Community Banks, Where Moving Beyond Interest Income Is In The (Credit) Cards

Think of banking and you might think of lending and deposits, where firms make money on the spread between what they pay savers and what they take in from borrowers.

But banks cannot live on interest alone. Additional financial products and services must round out traditional banking activities. And yet, sometimes community banks, opt to stick to their lending knitting, forfeiting the potential to earn non-interest revenue and cementing their ties with both individual and corporate customers. One area of (overlooked) potential lies with credit cards.

In an interview with PYMNTS, Damon Moorer, president and CEO of TCM Bank, N.A. — a subsidiary of ICBA Bancard, which provides payments services to community banks — said that when it comes to non-interest revenue, “the adage of having all your eggs in one basket is not a model that will allow businesses to remain successful.”

The community banking model is based on customer relationships and the allocation of capital and extending loans. But the financial world is changing, Moorer told PYMNTS, due to generational shifts and consumers’ needs transitioning from baby boomers to the millennial.

As part of that evolution, technology comes into play, as does the opportunity to deepen relationships to the advantage of both the banks and their customers. Community banks can seize on those opportunities by opting to partner with other firms (such as TCM Bank), said Moorer, with the goal of providing a full suite of financial products that provide value to the customer.

“We have definitely seen instances where community banks are innovating to meet the unique needs of their customer base,” he told PYMNTS. He noted that community banks are in a prime position to compete in the finance space, as their smaller size allows them to be nimbler in offering technology and services.

Issuing cards and creating a payments strategy, he said, can help community banks innovate in effective and exciting ways.

The hesitation of some banks to issue cards is tied, in part, to the acknowledgement that “a credit card is a complex product in itself. It has a lot of compliance requirements, and there is an unsecured lending component to it. There is a complexity to the solution that may not be in the wheelhouse of a community bank, but that’s where TCM steps in,” Moorer explained.

TCM, he said, operates “behind the scenes,” handling risk management and account servicing while giving community banks the opportunity to issue cards that bear their name and logo, and, over time (should they choose), to buy those credit card portfolios back once they are built.

For community banks, having a credit card program provides more value for the customer.

Credit cards can be transactional tools for small businesses and can have attendant rewards, such as cash back. For the bank, the non-interest income comes through interchange fees and card utilization. The “sweet spot” for card issuance appears when community banks make cards available to firms that are eligible for small business administration (SBA) loans based on revenues and number of employees. Other entities that benefit from credit cards would be municipalities, local churches, fire departments, police stations and non-profits, the members and employees of which also go to community banks for business needs.

“There are so many ways to set up a business [and credit card offering tied to an] account that helps a small business do what they do best and not get stuck in the quagmire that is financial management,” he said.

Looking at corporate cards from a localized standpoint makes sense for community banks, said Moorer. He told PYMNTS that “if you have already looked under the hood to determine that you are going to lend to that small business,” then the movement to add non-interest income revenue streams by issuing a corporate credit card “right then and there” can be attractive to the consumer, as “the bank has already underwritten [it],” a relationship is in place “and the card should be part of the banking relationship.”