Eye of the Beholder

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Reconsidering the overlooked princely profitability of credit card portfolios

By Nicole Swann

Too often credit cards get the Cinderella treatment (pre-Prince Charming) at financial institutions. Treated as a nuisance rather than an asset, they’re cast aside—their true value undetected—until someone takes an interest and realizes the potential within.

“We’ve seen it numerous times when we do credit card portfolio analysis for banks on the Bancard program,” laments Scott Broughton, senior vice president, director of card products and promotions for ICBA’s for-profit card subsidiary, ICBA Bancard.® “When you look at the profit and loss sheet, they are earning a strong ROA despite the negative feelings bankers have about credit cards.”

The narrative is even more compelling when you consider how credit card portfolios fair compared to other “core banking” products like debit cards, Broughton suggests. Last year, the average ICBA Bancard client generated $70.32 per credit card account compared with $46.70 per debit card account.

Getting into the business may be a no-brainer, but executing a winning strategy takes careful planning. Start-up community banks right now really need to look at competition for setting their pricing. And look within their current customer base to target their customers, because that’s where the opportunity is, Broughton insists.

To be competitive in the card business, community banks have to have some kind of loyalty component—even if it’s not on every program option—and use all available distribution channels to get your offering in front of customers. Whatever the medium—be consistent and persistent, Broughton advises.

Many community banks fall south of ICBA Bancard’s recommended cardholder penetration rate—30 percent or higher—suggesting even longstanding programs might be languishing. The program offers a complimentary portfolio assessment for its clients and offer recommendations to grow the business.

Shane Tiernan, senior vice president and chief of lending at GNB Bank in Grundy Center, Iowa, says a portfolio consultation by ICBA Bancard helped him realize his community bank’s portfolio’s true potential. His first step: instituting a loyalty program for his consumer card offerings (which helped drive usage). He followed up in 2014 with a product lineup expansion to include a business credit card offering (business cards carry an additional 50 basis points of interchange fee income for the bank), which allowed him to showcase the card’s enhanced reporting and expense management features.

Prior to the May 2014 conversion GNB Bank’s overall return on assets on its portfolio (credit and debit) was between 4 percent to 4.5 percent. By the end of 2015 the bank had moved the needle to 7.05 percent, and it is still running about 7 percent in 2015, Tiernan explains.

Today, credit cards are part of GNB Bank’s annual lending department strategic plan. “We have specific targets to increase our portfolio around 8 percent in 2015 and continue to enhance ROA to get more people using it.”

More community banks should follow GNB Bank’s philosophy of making cards a “top-of-mind product within the bank” so that it becomes top of wallet with consumers, says Broughton. “Think about the piece of plastic you carry in your wallet. It’s like a billboard for that bank. It’s building a bank brand while providing a convenient service for the customer and a potential profit center for the bank.”

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Nicole Swann (nicole.swann@icba.org) is ICBA’s director of marketing and brand strategies.