Smartphones to replace credit cards in U.S. this year

 

Imagine a world without credit cards.  Instead of pulling out those pesty plastic cards, consumers make purchases simply by waving their smartphone near a receiver. 

For example, say you want a Coca-Cola from a high-tech vending machine.  You simply order what you want, take out your cell phone, and wave it to summon forth your refreshment. It’s almost as simple as waving a magic wand.

This is no futuristic scenario. In fact, it is reality in Japan and South Korea, two of the most technically advanced countries in the world.  The United States is behind, but not for long. 

This new technology called Near Field Communication (NFC) is coming this year.  It will make electronic payments effortless and those plastic cards relics of the past.  An expert familiar with NFC’s debut in the States says that smartphones that support NFC are just now hitting the market.  Likewise, thousands of merchants are installing receivers to accept this new payment form. 

So, what’s been the hold up?  In short, companies are working to establish a uniform platform and determine what merchant fees will be.  Despite these challenges, tremendous progress is being made. The tipping point is near. 

While there are certainly some advantages to NFC—efficiency seems to be the most touted—what do you think are the drawbacks? 

Read more at Inc. Technology.

How I became a rock star for a day

Last week, I was a rock star—and it felt great.  But I wasn’t on a big stage with a lead guitar, playing sick licks for a gigantic crowd.  No, not at all.  I simply asked a question that was on everyone’s mind at a recent conference.

During a packed, small business conference hosted by the mayor of Savannah, Georgia, I directed the following question to Terri Denison, District Director for the Georgia Office of the U.S. Small Business Administration (SBA):

“During last week’s hearing on small business lending hosted by the House Financial Services Committee in Washington, D.C., a small business owner testified that millions of small business owners are frustrated for two main reasons: 1) Banks, especially community banks, are not experienced enough to evaluate properly good business plans and ideas 2) Banks refuse to lend because regulators have implemented increasingly difficult standards such as higher capital reserves.  Why can’t the SBA lend directly to businesses to circumvent these obstacles?”

Ms. Denison, who is a good friend of mine, answered the question artfully, outlying several of the same points that appeared in an article published by The New York Times a few hours later. Her answer, which didn’t assuage business owners starved for capital, didn’t matter.  I was a rock star as soon as I finished my question. 

During the conference breaks, many small business owners thanked me for asking such a great question.  They also shared that they are doing everything possible to survive this economic maelstrom. The credit crush has only made things so much worse.  

So, in a nutshell, that’s how I became a rock star for a day, singing the blues of small business owners all across the country.

[ Read The New York Times article. ]

Will Obama’s plan to increase lending for small businesses help? You decide.

 

The focus of the federal government finally and rightly has changed to helping small businesses, which generate the great majority of new jobs in the United States.  President Obama, aiming to imbue millions of unemployed Americans with hope, has proposed several ideas that he believes will spur job growth.  As a result, the debate on Capitol Hill regarding the soundness of his plans is heating up.

From what I have been able to determine thus far, there are two feuding factions: On one hand, there are those who believe that the key to stimulating job growth is increasing lending to small businesses.  On the other hand, there are those who believe that the solution lies in tax and regulatory relief. 

While there are certainly benefits to both approaches, tax and regulatory relief are the best option for small businesses, in general.  Here is the main reason: Tax and regulatory relief can be applied quickest and to more businesses, regardless of credit status. The other option, increasing lending, requires a much longer process to implement and has a high probability of gridlock. In a nutshell, there is a high risk of it not working at all. (After I peruse the president’s plans in detail later this week, I will share more reasons and details in a future post.) 

For now, I am most interested in your thoughts.  If given the choice of access to more capital or tax and regulatory relief, which would you choose?

Small business ideas for financing during a credit crunch

 

As a small business owner, I feel the pain of the credit crunch caused by the recession. Despite great credit, my company has lost financing options; they have either dried up or become much more expensive.  First, American Express decommissioned my company’s business line.  Second, Capitol One increased my company’s credit card interest rate by seven points. Third, Chase recently sent a letter notifying me that it, too, may decommission my company’s business line and raise minimum payments.  Considering these circumstances, it is increasingly challenging to operate a business, let alone grow. 

