Thursday, February 24, 2005

Under $5 Hanging Fruit Worth $1.3 Trillion?

I found this article of interest. Not only because how big this market is, but how easy it can be penetrated.

From NWA For credit card cos, no purchase is too small for plastic.

For years, Marcia Levi refused to accept either credit or debit cards for purchases under $10 at her downtown gift shop, Chocolate Moose. Customers complained. She lowered the threshold to $5. Customers still complained, so two years ago she gave up on any minimum. "People come in and charge $2.25 for a card or $1.75 for jelly beans," said Levi, who co-owns Chocolate Moose with her sister Barbara. "It’s annoying. In the past two years, they’ve just whipped out the card without thinking about it, no matter how small the purchase."

The persistence of her customers was no accident. Visa International, MasterCard Inc. and other card companies are working hard to make sure that no purchase is too small for plastic.

Faced with a saturated market where just about everyone who wants a credit card has one, the companies have set their sights on what by one estimate is the $1.32 trillion in cash spent every year on purchases less than $5. Emboldened by consumers willing to download songs at 99 cents a pop or cell phone ring tones at $2 apiece, card companies are courting fast-food chains, taxi- cab companies and parking-meter manufacturers that have traditionally accepted only cash.

"Card companies tapped out the low-hanging fruit within the merchant community," said David Robertson, publisher of the Nilson Report, a payment card trade journal. "Now they’re going after merchants that have been reluctant to accept credit and debit cards."

Visa and MasterCard — joint ventures made of up of thousands of banks that issue credit and debit cards — prohibit merchants from setting minimum payments. American Express, which issues it own credit cards, discourages minimums but allows them if the merchants apply the same limits to other cards they accept.

Card company executives recognize that the fee structure is a deal-breaker for many of the cashbased merchants they’re pursuing.

When Visa stopped requiring signatures for purchases of $15 or less in 2003, it also relaxed the merchant fees it charged. As a result, Visa transactions at fast-food restaurants nearly doubled in dollar value between 2003 and 2004, Pascarella said.

Another pitch is faster transactions. Swiping cards without signing receipts is much faster than fumbling around for pocket change, they say. And now, all the major card companies are experimenting with getting rid of the swiping altogether so that transactions move even faster.

Combine no minimum dollar amount requirements and a contactless solution(no paper, or keypads ) and you have created an entry to a $1.32 trillion dollar market. This will be done with a contactless credit card, sending an SMS, or waving your cellphone over a reader.

It's easy, quick, hassle free, gets miles and you get a monthly statement itemizing EVERY purchase.

This creates a huge opportunity for credit card companies AND service providers in my opinion.

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