Digital Banking

For Community Banks, Big Business From Small Business Credit Cards

credit card banking

Think small, goes the saying, to effect big change. For community banks serving small- to mid-sized businesses (SMBs), training an eye on credit cards can translate into additional revenue streams and tap into an unmet need for those SMBs.

There’s a lot of runway here. As noted in a whitepaper commissioned by ICBA Bancard and Visa, surveying more than 3,400 SMBs, A.T. Kearney found 26 percent of small business cardholders have community banking relationships in place. Only 3 percent of them, however, have their credit cards with those community banks.

In an interview with PYMNTS, ICBA Bancard president and CEO Tina Giorgio said community banks should proactively offer cards to those clients, as community banks historically provide approximately 60 percent of all small business loans in the United States. With such a significant share of lending activity in place, a credit card is a logical extension of that community bank-SMB relationship, particularly since the underwriting has already occurred.

“Credit card use is on the rise, according to the Federal Reserve 2017 Payments Study Supplement,” Giorgio said. “Credit cards are still the fastest-growing transaction type at 10.2 percent, and if you are not offering a credit card as a community bank, you are missing quite an opportunity with the small- and mid-sized business customer.”

The gap between the 26 percent and the scant 3 percent comes, in part, because of a lack of product awareness, or simple availability of the credit product in the first place.

The latter stumbling block may be short-lived, Giorgio said, as ICBA Bancard is seeing healthy growth in community banks that are offering credit cards. This uptick in growth stems from what ICBA Bancard terms “startup” and “start over” programs. In a startup, a community bank may be brand new to credit card issuing and might have decided to enter this space for any number of strategic reasons. In a start over, Giorgio’s team sees community banks that may have had a program years ago, but sold the portfolio or let the program wind down and are now “getting back into it.”

To gain more traction on the card front, she recommended that community banks take a proactive approach with their SMB clients. Many SMBs prioritize attributes of their bank beyond the rewards and pricing that community banks are well-positioned to address — including personalized service, local presence and involvement and convenience. Community banks can take advantage of the credit opportunity by leveraging this differentiated position and existing relationship, as well as with actively marketing competitive card offerings.

When interacting with SMB clients, community bankers “may talk to the client about a checking account, or a money market account, or a line of credit. [But] a credit card is not always top of mind,” Giorgio said. “In many cases, the SMB client probably already has a loan with the bank, so the due diligence has already been done. A small business credit card is more or less an extension of that loan, but one that can come with a number of perks and efficiencies for the SMB, such as a rewards program or cash management reporting.”

To surmount hurdles in offering small business cards, ICBA Bancard has two options. One is the option for community banks to offer cards through their own program — offerings over which they have control in terms of products, underwriting and policies. ICBA Bancard helps client banks navigate network, processor relationships and brokers discounted access through economies of scale, thus maximizing their revenue opportunities.

A community bank that grows an agent credit card portfolio can eventually buy it back and bring it in-house to foster its own direct program and collect all the revenue, a feature unique to TCM Bank. That revenue stream includes interchange, which can be multiples of basis points higher — 50 to 100, to be exact — than is typically seen with consumer transactions.

To help community banks understand all their options in the payments space, ICBA Bancard’s efforts focus on education.

“Payments is still a specialized area within a lot of financial institutions,” said Giorgio. “Having a good understanding of what’s available and what the opportunities are is part of it. We spend a great deal of time on communication and education — not just on credit cards, but on all payments programs … We also provide marketing materials to our banks to help promote the cards and create general awareness with their clients.”

Similarly, ICBA Bancard’s partners, including leading payments networks like Visa, offer a variety of tools that make it easy for community banks to navigate and act on the business credit opportunity.

The relationship between a community bank and an SMB that includes a card can be a sticky one, as 80 percent of SMBs that reported they use a community bank’s credit card stated the card enjoys top-of-wallet status, according to A.T. Kearney’s findings.

“Community banks are already considered the preferred lender of America’s small businesses,” said Giorgio. “Proactively offering these clients another option to fund and increase efficiencies for their businesses is a natural extension of the community bank/SMB relationship, which is built on trust and service.”



The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on international eCommerce sites. PYMNTS examined the checkout processes of 266 B2B and B2C eCommerce sites across 12 industries and operating from locations across Europe and the United States to provide a comprehensive overview of their checkout offerings.