By Anil Goyal, CorServ CEO
Read this article on TBA Magazine online.
Credit card programs are often viewed as a domain exclusive to the nation’s largest banks — less than 15% of community banks own credit card loans. However, this is also a significant opportunity for community banks, which are uniquely positioned to offer and grow credit cards, 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 well-experienced service providers have made it more accessible and manageable for all banks.
Misconception: High cost, low profit
A major misconception is that issuing credit cards is prohibitively expensive and unprofitable for community banks. 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.
Misconception: 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.
Misconception: Operational complexities too challenging
Another common concern is about 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 an additional employee.
Misconception: Lack of card program management expertise
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. These hurdles are easily overcome by partnering with an experienced provider specializing in banking and credit card program management. By leveraging the partner’s deep industry expertise, community banks can offer sophisticated credit card products tailored to their local market needs. These partnerships enable access to decades of credit card experience combined with modern technology that might otherwise be beyond the reach of smaller institutions. Furthermore, the right partner can fast track the 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 credit card issuing technology and experienced program providers, these barriers are no longer 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 the relationships with their customers.
The key to a successful credit card program 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.
