Crack Card Issuers

Four principles of the top-producing credit card programs

By Collin Canright

Community banks with highest producing credit card lending programs keep cardholders close to home. They also tend to use their card programs as part of their overall relationship-building activities, in many cases offering simple, stripped-down programs that solidify their customer relationships and their community bank brands.

Promotions for these credit card programs tend to emphasize a hometown focus, like, “Local people you know and trust are here to help you with your cards,” as reads an advertisement by the Bank of Turtle Lake in Turtle Lake, Wis., one of the top 25 credit card lenders among ICBA member banks (see chart of the top 25 credit card lending producers of 2012, page 66).

“The close, trusted relationships that community banks enjoy with their customers can and should become a foundation for the success of their credit card programs,” says Linda Echard, president and CEO of ICBA Bancard, ICBA’s payments services corporation for community banks. “Credit cards are another product where many, many consumers are searching for a straightforward, fair deal—without the complications or surprises of many card programs that large issuers design. And straightforward, fair deals are the heart of the relationship banking that community banks are all about.”

Interviews with select ICBA-member banks on the list of the top 25 credit card programs (calculated as a percentage of a bank’s credit card lending to its overall loan portfolio—for banks that earned a Kroll Bond Rating Agency score of C or higher) revealed the following four tips based on traits or principles common to their programs.

1. Learn what cards customers carry. Top-producing credit card lenders typically research the kinds of cards their customers already carry, and then develop alternative credit card offers that don’t emulate the cards their customers already have. Most cardholders won’t switch to a new credit card if it’s the same as what they already have; they switch for something different or new. Successful credit card programs address the question: What will be different about your bank’s credit card and inspire people to use it?

For instance, partly to stand out from the crowd, the Classic Visa Card from First Command Bank in Fort Worth, Texas (ranked sixth among the top 25 credit card lenders among ICBA-member banks last year) features a competitive variable rate, no annual fee, and no rewards or other “gimmicks that promote unwise credit-based spending.”

2. Promote low fees and transparency. Fees are a huge issue for credit card users. They know that with most large card issuers they can easily be dinged with costly fees if they make a misstep. Tap that awareness as an advantage. Designing and then promoting a credit card program based on low and easy-to-understand rates and fees can be a big winner.

“Simplicity” and “transparency” are the watchwords for the credit card program at Think Mutual Bank, a $1.5 billion-asset mutual community bank in Rochester, Minn. “Our cards are very basic,” explains Paul Mackin, the bank’s president and CEO. “Our rates are very low for credit cards, and the fees are reduced to just about nothing. We don’t offer rewards.”

Last year Think Mutual Bank’s credit card lending represented more than 5 percent of its overall lending activities, placing the bank 10th on the list of highest credit card loan producers among ICBA-member banks last year.

The top-producing credit card programs among ICBA-member banks also tend not to have a large menu of card features and benefits, although a few community bank programs do take that approach. However, community banks that tailor their programs based on their commitment to customer relationships and their local marketplace—something most consumers recognize the large credit card issues do not have—are often leveraging their best competitive advantage, community bankers and credit card experts say.

To keep its program simple and straightforward, Think Mutual Bank decided right off not to compete with rewards cards issued by the major national banks, airline carriers and other issuers, Mackin says. “They can offer so much more than we can. We won’t stand out,” he explains, “so we compete by keeping our card product very simple and transparent.” The bank has a strong, loyal adoption of its credit cards among its customers, generating a card loan portfolio balance of more than $41.5 million.

3. Keep credit standards high. In the post-recession era, community banks with top-producing card portfolios do not necessarily issue cards to anyone and everyone. Top credit card programs keep a sharp eye on managing credit risk and work to preserve high credit quality. Finding the right balance between growing a credit card portfolio—recognizing that a program with no charge-offs might not be issuing enough cards—and maintaining strong credit quality is fundamental to overall success.

Some of the ICBA-member community banks with top-producing credit card programs also promote their prudent financial management with their card programs. Some offer a low-balance card to help customers, such as first-time homeowners or college students, build credit while limiting their ability to run up balances they cannot pay back.

4. Stay focused on the local market. Most of all, community banks typically do best when they keep their focus local, and credit card lending is no different. Top-producing credit card lenders that gear their programs to specific local consumer bases and even organizations can be highly successful. Card programs that are linked to and benefit local churches, volunteer fire departments, colleges or even a large local employer can generate a widespread and loyal credit card users.

Think Mutual Bank, for instance, typically does not sell outside of its core customer base and markets cards with other bank services, rather than as a stand-alone product. “It’s a relational product,” Mackin says. “We’re best at understanding each customer who walks in our door or calls on the phone.”

Collin Canright is a writer in Chicago.