Spend Insights - Visa

Visa Small Business | 4Q16 Report | March 2017

Spend Insights

"Coming off higher holiday revenue in 2016, many small business owners appear confident they will experience growth in 2017, and they intend to expand accordingly -- many cite plans to increase inventory, employee pay and marketing efforts. However, a growing number are concerned about inflation, interest rates and labor supply. When it comes to payments, financial institutions still have opportunities to promote acceptance and usage of credit cards among small business owners."

-- Janet Zablock, Vice President, Small Business, Visa Inc.

Findings at a glance

Current climate: Shifting concerns

Concerns about inflation and interest rates rose significantly in 4Q16 while concerns about consumer confidence fell significantly. At the same time, keeping and hiring good employees, and finding good suppliers are top of mind for small business owners. Read more >

Payment preferences

Checks are still the most commonly used and accepted payment method among small businesses, but several factors point to continued growth in usage and acceptance of cards. Fees remain a commonly cited barrier keeping small business owners from accepting and using cards. Read more >

Future outlook: Plans for growth

Small business owners are more confident in their local economies and expect higher revenue in 2017. This could be driving reported plans to expand their businesses, increase inventory and pay employees more. They also plan to increase their use of digital marketing -- all pointing to a focus on growth. Read more >

Year-over-year holiday revenue

More small business owners reported an increase in holiday revenue while fewer reported a decrease. This marks the largest reported increase -- by 2X -- since Visa started measuring this in 2012. Read more >

1 N ow we would like to ask you about concerns that other small business people have mentioned. For each one, please indicate whether this is a critical concern, a major concern, a minor concern or no concern at all to your business.

2 What major issue facing the economy most concerns you as a small business owner?

Top 5 Individual Concerns of 4Q161

This quarter

Last quarter vs. A year ago

1 Attracting new customers 2 Cost of health insurance 3 Retaining existing customers 4 Rising taxes 5 Keeping good employees

1 -

1 -

2 -

2 -

4

3 -

3 i

4 -

6

6

Top 5 Macroeconomic Concerns of 4Q162

This quarter

Last quarter vs. A year ago

1 Possibility of increasing inflation

2

2

2 Decline in consumer confidence

1 i

1 i

3 Rising interest rates

5

3 -

4 Increase in energy prices

4 -

5

5 Falling value of the dollar

3 i

4 i

Current climate: Shifting concerns

Top concerns shift from consumer confidence toward inflation

Concern about declining consumer confidence dropped significantly in 4Q16 -- after five consecutive quarters as the top macroeconomic concern. However, concerns about inflation, interest rates, hiring and keeping good employees, and finding quality suppliers all trended upward. Concerns about energy prices, the value of the dollar and the housing market remained relatively flat from 3Q16 to 4Q16.

40%

30%

Shifting macroeconomic concerns2

20%

Increasing inflation, declining consumer confidence, rising interest rates and the falling value of

th1e0%dollar have shifted compared to a quarter ago and a year ago. However, they each remain

among the top four concerns.

40%

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

Visa Small Business | 4Q16 Report | Page 2

"We are constantly striving to get more customers and retain our current ones, so we try to have an active website and offer specials."

-- Recreation

30%

40%

40%

30%

20%

50%

30%

20%

50%

50%

401%0%

10%

40%

40%

20%

30%

Finding14a0Qn%d1h5iring

30% 3Q15

4Q15

1Q16

3Q1K6eeping good employees

30% 2Q16

4Q16

3Q16

4Q16

the right new employees

20%

20%

20%

Increasing inflation

Declining consumer confidence

RisingFiinndteinrgeqsut arlaittyessuppliers Falling value of the dollar

3Q15

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

4Q15

1Q16

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Crit50i%cal business concerns1

50%

2Q16

3Q16

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

50%

4Q16

Con40c%erns about hiring the right emplo40y%ees, keeping good employees a4n0%d finding

%

quality suppliers all rose 5in0%4Q16.

50%

30%

30%

30%

%

50%

Finding and hiri4n0g%

the right new employees

50%

Keeping good employees

40%

50%

20%

20%

20%

Finding quality suppliers

% %

3Q15

40%

30%

40%

30%

40%

Finding and hiri3nQg15 4Q15 1Q16 2Q16 3Q16 4Q16 Keep3iQn1g5 g4oQo1d5 e1mQ1p6loy2Qe1e6s 3Q16 4Q16

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

the30ri%ght new employees

20%

Finding and hiring

30%

20%

30%

Keeping good employees

Finding quality suppliers

the right new employees 20% 4Q15 1Q16 2Q16 3Q16 4Q16

20% 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

20% Finding quality suppliers

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Spend Insight

Year-over-year (YOY) spend for hiring employees increased by 14.3%, which aligns with small business owners' increasing concerns about finding and keeping good employees.

2 What major issue facing the economy most concerns you as a small business owner?

1 Now we would like to ask you about concerns that other small business people have mentioned. For each one, please indicate whether this is a critical concern, a major concern, a minor concern or no concern at all to your business.

