By Anil Goyal
Credit card programs are often viewed as a domain exclusive to the nation’s largest banks, as fewer than 15 percent of community and regional banks’ own credit card loans. However, this opportunity is also significant for community and regional banks, which are uniquely positioned to offer and grow credit card portfolios, thanks to their personal touch and deep community ties. Despite this potential, many community bankers hesitate to consider credit card programs due to perceived roadblocks. While issuing credit cards is undoubtedly complex, modern payment card issuing technology and deeply experienced service providers have made it more accessible and manageable for all banks.
Investment: High cost, low profit?
A major misconception is that issuing credit cards is prohibitively expensive and unprofitable for community financial institutions. While it’s true that there are costs associated with setting up and maintaining a credit card program, select providers with modern technology have significantly lowered these barriers. By partnering with the right credit card issuing provider, community banks can leverage shared resources and expertise, reducing both upfront costs and ongoing operational expenses. A well-managed credit card program can be one of the most profitable ventures, providing important revenue streams through interest income, interchange fees, and unique offerings tailored to the bank’s customers.
Perceived risk: Too high?
Concerns about managing credit risk and potential defaults are understandable, but the risks are substantially lower when the target segment is a prime banking customer. Relationship lending is key; credit cards are a valuable product for deepening customer relationships. Relationship-based portfolios typically experience much lower credit card losses compared to national programs, especially during economic downturns. Additionally, modern credit card program providers bring decades of risk management experience, incorporating proprietary relationship data, risk-based pricing, underwriting tools, and risk assessment analytics. These capabilities help community banks make informed lending decisions and allow them to establish procedures for monitoring and managing credit risk.
Operational complexities: Too challenging?
Another common concern is operational complexity of managing a credit card program, including regulatory compliance, marketing campaigns, dispute handling, fraud prevention and customer service. However, capable credit card issuing platforms are designed to handle these complexities with ease. These platforms provide comprehensive solutions, including built-in compliance for regulations, advanced fraud detection tools, robust customer support systems, and experienced back office teams. By leveraging these technologies and services, community banks can effectively manage their credit card programs without needing to hire additional resources.
Credit card experience: Selecting the right partner?
Another common roadblock community banks perceive is that they cannot compete with larger institutions when it comes to credit card offerings, and that they lack the technological and program management expertise to manage such programs. This hurdle is overcome by partnering with an experienced provider specializing in banking and credit card program management. By using the partner’s deep industry expertise, community banks can offer sophisticated credit card products tailored to their local market’s needs. These partnerships enable access to decades of credit card experience combined with modern technology that might otherwise be beyond the reach of smaller financial institutions. The right partner can fast track launch timelines while providing a branded experience to bank customers.
Embracing the opportunity
Hurdles and misconceptions about credit card issuing have deterred many community banks from exploring this rewarding opportunity. However, with modern technology and experienced program providers, these barriers are no longer as insurmountable as they once seemed.
By addressing concerns about cost, complexity, competition, technology, risk and experience, community banks can confidently enter the credit card market and provide much needed solutions that help deepen, extend and maximize relationships with their customers.
While credit card programs have long been seen as lucrative for large banks, community and regional banks can also capitalize on these opportunities without being worried about potential obstacles. The key lies in strategic partnerships and leveraging the expertise and resources available through experienced and proven credit card issuing providers. By doing so, community banks can enhance their service offerings, strengthen customer loyalty, and create new revenue streams, all while maintaining their commitment to personalized, community-focused banking. Though challenging, the path to credit card issuing is within reach for community banks with the right support and technology.
Anil Goyal is CEO at CorServ.
