07|2006 IndependentBanker 97

R eady or not, the “Age ofPlastic” has arrived. Today,Visa USA estimates that

consumers use credit and debitcards more than any other singlepayment option. Despite being in-grained as icons of modernconsumer culture, many communi-ty banks are decidedly split on thevalue of maintaining active creditcard programs.

In a recent ICBA poll of commu-nity bankers, almost a third of therespondents said that they considercredit cards to be “not very” or “notat all important” to their overallpayments strategy. This responseseems to underscore a striking gapbetween the relationship value con-sumers place on their credit cardsand the realities of building andmaintaining competitive communi-ty bank credit card portfolios. Ascommunity banks look to deter-mine the most reasonable andsustainable payment strategies, theymust decide for themselves how,and if, credit cards fit into that mix.

Changing the Value Proposition Ask community bankers what theythink of their credit card portfolioand they’ll probably respond thatthey are competitively wedged be-tween a rock and a hard place. Onone hand, a well-maintained creditcard portfolio can provide muchneeded brand visibility and a solidrevenue stream. On the otherhand, credit card portfolios are re-ceiving increased scrutiny frombank managers thanks to a spate ofhigh-profile fraud claims and the

misconception that communitybanks can’t compete with thelargest national issuers.

Though no one is arguing thatcredit cards are a communitybank’s last hope for profitability,they are proving to be a critical ele-ment of sustainable paymentstrategies. Specifically, trends in

consumer payments are pointing tothe evolving role of credit cards astransaction tools rather than instru-ments of short-term debt.Furthermore, as consumers paymore reoccurring bills with theircredit cards, the focus of their bank-ing relationship is no longer theirchecking accounts, but the pay-ments instruments themselves.

Nationally, the average Americanis finding it increasingly convenientnot to use cash or checks for rou-tine purchases. This trend has beenencouraged by increased accept-ance at the point of sale as well asthe proliferation of products tied torewards programs. Data pulledfrom ICBA Bancard’s limited pur-pose bank’s credit card portfolio

payments!

All in the PitchWith demand rising, credit card positioning still works

By Jared Degnan

98 IndependentBanker 07|2006

payments!

illustrates that consumers arenow paying more than half of alloutstanding balances in full eachmonth. With such a shift in cardprogram economics, many of theindustry’s leaders are taking note.

In response to this trend, VisaUSA launched its first new brandcampaign in two decades that re-positions the association as alifestyle purveyor. Visa hopes tosway consumers to think of theirVisa cards just as they do cash.The effort, kicked off during thewinter Olympics in Torino, Italy,features funny, pointed andsometimes-emotional ads that fo-cus on the day-to-day aspects ofVisa usage. Instead of large pur-chases that were previously thehallmark of credit card usage,Visa profiles images associatedwith more Spartan products suchas diapers, milk and coffee.

Issuers are also refocusing theirattention on bolstering key seg-ments of their card portfolios. Asan example, Visa’s new ad strate-gy is being paired with a moreintense focus on niche segmentslike baby boomers and the new

affluent. Visa Signature and cardenhancements like five-layercardholder protection are allmeant to adapt to the most rapid-ly evolving and most profitablecardholder segments as well asthe ways in which those card-holders use their cards. Tosucceed, community banks mustalso reconsider their credit cardportfolios in these terms, not only by segment but also how to generate more day-to-daytransaction revenue.

Positioning MattersEven with a well-focused pay-ments strategy aimed at drivingsustainability through increasedtransactions, community banksare still faced with the question,“How do I get the cards in thehands of my consumers when Iam in competition with market-ing behemoths like MBNA andCitibank?”

The answer, it turns out, is notin beating the larger issuers tothe mailbox, but in creating newconsumer demand for communi-ty bank credit cards withwell-targeted positioning. Thisgame has been played manytimes over in other industries.Take coffee, for example. Oncethe staple of stovetop percolatorsand greasy diners, coffee hasevolved into a $40 billion gour-met retail industry, according tothe National Coffee Association.With such a saturated marketand a seemingly standardizedcommodity, one might not thinkany coffee shop could effectivelycorner the market or differentiatetheir positioning. Then again, weall know how Starbucks provedthat theory wrong.

Rather than create a strategythat played on consumers wants

and desires, Starbucks set aboutchanging the wants and desiresof consumers. To compete withthe proliferation of retail coffeeestablishments, Starbucks foundsuccess by creating a demand fora unique, personalized, high-endcup of coffee. Community bankscan borrow this strategy by offer-ing cards that do not try tocompete with those offered byother issuers, but instead offer anew or unique value proposition.

Emerging as a critical part of acommunity bank’s credit cardstrategy is no longer the “how” orthe “where” of credit card use,but the “why.” Just as Starbucksand Visa read consumer demandand adjusted product positioningaccordingly, community bankscan use their community rela-tionships to maintain a place inconsumers’ wallets. Support forlocal independent merchantsand affinity cards that benefitcauses including local colleges,high schools, clubs and charitiescan be particularly effective atgaining a larger share of con-sumers’ credit card payments.

Ultimately, community banksthat choose to maintain a creditcard product in their paymentsstrategy can compete and benefitfrom a payment method that isexpected to grow exponentiallyin the next few years. Despiteperceptions that credit cards area zero-sum game, consumer pref-erences are pointing to smartpositioning as a key to ensuringcommunity banks maintain theirshare of the most profitable sliceof the payments market.

Jared Degnan is a marketing specialist for ICBA Services Network. Reach him at jared.degnan@icba.org.

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LEARN MOREEvery bank needs to offer a creditcard program, but not every bankis interested in maintaining its ownportfolio or handling the day-to-day operat ions. Total CardManagement is designed to posi-tion community banks in the creditcard business, while limiting oreliminating their exposure to riskand marketing costs. Communitybanks can offer credit cards thatoffer value to every customer seg-ment without the administrativehassle. To learn more, go towww.icbabancard.com or cal l(703) 841-5102.