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Visa Small Business | 4Q16 Report | Page 3

Future outlook: Plans for growth

Increasing confidence in the economy may signal plans for growth

A greater percentage of small business owners expect to increase revenue, employee pay and inventory levels -- trends that could be related to rising confidence in their local economies. Additionally, a greater percentage of small business owners plan to increase their marketing efforts with a focus on online channels. Others cited plans to expand their businesses through product line extensions.

Key confidence factors3 Small business owners' increasing confidence in their local economies and expectations of revenue growth may be contributing to plans to increase employee pay and inventory.

33

"We've already been planning more inventory to expand our business and we'll continue to do so in 2017 -- especially when we can read what will be a hot seller."

Stronger local economy

33

46

-- Greenhouse

Stronger local economy

StronRgeevreloncuael eicnocnroemasye

Revenue increase

46

33

39

39

46 44

44

RevePnaPuyaeyeinemcmrpepallooseyyeeeessmmoroere

39 35

35

44 41

41

Pay employees more

WWillillininccrreeaasseeininvveenntotroyry

35 30 30

30

41 38

38

Spend Insight

YOY spend was up 22.9% in Advertising Services and 28.8%

Will increase inventory

38

in Management, Consulting and

3Q16

4Q16

Marketing plans3,4 More small business owners are planning to increase marketing efforts with

Expansion plans5,6 As a further indication of plans for

Public Relations -- trends that align with small business owners' plans to increase marketing and grow their businesses.

9 out of 10 planning some form of eMarketing -- another potential sign of

growth, many product-oriented

growth-related strategies for 2017.

small businesses are either

Increased ad/marketing efforts

4Q16 eMarketing plans

planning or have undertaken product line e4xQt1e6nlisnieoenxste. nsion plans

InInccreraesaesdeadd/amda/rmkeatirnkgeteiffnogrtes fforts

31% 36%

31 36 31 36 3%Q16 %

4%Q16

%

3Q16

4Q16

3Q16

4Q16

63% 4Q16 eMarke4tinQg1p6laenMs arketing plans

63 63 %

% Social Media

%

63 %Digital Social Media

63 63 Digital

%24% Social Media Mobile

Digi2ta4l %

Mobile

24%

? Thinking of the business in which you are an owner, part-

4Q16 line extension plans4Q16 line extension plans

owner, partner or the financial decision maker, please tell me how likely each of the following is to occur:

You mentioned you planned on increasing your marketing

22% 22% Undertaken

Undertaken

23%

% Planning to

2232% Planning to

Undertaken

efforts in the next 6 months. What areas do you plan to focus on? (n=137) What business expansion efforts have you undertaken in the past year?

23% What business expansion efforts are you planning in the next 12 months?

Planning to

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Mobile

Payment preferences

84%

Checks

69%

52%

CasBhest and most efficientCredit cards

for receiving customer payments

38%

Debit cards* Visa Small Business | 4Q16 Report | Page 4

Several signs indicate card usage may5i0n% crease

52% 38% Currently used

40%

Checks remain the most widely accepted form of payment, but a growing number of small business owners see cards as an efficient way to get

paid. Similarly, checks remain the top method used for paying business exp3e0n%ses, but cards are a close second -- and viewed as more efficient

84 74 46 33 than checks when it comes to paying.

educate small business owners about

Considering the benefits

the top b%arriers to

of payment cards.

accepting

20%

an%d

using

plastic,

financ%ial

institutions

may

ne%ed

to

better

Checks

Cash

Credit cards

Debit cards

ACcrecdeitpctaardnsce

CurreDnetlybiatcccaeprdtesdCCuurrrreennttlylyacaccecpetepdted for receiving

Checks are still the most

customer payments

2013 BfVcBfooueieerrssswrrttte2eoaae0ccmnn1deed4dieivavrmisminnpbgogoaesysccsttmuutee2ssaeffi0ffittnno1ocdc5tmmisieemeennrrottppstaayey2mmf0f1iece6ninettnsst for receiving

widely accepted payment

84 method. However, the

%

number of small business Checks

84%

69% Cash

524%6% 3383%% Currently acocewpnteedrs who feel cards are more efficient is trending up while the number who feel

Checks Currently accepted

checks are more effCicuirerennttlyisused

84 69 tren%ding down.

