The credit card business remains dominated by a small group of big issuers. But small issuers can still find profitable slices of new business.
Andrew Davidson calls it “the $5 billion club.” Among the largest credit card issuers, three companies — JPMorgan Chase, Capital One and American Express —spend at around that figure to promote their card offerings..
“Budgets like that make it very difficult for the rest of the industry to compete,” says Davidson, senior vice president and chief insights officer at Comperemedia, a Mintel company. “To a degree that cascades down and everybody steps up their game to a certain level. But of course that’s not possible for everyone.”
Major issuers can promote heavily in every form of media, from the latest digital platforms to the old standby of direct mail, still very much a thing for cards. They can slice and dice markets with options and tiers that can be dizzying to the shopper, and add digital elements that take their offerings way past the traditional card products. And then there are rewards, which go with credit cards today like bacon goes with eggs.
The stakes for every player: Getting a piece of the increasing demand for credit card credit, in terms of cardholders as well as volume and receivables, as well as fees where they are generated. Regional banks, community banks, credit unions and fintechs all face competition with very deep pockets.
Overall, success for these players hinges on five key factors, according to Davidson. “It’s about being more targeted. It’s about being more scrappy. It’s about playing to your strengths. And I still think it is also about innovation,” he says. To these, add another, especially if it’s a national promotion your institution has in mind: “You have to have a value proposition that meets everybody’s needs.”
These factors — and learning to parlay “local advantage” — can mean different things at different industry levels but one thing is in common.
“If you haven’t got $5 billion to spend on marketing,” says Davidson, “you have to be a little more creative.” Increased creativity can run the gamut from seeking out niches large players have missed (or are too large to tackle) to finding markets that are ripe for new ideas.
Some institutions, especially on the credit union side, try to play the same game as the big players and it doesn’t work, says Tony DeSanctis, senior director at Cornerstone Advisors.
“You’ll see a few of them try to replicate — or even beat — the big guys from an offer perspective,” says DeSanctis. “That’s a really unsustainable model.” Large players have the portfolio size and credit algorithms to play that game. Smaller players just don’t, he says.
Huntington Bank Takes a Secured Route to Growth and Future Growth
Among examples that Davidson points to is a year-old secured credit card program from Huntington National Bank that the regional bank is relying on as a part of a broader push to build its payments. During its February investor day, the bank reported that it had seen 82% CAGR in new credit card accounts between the fourth quarter of 2022 and the final quarter of 2024. Huntington is aiming to double the size of its card portfolio and to double credit card spending by 2030.
“Eighty percent of the interactions our customers have with us are payments-related,” Amit Dhingra, chief enterprise payments officer, told analysts.
To date, Huntington’s secured credit card has only been offered to consumers who are already customers of the bank, specifically, people who have Huntington checking accounts. The card is one of the first secured cards offered by a regional bank to feature no annual fee as well as cashback rewards. (Cardholders receive 1% cashback on all charges.) Other features include a one-day late fee grace and free online access to FICO scores.
Dhingra says that the secured card has driven significant growth in its first year while the bank has maintained credit discipline. Some cardholders have graduated to unsecured cards in as little as six months, based on their payment performance, he says in an interview.
Industry statistics indicate that 80%-90% of secured card customers tend to stick with the institution that granted them their secured card when their credit improves, according to Dhingra. Ongoing graduation into Huntington’s other cards, with the opportunity for deeper, lifelong relationships, is one of the bank’s goals for the program. Dhingra says the secured card is off to a strong start — and some cardholders graduate in as little as six months.
One of the benefits of graduating to the bank’s basic cashback card is that the rewards percentage increases from 1% to 1.5%. Other unsecured options include a card paying triple rewards on one category representing the holder’s most frequent spending and another that provides no rewards but which carries a lower interest rate than the other options.
“We have a core set of the four cards now, which I think actually caters really well to the majority of our audience,” says Dhingra. Further product development could come along as customer needs evolve, he adds.
Use Your Knowledge of Customers to Build Credit Card Bases
Huntington’s targeting of existing checking customers who want to establish or rebuild credit with a secured card illustrates a key tactic for smaller issuers, according to DeSanctis. He points out that among the majors, credit card operations are so large that they typically function independently of the same institutions’ retail banking operations. That works for these large operations, but for smaller players doing so misses a key opportunity.
The opportunity has two main aspects, according to consultant DeSanctis.
The first comes on the credit-granting side. A mistake many smaller players make is copying the large players’ practice of driving credit decisions off FICO scores. DeSanctis calls this “super conservative” underwriting that ignores the data that the smaller player has gained through being a consumer’s primary financial institution, where that is the case.
If somebody’s been with your financial institution for 15 years and has never had an overdraft in that time, and their average deposit balance is $3,000, it’s a mistake to simply base the initial decision to provide a card, and then the size of the credit line, on the FICO score alone, says DeSanctis.
You know them better than that, he argues.
“So, if the matrix says that at a 680 score, I can only give the applicant a $2,000 credit line, I’m not going to do that — I’m going to be offering a higher line,” says DeSanctis. Experience with the customer has shown they can be trusted with more credit, which offers the institution the potential for higher credit balances.
The other side of being a local provider is that the customer already knows how to incorporate the institution’s card product into an integrated relationship, rather than treating it as an isolated offering.
“Talk about the credit card in the context of the consumer’s overall relationship with you,” says DeSanctis. He says successful smaller issuers like Lake Michigan Credit Union and Chicago’s Consumers Credit Union are adept at pricing arrangements that provide incentives to run more transactions through their offerings in exchange for better fee structures or interest rates.
In today’s financial scrum, DeSanctis adds, there are elements that must be included to make a minimum viable product package — access to digital wallets, estatements, instant rewards redemption and more. But bundling can make it unnecessary to match rewards with the giants.
In these ways, “if they already bank with you, the tie goes to the runner,” says DeSanctis.
Source: THE FINANCIAL BRAND
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