offers for appropriate cash management products and services. An alternate way to segment the group may lie in whether these businesses make purchases using small-business credit cards, personal cards or both types of cards. As revealed in the survey results, the type of card used serves as an indicator for the business' size, annual sales, habits and preferences.

"Identifying the type of card a customer uses for business purchases can enable a cash management product offering to be specifically targeted to a customer's needs," says Judson Murchie, analyst with Aite Group and author of this report. "Reaching out to small-business customers with a targeted solution reveals to them that their financial institution understands their individual needs. This helps position the financial institution in the role of a trusted advisor."

This 19-page Impact Note contains 11 figures and two tables. Clients of Aite Group's Wholesale Banking service can download the report.