%

52 Currently used %

Checks

CurreCCnrtrleeyddaciiCtcterccepaadtreriddtdcssards

Cash

78 DDDeeebbbiititCtcchcaaearcrrddk%dssss

Credit c%ards

84 33 Check%s

%

84 Cash

Checks

% B55es00t%%and Most Efficient%for business expenses

69 52 52 38 38 %Credit5c0a%rds Cash

40% 40%Credit

%

Debit cards

cards*

%

Debit cards*

40%

69%

30% 30%

Cash 30%

74% Cash

20%

38% 20% 20%

Debit c%ards*

69 74 52 33 38 Cash%

%

74 46 33 Credit cards

Cash

%

%

2013Credit22c0%0a2r110d331s4

% 2014

2001154

Debit2c0a22%1r006d1s1*55

Debit cards

Checks

Credit cards

Debit cards

2016 2016

Credit cards

Currently used

Usa%ge

%

84 69 52 38 Although checks are still

Cmheoc%kres widely used thanCash%

Currently used to pay business expenses

Currently used %

%

Credit c%ards

Debit c%ards*

BBVfoeeiesrsttwpaaaennydddinaMMgs obbosesuttssEtiEnffiffiaencscdsiieeemnnxttopffsoeotrnrebsbfeufuiscss1i0iinenenestsss

expenses expenses

50%

50%

84 74 46 33 Cchaecrkdss, credit cards areCaaschlose

78 33 74 33 %

5146% 26 33% 21 18 13 Currently

uCsaesscrddmerecfeadoelinlstbdcu.aAsrdidnsdeasitrsieoont%whaenllye"Om,brmstoehrsseoeatrrcymeonetvheondiesnt

69 69 46 74 and most efficient" payment

Credit c%ards

Debit c%ards

40% 40%

%

%

%CheckMs erchant/vendor does not accept

% %

Cash

% % Cash

%

Cisrteodoitlolimw330i0t%%Credit cards

Lack of integDraetbioitncards with reporting solution

Cash

20%%

78met%hod.

33%

Cash

C2a0s%h

74%

33%

51%CCrreeCddCaiihtrtdecccfaakersreddsss

21% Cash Debit

carMdesrchant

dCoreesdit

cards

Debit carndost accept

13% DLeabcikt coafridnstegration with reporting solution

2013 2013

2014 2014

2015 2015

2016 2016

26%

69 Other methods %

more convenieCnatsh

18%

Barriers to plastic11, 12

74%

Credit limit is too lCoawsh

69% Cash

46% Cash

Checks

Credit cards

Barriers to accepting and using cards present education opportunities to financial institutions.

Acceptance

Usage

51 226669 26 4621 27 18 21 %% Card fees 21 18 Card fees

%%

% Other methods%

%% %% %% CCaarsdhfeesOOmttohhreeerrcmmoenettvhhemoonddoiesrsentconveCnaisehnt

% Not done in this

% Fees

MMdoeeerrccshhnaaonnttta//vvceecnenpddotorrtype of business

Credit limit Cisretodoitlloimwit

more convenient

does not accept

is too low

1133% Lack of integration % Lwaicthk orefpinotretginrgatsioonlution with reporting solution

"We're actually using credit cards as a process improvement. More vendor payments with credit cards means more cash back, which goes straight back into our operating budget."

-- Manufacturing

Spend Insight

YOY spend in Small Capital Investments was up 14.2% and YOY transaction volume in Utilities was up 14.3%. This increased card usage in categories often associated with checks could indicate that small business owners' payment preferences may be shifting toward plastic.

7 Please indicate which payment methods your company accepts for purchases and payments from customers.

8 When receiving payments, which of the following do you feel is the best and most efficient payment tool for your business?

9 Next, please click the payment methods your company uses for business expenses.

10 When making payments, which of the following do you feel is the best and most efficient payment tool for your business?

11 What is the primary reason you do not take payment cards? ("Invoices typically larger than card limits" was the number one response, but omitted to show top two responses regarding invoices likely to be paid with plastic.)

12 What are some barriers to using plastic cards?

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Year-over-year holiday revenue

Visa Small Business | 4Q16 Report | Page 5

Small business owners report increased holiday revenue

The number of small business owners reporting a YOY increase in holiday revenue rose significantly in 2016. The top reasons cited for these revenue increases were more customers and the economy. Additionally, the number reporting a YOY decrease dropped significantly. The top reasons cited for YOY holiday revenue decreases were the current U.S. political climate and the economy. It's interesting to note that both groups cited the economy as a reason for their revenue changes.

25%% 31% 2021061h5oliday revenue123 016 31Significantly more small business

owners reported YOY holiday

r2e0ve1n6ue increases.

Half as many small business owners reported a YOY holiday revenue decrease.

31% 2016 % 25%

252015 2015

%

31%

312016 2016

18% 2015

18% 2015

%

18% 92015

2016

9%

2016 %

1188% 2015 2015

9%

2016

%

99%2016

2016

Top two reasons given for an increase in 2016 holiday revenue14

"Our holiday season business was better this year. We saw a clear revenue increase compared to the 2015 holidays."

-- Retail

More customers

The economy

Top two reasons given for an decrease in 2016 holiday revenue15

Spend Insight

YOY Visa Business Card transaction volume was up 9.7% and YOY sales volume was up 9.4 % in department stores, which could be related to the reported increases in holiday revenue.

The current U.S. political climate

The economy

?? Has your business revenue during the 2016 holiday season been higher, similar to, or lower than the same time period last year?

? Why do you think your business revenue during the 2016 holiday season has been higher in comparison to the same time period last year?

15 Why do you think your business revenue during the 2016 holiday season has been lower in comparison to the same time period last year?

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