As a result of traditional banks refusing to lend, more small businesses are seeking alternative sources of funding.  Two reasonable options are accounts receivable financing and purchase-order financing. 

Fact #1: There is no such thing as a credit card with no limit

One of the main goals of this blog is to provide sound advice and to countervail misinformation spread in large part by an industry that thrives and profits from customer confusion.  Therefore, I have decided to begin an enumerated series of posts, explaining and dispelling some of the most common misunderstandings that customers have. (They are in no particular order.)

Fact #1: There is no such thing as a credit card with no limit. 

Credit card companies are masters of marketing ploys—or what some consumer advocates simply would call outright lies. Ranging from the 0% introductory rate to the no annual fee, all of these shrewd tactics are part of a strategy to make the sale. 

One of the most appealing credit card tricks is the credit card with no limit.  It’s brilliant; it appeals to the big and glaring egos of primarily the upper middle class which loves the idea of having no restriction on its consumption. Customers who fall for this trick often have a high sense of entitlement and seek self-validation and public admiration through exclusive privileges. American Express, which understands its market well, has used the no limit lure for years.

Here is how it really works and what it really means: A customer does not have a set credit limit because it is dynamic.  In other words, it is always changing.  A rather complex algorithm takes into account a customer’s real-time spending habits, income, credit history, and other factors to determine a credit limit at a particular time. Many customers misinterpret this feature, thinking that they can buy whatever they want and at whatever price.

Chase to jettison small business lines in March

When a ship is sinking, its crew members are last to disembark regardless of who or what is to blame for the disaster.  In other words, passengers are at the top of the hierarchy during a maritime triage. If our financial system were a huge ship about to go under, this moral convention would be turned upside down: Ruthless banks would rush to secure lifeboats for themselves, knocking over consumers and small businesses and leaving behind everyone to fend for themselves.    

Among the many casualties on this boat would be small businesses, the most important sector of our gigantic economy.  (Over the last decade, small businesses have generated 60 to 80 percent of net new jobs in the country.)  Despite the catastrophic effects of the financial crisis and credit crunch on these businesses, the government has been slow to offer much substantive help.  On the contrary, the swift passage of the Credit CARD Act of 2009 gave consumers, not businesses, life jackets and a better chance to survive the cold, oceanic currents. 

For whatever reason, small businesses have been overlooked when it comes to receiving protection against the whims of banks looking to curb their losses.  Perhaps it is because small businesses don’t vote. Or maybe it is because they are a major risk.  As a result of this vulnerability, banks have been changing rapidly their credit terms for small businesses by reducing credit limits, eliminating access to lines of credit, and raising minimum payments twofold. (I wrote about American Express doing this about a year ago.) 

Most recently, Chase sent me a letter, outlining new adverse terms for its business lines of credit.  The changes will go into effect on Mar. 31.  My business line of credit originated with Washington Mutual, which was acquired by Chase during the height of the financial crisis. As a Texan might say: “This ain’t my first rodeo”. I had a premonition that any notification around this time was likely to be bad news.  I read the cryptic letter like an attorney from Harvard Law School.

Here are the morbid highlights:

Small businesses devastated by the credit crunch

Yesterday, I received a call from a good friend of mine who is president of a chamber of commerce.  Also on the call was a successful, small business owner who I have never met.  (Let’s name him Chris for convenience.)  They called to inform me of yet another horror story that involved American Express, but this story was a little different because I normally hear about consumer credit horror stories, not business horror stories.

In a nutshell, Chris, whose company is doing well and was offered the American Express Black Card at one point, had his credit line reduced tremendously.  Unfortunately, there was no warning.  He found out while on a business trip in Germany when his card was declined.    I listened to his story, told him what I know about the changing industry, and gave him some advice.

Recently, an article appeared in The Wall Street Journal detailing similar stories.  The credit crunch is hitting small businesses the hardest, causing the rate of business bankruptcy filings to outpace consumer bankruptcy filings over the past 12 to 15 months.