Why Community Banks Should Embrace Relationship-Based Credit Card Programs
Community and regional banks distinguish themselves through relationship banking, providing personalized service and building deep connections with their customers. However, the financial landscape is shifting as increased inflation drives consumers to rely on credit cards for everyday expenses. Credit card delinquencies have increased, creating challenges and opportunities for financial institutions. For community banks, owning a credit card program is a strategic move to adapt for the future, strengthen customer relationships, enhance profitability and mitigate credit risk.
Gaining a Competitive Edge in Growing Demand
Consumers increasingly turn to credit cards as a financial bridge during times of economic uncertainty. Inflation has further intensified this trend, with a recent Bankrate survey revealing that 20% of Americans have maxed out a credit card, citing inflation as the primary cause.
While this trend provides banks with an opportunity to meet growing demand, it also exposes them to heightened credit risk. National issuers offering Agent Bank programs to community banks often rely on generalized underwriting processes, which provide no competitive advantage for community banks’ credit card programs. These outsourced solutions frequently prioritize scale over local relationships, resulting in a lack of control over credit decisions and limited customer insights.
By contrast, a relationship-based credit card program leverages a bank’s deep understanding of its customers, enabling more nuanced underwriting that reflects their financial history and needs. This approach reduces the likelihood of delinquencies and ensures that credit is extended responsibly.
Retaining Control and Mitigating Risk
One of the most significant benefits of owning a credit card program is the ability to participate directly in underwriting decisions. Community banks have access to rich, relationship-driven data, including deposit history, length of account tenure and overall financial activity. This comprehensive understanding of customers’ financial data allows banks to make informed and nuanced decisions about credit limits and terms, reducing default risk and creating a better performing credit portfolio.
For example, a community bank can use its relationship data to extend better credit to a high-deposit customer with a modest credit score who demonstrates consistent saving and spending habits. This personalized approach builds trust and loyalty, distinguishing the bank portfolio from national issuers.
Additionally, the ability to implement advanced risk management tools, such as transaction controls and real-time fraud monitoring, strengthens the program’s overall resilience. For consumers, this translates into a secure and reliable product; for the bank, it minimizes exposure to losses.
Enhancing Customer Loyalty
Customer loyalty is a critical metric of success in a competitive landscape. Offering a relationship-based credit card program positions community banks as comprehensive financial partners rather than transaction-driven institutions. Unlike outsourced programs, these in-house solutions empower banks to provide personalized customer service, customized rewards, and tailored credit options that align with their community's specific needs.
A customer who holds a credit card issued by their local bank is more likely to maintain additional accounts, from checking and savings to small business loans. This interconnectedness deepens the relationship and fosters loyalty that extends beyond a single product.
The rising reliance on credit cards in an inflationary economy presents community banks with an opportunity. By owning their credit card programs, banks can leverage their relationship-driven advantages to control credit decisions, keep delinquencies low, and enhance profitability. This strategy strengthens customer loyalty, supports the local economy, and creates a future-ready financial institution that thrives in any market condition. For community banks committed to their mission of personalized service, a relationship-based credit card program is not just a product offering—it’s a path to sustainable success.
About Author:
Anil Goyal is the CEO of Corserv, a company that provides innovative payment card issuing solutions to banks and fintechs. Corserv’s offering combines deep credit, compliance and marketing expertise with modern API-based technology to quickly build and manage a successful card-issuing program.