Small to Medium-Size Banks: The Value in a Direct-Issuing Credit Card Program

A bank’s services are only as good (and sustainable) as the value they create for their customers. And when it comes to credit card programs, there’s an increasing gap between the smaller issuers and the big, national issuers like Chase, Capital One, Citi, and others.

Dan Hanks, i2c’s vice president of global product development, spoke with PYMNTS.com about the cookie-cutter credit card mold that many small to medium-size issuers fall into. The cookie-cutter credit card program is based on the agent bank model, where smaller financial institutions (FIs) leverage agent banks for an off-the-shelf credit card program with very little customizations or modifications.

Unfortunately, these one-size-fits-all credit cards just can‘t compete with the best products on the market from the big issuers. As Dan says in the podcast, “if the smaller bank’s products are, let’s be honest, so much worse than what else is out there, then customers are going to take the other products and use the other products.”

Why Do Smaller FIs Get Trapped in the Cookie-Cutter Credit Card Mold?

Credit cards, for small to medium-size issuers, have largely been a defensive tool for these banks. “It’s not so much that they want to build huge credit card businesses on their own,” Dan says, “but they have customers they‘re loyal with, and they have checking, savings, other loan products, and credit cards are a product to deepen that loyalty.”

“It’s important for community banks because that defensiveness is a key factor.”

As soon as a customer gets a card from one of the bigger issuers, those big banks are going to start cross-selling to that cardholder customer base– mortgages, HELOCs, auto loans, and even core services like checking and savings accounts.

So the small and medium issuers use a credit card offering– again, mostly through an agent bank– as a buffer against encroaching larger, national banks.

The Solution: Direct Issuing

Smaller issuers are realizing that the agent bank model isn‘t working for them, and they‘re starting to take that step into direct issuing. The challenge is that it’s a big jump to make. When banks are on the agent bank model, they‘re getting a little bit of commission for each card or maybe some spend back, but they don‘t have to manage any of the program.

i2c’s platform enables smaller issuers to not only design a card program with customizable features, but also to leverage i2c to manage all or some of the card program. Most community or regional FIs aren‘t able to staff a card program with 10 to 15 people, which is the typical card management team size. But with a partner like i2c, the smaller FIs can set up a loyalty or points program with one or two people on staff in about an hour.

Be sure to listen to the entire podcast by clicking below!